Don Coxe – Investment Recommendations (September 2011)

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The September edition of Donald Coxe’s Basic Points research report (subtitled “The Deficient Frontier”) 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.     If possible  within  your  investment guidelines, avoid  European bank stocks.

Deutsche  Bank’s Josef Ackermann  says that  the  situation for European banks  resembles 2008. Such candor is commendable. The collapse of the risk-free sovereign rate of return  for so many  members of the eurozone means  that total portfolio risks are high—and rising.

2.   Avoid investing in US banks that have dubious balance sheets, that give top executives big stock option deals, and that squander Bernanke-supplied funds in stock buybacks.

American bank stocks’ performance has been deteriorating and now the tort lawyers have been freed to sue big banks—possibly for treble damages. This class of raptors  has historically  been the second biggest contributor to Democratic candidates, next only to trade unions.

3.   We recommend that  investors  hold  their current  positions in Canadian oil sands stocks, but exercise caution  about  new commitments.

Perhaps the most important economic policy decision Obama will make this year is to decide on the Keystone XL Pipeline to carry Alberta oil sands oil to Oklahoma and Texas. Will he stand  up to the enviro-fanatics? He has been disappointing them lately, and this might be the Big One he can give them.  That perhaps 100,000 good-paying jobs are at stake might  be enough to make him give the green light. Astonishingly, the world’s second or third largest oil reserves, within  the boundaries of America’s neighbor and long-time ally, are now the subjects—temporarily, perhaps—of great political  risk.

4.   Maintain heavy weighting  in precious metals, emphasizing gold stocks.

They have been good to you for ten years, and they should continue to be so.

5.   Maintain heavy weighting  in agricultural  stocks.

They have (to us, at least) surprisingly high betas, but the endogenous risk in their earnings  is well below that of most  cyclical stocks—commodity and otherwise.

6.   Retain strong exposure to US oil producers operating on land.

The spread between  West Texas and Brent oil remains  at levels that must be infuriating to  European governments. So does  the  spread  between  US natural gas and European prices. Energy is, at the moment, the most conspicuous competitive advantage  the US possesses. Paradoxically,  it is the sector the Left reviles the most.

7.   Prices of copper and iron ore remain  at levels that appear to rule out any global economic slowdown. Strikes and floods have sustained base metal prices—but only demand can keep them at these levels. We don’t see that rescue on the horizon. Underweight base metals.

8.   Bond investors should be sure that they are earning yields commensurate with the risks they are almost forced to assume at a time of surreal interest  rates.

It is almost an Alice-in-Wonderland world when some prominent members of the  asset class delivering  the  worst  investment shocks—government bonds—can get away with  paying  record low  rates to  investors.  Why subsidize  poor  economic management by lending governments money  at risible interest  rates? Better to rely on income  from great corporations through dividends.

9.   The Canadian dollar is suddenly looking  weak.

Canadian economic performance is stuttering because of the slowdown in exports to the USA. Otherwise,  Canada  should remain, in our view, a haven country  for investors.

Canadian banks remain vastly more attractive than their American or European brethren—even if that might not be saying very much.

Canadian government bonds are higher quality than Treasurys—and they offer slightly higher yields.

US corporate bonds look attractive relative to Treasurys—and  a handful actually have higher ratings.

10. Bullet-proof  dividend paying  stocks with  a record  of sustained payout  growth  should be  the  core investment asset class for income-oriented investors, as long as central banks continue to suppress interest rates, and as long as the Deficient Frontier exists.

Earnings growth  forecasts are worth  less in a mini-stagflationary world. Take the money now, and quarterly thereafter, and don’t fret unduly about the relative price performance of your stockholdings.

Source: Scribd, September 20, 2011.

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1 comment to Don Coxe – Investment Recommendations (September 2011)

  • Thom Mitchell

    Thank you very much for making Don Coxe’s “Basic Polint” available in the condensed form. A lot of us will not take one-half an hour to listen to his tape; especially since he basically says almost the same thing each month.

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