Some short-term thinking for investors
The long term is still uncertain, so make hay in the short run, says a U.S. advisory whose Growth Portfolio holds three Canadian stocks.
It seems like a good day for quotes.
You may have heard this Mark Twain saying a few times lately in relation to the markets. "History doesn't repeat itself, but it does rhyme."
Then there is a more sombre quote from famed economist John Maynard Keynes. “The long run is a misleading guide to current affairs. In the long run we are all dead.”
A U.S. advisory we often consult uses both quotes to turn one piece of investment wisdom on its head. Don’t sweat the long term, it says.
Mr. Elliott H. Gue, editor of Personal Finance, has a quote of his own: “Now isn’t the time to stare at distant storm clouds while ignoring near-term opportunity.”
He tells us why the short term matters today and adds one strong recommendation from the advisory’s Growth Portfolio.
But we’ll begin by taking a detour to consider the three Canadian stocks in that portfolio.
Three Canadian stocks
Since June of 2009, the world’s top uranium producer, Cameco Corp. (TSX-CCO; NYSE-CCJ) has been in this advisory’s Growth Portfolio. It is a buy up to US$35 and trades in New York at $27.22. In Toronto, it trades at $27.75 and yields 1 per cent on the $0.28 dividend.
Goldcorp. (TSX-G; NYSE-GG) has been in the portfolio since Christmas Eve, 2008. It’s a buy under US$45 and trades at $37.27 on the NYSE. On the TSX, the shares are at $38.19 and yield 0.5 per cent on the dividend of $0.18.
Conglomerate Brookfield Asset Management (TSX-BAM.A; NYSE-BAM) has been in this portfolio for almost five years, but the advisory has it as a hold right now. In Toronto, Brookfield stands at $26.03 and is yielding 2 per cent on its $0.53 dividend.
We’ll leave these Canadian stocks in the capable hands of U.S. investors and return to Mr. Gue for some productive short-term thinking.
The pace of growth
As we know, both the stock market and the economy have improved since March 2009, when the market hit bottom and the economy was stuck in what could only be called a recession.
But unemployment remains high in the U.S. and most other developed countries, says Mr. Gue. “And the pace of growth hasn’t been as robust as in other economic cycles.”
Still, Mr. Twain’s historical quote has validity, says the editor. Events may not follow the past slavishly, but we can reasonably expect certain patterns to emerge.
Thus the stock market always hits bottom and begins to rebound before the economy does. So it was this time — the market started to roar about five months before economic data began to perk up.
But how sound will the recovery be and how long will it take? History does not teach us that each recovery is a mirror image of the last one.
A global financial hurricane
“I’m sympathetic to the fears of those who remain skeptical of the recent rally and economic rebound,” says this editor. “The US and other developed countries face severe long-term headwinds.”
The murky problems revealed by the debt crisis in Greece may still cause worldwide shock waves, Mr. Gue says.
“A sudden spike in U.S. interest rates akin to what Greece has experienced would produce a global financial hurricane of epic proportions. Such an event is a remote possibility over the next five years.”
Still, he adds, the mere possibility of such a scare in the U.S. shows just how fragile the world financial system is.
Making hay
This brings Mr. Keynes’ quote into play. Do not let long-term prospects weigh you down, says the editor.
“Amid volatile markets, you must take advantage of powerful cyclical rallies such as the one we’ve experienced over the past year. If you fail to make hay while the proverbial sun shines, you’re doomed to a period of sub-par returns.”
He adds: “Cyclical trends continue to improve, and my market bias remains bullish.”
U.S. fourth quarter GDP was revised higher from 5.7 to 5.9. One of the biggest factors in this upswing was investment in Information Processing Equipment and Software.
This bodes well for networking giant Cisco Systems (NASDQ-CSCO). The company recently introduced a high-speed router capable of handling three times as much data as its predecessor. This dovetails with the explosion in demand for bandwith-hungry devices like Internet video, which will force many companies to upgrade their networks.
Cisco is a buy up to $29. It is trading at $26.74 and like many high-tech firms does not yet pay a dividend.
Mr. Keynes had another quote: “Successful investing is anticipating the anticipations of others.” If this editor is right, we should be anticipating those anticipations now, whenever a good opportunity raises its head.
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