Editor’s note: This article was first published in April 2014; it is a market outlook, and every recommendation it makes, from US Treasuries and a stronger dollar to avoiding emerging markets and Twitter and Facebook, reflects conditions at the time.
At times of uncertainty like these, it is hard to know whether the economy is improving or whether the sharp correction the markets are going through could end up turning into a downward change in trend.
What is certain is that volatility is quite high right now. For Gary Shilling, some markets and stocks in certain industries carry much more risk than others, while his new reports point to other investment opportunities.
(Read: Which markets to invest in for 2014? The real emerging markets)
In his latest report of 2014, Gary Shilling gives us his own view on which kinds of investments could be the most profitable and which ones carry too much downside doubt.
The most profitable investments
Shilling points to US Treasury bonds as a good investment. He also thinks the market for small luxuries will continue to be good business. He is clearly bullish on the dollar, especially against the euro.
He advises investing in companies that in some way help large corporations boost their productivity, since productivity and cost cutting are the bible for listed companies today. He also recommends investing in North American energy producers.
He recommends shares in consumer staples companies.
(Read: Which companies to invest in? We analyse stocks from the outside in)
Very unattractive investments
Shilling doesn’t have much faith in a construction boom, so he considers investing in construction companies and anything related to construction very unattractive. In his view most of these companies are still dealing with the problems inherited from the bubble years, and the market of potential middle-class home buyers who can afford to borrow is still limited.
He advises against consumer discretionary stocks*.
*Consumer discretionary stocks are companies such as McDonald’s, Walt Disney, Ford Motor Company and Comcast, while consumer staples stocks (which he rates as a buy) cover products such as food, medical products and personal care products.
He advises against investing in emerging-market stocks, as these countries are showing a slight slowdown.
He also sees little appeal in shares of small and mid-sized banks, and advises avoiding junk stocks (penny stocks with a very small market capitalisation) for now, as the uncertainty could push many of them back into liquidity problems.
Personal view
I agree with most of Gary Shilling’s recommendations. For our part, looking ahead, we continue to recommend the solar and wind energy industry. And although we advise against tech stocks given their high valuations, if this severe correction in technology shares continues, it could give us an ideal price to buy Google and Apple, and we are also strengthening our bet on Lenovo.
We still advise against stocks like Twitter and Facebook outside of purely speculative trades.
Further reading
Featured image: Sealy j, CC BY-SA 4.0, via Wikimedia Commons.
