By Mitchell Clark, B.Comm. — Ahead of the Street column
There really aren’t a lot of actionable trades to be made in equities at this particular point in time. It’s earnings season, and you can trade around the news, but there are no screaming buys in this market. Everything’s gone up already.
Just owning the market is one of the best holdings right now. Despite all the growth news in China, the wind has been knocked out of a lot of U.S.-listed Chinese stocks. The reason why? They’ve already been played, and growth rates are slowing.
For risk-capital traders, I’d be more focused on precious-metals plays. This sector just has better fundamentals in my mind, and at the end of the day, strong metal prices reflect the growing economy in China anyway.
Any balanced equity portfolio should already have some gold exposure. However, as a speculator, you don’t by any means have to concentrate on this popular precious metal. There are lots of attractive, growing producers that focus on silver and copper. These two precious metals don’t get the same kind of headlines as gold, but they are great plays on industrialization and infrastructure spending.
Right now, mining companies are operating with an excellent fundamental backdrop. Demand for precious metals is rising as the world comes out of recession. Supply, while growing, still remains fairly static. Interest rates are low, and the stock market is going up, so there’s no shortage of money available for exploration and development. Finally, there’s a solid appetite from institutional investors to own mining shares. Big investors like the current backdrop of a weaker dollar, stable-to-strong spot prices and good production growth from the industry. Without much top- and bottom-line growth in other industries, mutual and pension funds are looking at precious metals for enhanced returns.
So, it’s a good time to be in the mining business and a good time to be in the mining-investment business, but, like most other stocks, it’s getting more difficult to buy low and sell high. A lot of these stocks have already gone up in value.
Similar to the market for oil, you have to wonder what’s going to happen to precious-metal prices when we enter a strong inflationary period. Right now, the inflation data suggests that consumer prices are under control, but there’s just so much loose money floating around the globe that an inflationary spike is inevitable. Again, this is another good fundamental for spot prices.
Like I say, it’s a tough stock market in which to be a new buyer, because most stocks have already gone up in price. There isn’t a lot of value in the marketplace at this particular point in time. Other than owning the market, investors don’t need to rush into any new positions. What we need is a major correction to present an attractive new entry point.