Getting Out of Dollars and Being Cheap About It

by: Hedgephone

So after a long bout of thinking with regards to the runaway move in gold and silver, I am looking for stocks to buy and stocks to short. I believe small companies fare worse during stagflation, which is what I believe we are facing today economically. So, I would want to find some overvalued small caps to hedge my US dollar undervalued small caps against... Western Digital (NYSE:WDC) looks cheap against Salesforce (NYSE:CRM), eBay (NASDAQ:EBAY) cheap vs. Amazon (NASDAQ:AMZN), etc.... Although it is based in sound logic, this strategy has drawbacks as well as underperforming gold.

So are there any alternatives to buying gold that guard against the same debt expansion/explosion risks that gold provides? I believe there are several stocks worth owning in this case:

Freeport McMoRan (NYSE:FCX): Trading at 11X earnings and 9X forward earnings, Freeport is not a dollar risk to your portfolio and has a large margin of safety from a reserves standpoint -- they have a huge store of gold and silver in the ground that dwarfs the current market cap... giving it an asset as well as cash flow valuation story.

B+H Ocean Carriers (NYSEMKT:BHO): A small Liberian shipper trading on the NYSE with a 25MM market cap and 74MM in net tangible book value... The writeoffs may be over as they posted a profit in the recent quarter... This was a seemingly cheap name at $15 in years past so be careful here... but upside is significant.

Noble Corp. (NYSE:NE): Noble trading at 6X earnings is compelling given they are a Swiss based company drilling for oil... A hard asset play with a large cash on cash return. Selling calls against the stock here is advisable.

Bunge (NYSE:BG): Cash flow here is a bit disconcerting but the discount to book is attractive as is the industry group (agribusiness).

Seaboard Corp. (NYSEMKT:SEB): Pork, the other white meat.... Seaboard is the Berkshire Hathaway (NYSE:BRK.A) of pork as far as I can tell... IF food prices rise enough for SEB to cover their input cost increases, SEB can fly. Try waiting for the stock to come a bit closer to BV per share.

iShares Silver Trust (NYSEARCA:SLV): I'm still bullish on this (check my calls on it all summer) but it's hard to hold onto to something up this much...

Long SGG (iShares sugar ETN) and Pepsico (NYSE:PEP) or Coca-Cola (NYSE:KO) in similar amounts: This is an interesting pair trade -- Sugar futures are in backwardization meaning you are paid to own them, and PEP depends on sugar prices staying low, plus they are diversified with international business.

In the end, it appears that nothing beats gold for protection from Uncle Sam's printing press, however, and GLD (SPDR Gold Trust ETF) is vehicle of choice this year. I know, it's frustrating, so buy some SGG and some KO, smile, and shut up about it.

I would advise being hedged here.

Disclosure: Long all investments mentioned, short CRM, IWM with puts, CMG, AMZN