Don Coxe – Investment Recommendations (May 2011)

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The May edition of Donald Coxe’s Basic Points research report (subtitled “Naught’s Had; All Spent”) has just been published. His investment recommendations, as summarized in this document, are listed in the paragraphs below, but I do recommend you also read the full report at the bottom of the post. (Also note that Donald’s weekly webcasts can be accessed from the sidebar of the Investment Postcards site.)

1.  Reduce overall equity exposures, particularly to non-Canadian financial stocks.

2.  Maintain commodity stock weightings in balanced portfolios, because their value proposition is clearer than that of most groups.

3.  Hold high exposure to gold and gold stocks—the bad news investments.

The protection they offer is going to be more valuable in coming months. It has been a long time since the stocks outperformed bullion but that could be coming: in the Seventies, it took years for the stocks to catch up. Silver and silver stocks are for those of speculative bent.

4.  Maintain strong weighting in energy stocks, emphasizing oil and coal producers. Canada’s oil sands producers were in the winners’ circle after the Canadian elections, in which the electors voted for financial stability, good management, and economic growth. The oil sands companies are Canada’s biggest private sector capital spenders, and their strategic value to North America is becoming clearer to all but the idiotic.

5.    It is no secret to our clients that we have been big boosters of agricultural stocks since 2006. The investment case for this sector is stronger than ever, and the problems for the economically-sensitive commodity sectors make food—at the farm gate—a particularly appetizing investment theme. Underweight exposure to packers and processors, who may have great difficulty in passing along their raw food costs.

6.  The Canadian dollar should hold its own against the greenback as that beaten-down currency rallies from its lows, although we think it will have trouble outperforming. The US dollar can be expected to benefit from its comparison with the bleak situations in the heavyweight yen and eurozones.

Canadian bonds have appeal for investors located anywhere, now that the election risks are out of the way. Canada’s constitution asserts that the nation is dedicated to “Peace, Order and Good Government.” This is a rather modest variant of the US promise of “Life, Liberty and the Pursuit of Happiness.” From a risk-averse bond investor’s standpoint, those Canadian goals are commendable and reassuring. That the loonie doesn’t soar relative to the greenback should be a boon to much of the Canadian economy.

7.  Scale back exposure to Treasurys in favor of quality corporate bonds. Avoid joining the mad rush to junk bonds.

8.  The LinkedIn offering orgasm was not a sign of a market heading higher. When a stock can sell at more than 100 times the company’s revenues, it is a sign that there’s too much money around, and speculators are desperate to find something that works.


Source: Scribd, May 26, 2011.

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