FYI | Aug 14 2019
By Peter Switzer, Switzer Super Report
Should you buy these 8 stocks that defied China’s currency fall?
For those worried about the Trump versus China trade war and who want to make their portfolio of stocks more resilient to the fall out if a trade deal fails, let’s look at stocks that didn’t overreact to the bad market reactions to China’s currency devaluation.
When bad news hits, most stocks sink. But the smarties look to play defence before defence is needed and go fishing for stocks that fall into this category.
What I’m saying is this: if we can imagine a rally following a trade deal, growth stocks would take off, so the courageous should be buying them now. However, defence stocks could be good value for an eventual sell off ahead of a recession, which could happen some time down the track. I’m being contrarian wanting to buy defensive stocks, not now, but when growth stocks react positively to a trade deal.
But what stocks might be resistant to negativity down the track?
Last week, Telstra (TLS) dropped but quickly recovered, showing that there are dip buyers when this stock gives into gravity. In any trade war-created economic slowdown (or recession), this stock would show resilience.
Amcor (AMC) reacted in a similar way and, like Telstra, nearly ended higher. You might be thinking a recession would hurt a box-company like Amcor but most economists who think a US recession is on the horizon still argue it won’t be a GFC-style dramatic one.
AMP (AMP) rose on the new plan to change the business, along with the second shot at selling its insurance business. Also, the good showing by AMP Capital excited some players. The stock is still so low that it probably didn’t have very far to fall but as I said in my Saturday Switzer Report article, “Morgan Stanley increased its price target on AMP and upgraded the stock from ‘underweight’ to ‘equal-weight’, saying the resurrected $3 billion sale of its life business paved the way for a new beginning.” (SMH) But note its target price is up from $1.50 to $1.65, yet it’s now $1.90!
Centuria Capital Group (CNI) plays in the REIT space but the company had a trouble-free week last week. My company has had a bit to do with these guys and their individual buildings that have come to market as private funds have done well. Their listed business seems to be well-received by the pros at the moment.
James Hardie (JHX) had a great week, with the company pointing to its North American business as a winner. At home, the CEO Jack Truong thinks he’ll win market share in a challenged housing sector.
That said, a solid performance from its much larger North American business, where profits and margins increased in the June quarter, sparked a 14% rise in the James Hardie share price, by noon on Friday to $21.68.
Woolworths looks like the classic stock that pros will buy after a fall in share price because of a trade war panic. It went close to losing nothing last week, which indicates that it’s the kind of stock that will be in demand if Donald puts the trade cat amongst the pigeons.
Not surprisingly, gold was a big winner and Newcrest is the quality play. Sure, it has been bid up because gold stocks are reacting to the bond market’s sinking yields and the uncertainty created by Donald, China, North Korea and Iran. When it gets complicated and there’s recession talk, gold becomes popular.
And what about Resmed? It had a week that pretty well ignored the currency threat!
Clearly, the sleep sufferers of the world will not be deterred by Donald, China or anything trade scary!
These are the stocks you might not want to collect if there’s a trade deal because they are likely to lose friends. But they could well be some friends when market fears eventually return.
AMP looks to be a special one that’s hardly defensive but because it has been beaten up so much, there could be value for those who like to buy and hold, if the market sells off on trade concerns.
The other selections above do look like sturdy types that might help preserve more capital than others when stock markets get well and truly spooked.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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