Editor’s note: This article was first published in January 2018. Its figures are from January 2018: Amazon at $1,250 with a P/E of 315 (before its 2022 20-for-1 split), Jeff Bezos as the world’s richest man, and the Catalonia conflict weighing on the IBEX 35. DIA collapsed in 2019 and stopped paying dividends, and Fluidra merged with Zodiac in 2018.
Over the past five years, equities have performed exceptionally well, to the point that the share prices of the main companies have done nothing but rise, giving way to a logical fear that the bull run could stall in 2018.
These factors need to be kept in mind in the face of a fear that may be real. Although we wouldn’t necessarily see a stock market crash, we could well witness a sharp correction in the US market. But, as we always insist, nobody can know this for certain, and anyone who says they know is lying to you.
If you’re looking for an overview of the options for investing your money, I’ve put together an update in this article: What to invest your money in, 2019 edition.
With that possibility in mind, for those holding US shares that have risen sharply, there is, in principle, no reason to sell. For those who, on the other hand, are outside these markets and want to get in, drawn by the high returns achieved so far, just remember that “past performance does not guarantee future returns”. With that said, let’s look at which markets, industries, sectors and indices we think could be the most profitable.
We’ve divided the article into favourite individual stocks, stocks to invest in for dividends, indices we think may be lagging and have room to appreciate, and, of course, we’ll take a look at our own IBEX 35 (Spain’s benchmark index).
Which US stocks should you invest in? These are my favourites
On this front, I haven’t changed my mind much about the stocks I think will keep doing very well in terms of sales and profit growth.
Amazon and Google
Is Amazon still worth investing in?
In my opinion, yes. (Disclosure: I’m an Amazon shareholder.) I’ve already included Amazon (NASDAQ: AMZN) among the companies that will dominate the world. Jeff Bezos’s company (he is currently the richest man in the world) is going all out. It has more and more products of its own and offers more services in different sectors.
In my view, Amazon still has enormous growth potential. Although its price right now could be considered too high ($1,250 and a P/E ratio of 315), for anyone not yet holding it I’d recommend investing for the long term and being ready to average down in the event of corrections (the DCA strategy).
As for Alphabet – Google (NASDAQ: GOOGL), there’s little more we can say. Like Amazon, Google’s returns have been excellent in recent years, as excellent as its profits. I don’t think it will do any worse in 2018.
As tech companies, they are undoubtedly my favourites because of their growth potential.
And if we’re talking about growth potential and looking for companies that stand out for the products they sell, and whose names are synonymous with quality, efficiency and reliability, we can’t overlook Intel (NASDAQ: INTC) and Nvidia (NASDAQ: NVDA), leaders in processors and graphics cards respectively.
What to invest in if you don’t want exposure to US tech companies
If for some reason you don’t feel comfortable holding shares in the tech giants but want US stocks, the recommendation would be to invest in energy, healthcare and financial stocks.
Although the experts recommend avoiding banks, I personally still recommend Wells Fargo and JPMorgan Chase. Both are at all-time highs and, if things don’t take a turn for the worse, they could do well in 2018. That said, I would have stop-loss orders ready, because if problems arise, the financial sector could be the one investors abandon fastest. Visa is another company that has delivered excellent returns and is at all-time highs.
As for energy and healthcare stocks, it’s up to each investor to do their homework and analyse the leading companies in these sectors very carefully before making their own decision to buy.
Japan and China: an investment opportunity
While in the United States investors are facing their fears as they watch indices and stocks at all-time highs, in Japan we have the Nikkei and its stocks still far below the all-time highs they reached decades ago.
The Nikkei has been a long-lagging index that broke the theory that indices always end up rising.
Now there’s a trend that has lasted almost 8 consecutive quarters of gains. The Japanese government is doing everything it can to boost the economy, to the point of printing money to invest in its own country’s shares.
The Nikkei could give us a pleasant upside surprise in 2018, since it’s attracting money from many investors leaving markets at all-time highs, in the hope that the Japanese stock market will do what the other markets have done: break through its all-time highs. If it managed that, we’d be talking about a rise of roughly 50%, but of course, that would be counting our chickens before they hatch.
To begin with, the figures provided by investment strategists at the major firms indicate that the Japanese economy is expected to grow by 1.5% in 2018.
The best way to invest in the Japanese stock market?
As in any market, you can analyse and invest in individual stocks, but if you prefer passive investing and want to save yourself the research into individual companies, you can invest through exchange-traded funds (ETFs) or index funds: instead of buying a few eggs, you buy the whole basket.
And what about China?
China’s economy keeps growing because it’s a major exporter. Of course, this also means that if the rest of the world did badly, China would do badly. But as long as the rest of the world is doing well, China will probably do even better.
Even so, if I had to choose between investing in Japan or China, I’d go for Japan, but it never hurts to diversify slightly into both markets.
Spain and our beloved IBEX 35
Our IBEX 35 has fallen too far behind the other European indices. The main problem our index faces is the Catalonia conflict, which, one way or another, will pass and leave us with excellent opportunities to invest in the Spanish stock market, unless every scenario that could go wrong ends up going wrong.
Which are my favourite IBEX 35 stocks?
First, given the doubts about the political problems, we could build an investment portfolio focused on dividends.
If we’re after dividends, I would choose Endesa, Enagás, Mapfre, Iberdrola and DIA, where, whatever the uncertainty, we could at least count on a dividend of between 5% and 7%.
As stocks that could keep growing, I’d look at ArcelorMittal, Acerinox and Amadeus.
If I had to choose a bank, although most people recommend Santander and BBVA, I prefer CaixaBank.
Faes Farma, Merlin and Prim would need to be analysed more closely, although in a bull market they could be stocks that deliver good returns.
See also: All the analysts’ market predictions are failing
And if we turn to small caps, we’ve seen stratospheric rises in stocks such as Fluidra, Europac, Ence and eDreams throughout 2017. I’d urge calm with these small companies. Among the small caps, I’d stick only with Fluidra as a potential winner to keep rising. Personally, I don’t like eDreams, but that’s a matter of taste.
What should we do about cryptocurrencies and Bitcoin?
After a great many articles on Bitcoin, I have nothing new to say about cryptocurrencies. For me, as things stand today, regardless of the rises Bitcoin and the other cryptos have had, it’s still pure speculation within something we’ve seen before throughout history, and which didn’t end at all well for those who got in attracted by high returns.
We can’t analyse anything at all from a financial point of view, because Bitcoin isn’t money and doesn’t behave like money. Practically nobody is buying Bitcoin because they think it will be useful in the future, but because they expect its price to keep rising as it has so far. Bitcoin has a price (which may be high or low), but it lacks value both as a currency and as a safe haven. See: The differences between gold and Bitcoin as a safe haven.
My advice on this remains the same: stay away from investing in cryptos. As with any bubble, we could see rises and new price highs beyond anything we can imagine right now. You might get carried away by greed or envy when you see a friend has made a lot of money from this investment. But nobody sensible will tell you to invest in this product unless you treat it as a speculative game.
And if someone really presses me and forces me to recommend a crypto, I’d actually prefer IOTA to Bitcoin.
Remember that one of my premises in investing, and part of my philosophy, is: “Better to be wrong and not win than to be wrong and lose.”
See also: The best book for learning to invest, according to the experts
Featured image: Dick Thomas Johnson, CC BY 2.0, via Flickr.
