Based on what I am reading this is a difficult time for investors. The market has moved up in the first five weeks of the year more than most experts thought, and many are now just holding cash until there is a significant dip, which many predict.
Those that predicted that the dollar would rise against the Euro have not been proven right, and the Euro has strengthened against the dollar.
Gold diggers and commodity investors have been disappointed, and recently those oil bulls have realized that the price of oil is likely to decline as we extract more oil from shale, and usage goes down with more efficient cars and other technology. But, in line with a recommendation I made some time ago, many experts remain bullish on copper until next winter. Copper prices have risen most years in February and March.
I see a lot of stocks touted. A recent review of KLA-Tencor (Nasdaq: KLAC) suggests that this company, because it services the leading chip makers, is a good investment because that’s a growing industry and this is safer than investing directly in a chip manufacturer. The problem is that as soon as a report like this gets out the stock moves up higher than the recommended price so it no longer is a good investment. Still, even though it is recommended at $54 a share, and has just gone up to over $56, it might still be a good move. Certainly selling puts at a strike price of 55 would seem to be a good idea. Then you either just keep the premium received, if the stock keeps going up, or you acquire it at an effective price of $54 if the stock moves down.
A few recently touted stocks that still look promising to me are DLB, MON, GLW, EIRC, and especially EMC. These are not for the conservative investor, but for someone that wants to take a chance on good companies in favorable economic areas at this moment in time. So one has to stay on top of them and get out when they meet profit goals.
For myself, I invested a bit into some Asian ETFs, and I am waiting for a dip in the S&P index, at which time I will put some money there. I rode Bank of America up from $5 a share to $12, and now it seems to have leveled off. So selling a call spread at $12 might be a good investment.
I rode Whirlpool up from $55 to $85, and it is now about $106 and seems to have leveled off, so selling a call spread there at $110 might be a good idea. It seems unlikely to go above that for the next 90 days.
I took my profits on DLX, in spite of my belief that companies involved in 3D printing will be a good investment for the future. My thinking is that the future for those profits might be too far forward, and I’m not that young. And the stock went up 33 percent since I bought it, so one would expect it to level off for a while until some new event occurs.
Since interest rates are likely to stay low for a long time, where can one put money and expect a reasonable return? The dividends for most stocks are not much above the level of inflation, so one would have to hope for an increase in the stock price to see any significant benefit. Short-term bond funds are not a bad idea, and can produce a yield of 4 to 5 percent. But be careful to stay with funds limited to bonds with less than two years to maturity. Interest rates can’t stay low forever, and when they start to go up the bonds quickly lose value.
Well, in spite of the conservative mood that has come over many of us, there are still a lot of really good companies out there with low stock prices and good economic statistics. I like those that control a known brand. Among those that look good to me are the following:
McDonald’s, CBS, Schlumberger, and General Electric all look like good companies with good prospects for the year. And of course Apple is still thought by many to be the best buy out there.
For information about Merv Hecht and more details on the strategies and stocks he writes about in this column, visit his website at DoubleYourYield.com.