Donald Coxe – Investment Recommendations (November 2008)
Donald Coxe’s monthly investment report, entitled “Basic Points” (subtitled “Capitalism Faces Its Greatest Challenge” for the November 2008 edition), has just been published. He is Global Portfolio strategist of BMO Financial Group and widely followed for his “big picture” views.
Like many commentators, Donald was caught by surprise by the rapid financial meltdown and plunging commodity prices. He said: “… we certainly didn’t anticipate the sustained earthquakes and hurricanes we have experienced in recent months.” He argues that it will be a long time before complacency returns, but that the “era of fear” will probably end soon.
1. It is definitely too late to sell stocks, and it is still too early to do more than nibble at bargains. Investors should be opportunistic buyers, because today’s prices for quality stocks will look ridiculously cheap within two years – or less.
2. When the time comes to begin re-accumulating equities, buy banks and diversified financials. If there is going to be a global economic recovery, these former pariahs should perform well – under mostly new management.
3. At the same time, buy commodity-oriented stocks. They are oversold to depths we could not have imagined. When, not if, there is a global economic recovery, these stocks will once again be the winning asset class.
4. While you are waiting, you should be starting to accumulate the bonds – convertible and otherwise – of quality corporations. What could be the trigger for a major equity rally would be a sharp contraction in the near-record yield spread between investment-quality corporates and Treasuries.
5. Buy emerging-market bonds from the fundamentally sound economies, such as China, India, and Brazil. Avoid Eastern European debt.
6. Another group to be included when you are once again accumulating stocks is the leading business-oriented tech stocks. These companies will participate in a global recovery, whereas the consumer-oriented techs may have to wait quite a while.
7. This is also a good time to be looking at the railroad stocks. They benefit from lower energy costs, which may offset a significant percentage of the cutback in top-line revenues during the recession. Coming out the other side, they should be core investments.
8. Gold has been a disappointment. It has outperformed stocks since the S&P’s peaks, but not enough to be profitable. As deflation fears ebb, it will once again be lustrous.
Please click here for the full report.
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