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Attractive trade for active stock pickers

|Includes: AET, BHP, FCX, HUM, MET, PRU, Rio Tinto plc (RIO)

Both S&P500 and DJI have declined almost 2% in the past two sessions. This has given rise to swings in both US dollar index and oil prices. However, tendency of market participants to extrapolate the movement in oil prices to other commodities and base metals in particular is giving rise to some good buying opportunity in this sector. I believe that base metals including aluminum, iron ore and copper are presenting a good opportunity to go long (in the above order) in these metals through either direct or indirect plays. For indirect plays RTP, BHP, FCX and ETFs like UYM and XME. First reason is that base metal prices are not in the asset bubble domain that is showing up in oil prices for example. With oil being the most highly traded commodity it has a lot of speculators also. While oil prices have more than doubled from their March'09 lows on the other hand aluminum prices have risen from March'09 low of around $0.6/lb to only $0.86/lb recently. Iron ore prices are mostly controlled by miners directly so these companies have a better control over pricing to adjust to demand in a more profitable manner.
Second, but even more important in tendency of exaggerating the market moves as a result of short term US dollar index movement. US dollar has risen in past two sessions but this rebound is mainly due to pure technical and oversold situation. However, for US dollar only one theme remains intact and that is for its continuing decline against other major currencies. US government and federal reserve have not shown any true will or intention to stop the decline of its currency. And perhaps any decline in stock market takes away and iota of the remaining will to do so. Another factors that will contribute towards higher base metal prices is the race by most governments to print more of their money. I think these are a better inflation hedge as opposed to gold or other precious metals. So above companies and ETFs are a strong buy candidate on any weakness.
Another important sector for investment is in life and property insurance business. Most US companies in this sector have very good global exposure through subsidiaries or direct access. Some strong names are Prudential (NYSE:PRU), Metlife (NYSE:MET) and Lincoln (NYSE:LNC). Though I would avoid pure health/medical insurance companies like Aetna (NYSE:AET) and Humana (NYSE:HUM) due to unexpected nature of government involvement resulting from administration's new health care proposals. But life insurance sector including PRU and MET are solid investments with a very stable business. There investments are somewhat tied to markets but both these companies have shown strong hedging policies and prudent investment models. Market for their products will rise even further as in fact, some life insurance policies will gain even more market share because they not only offer protection from unexpected life events but also provide income stream after retirement age. And given current market turmoil they will capture more market as common man tries to protect its future income. I rate these two companies as a buy candidate upon pullback.


Disclosure: No position in the tickers mentioned in this article at the time of writing. Will open new positions at attractive entry points in some of these companies.