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Money Matters

November 14, 2022 by Scott Crosby - Views: 26

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Investors Column

The Fed has been raising interest rates, trying to slow inflation by “tightening” the money supply – i.e., making it more expensive to borrow money.  That lowers the value of companies generally.  So stock prices will fall.

Nonetheless, November’s first reports on manufacturing and job openings indicate the economy remains strong.  

S454-1.jpgThe VIX (described in the October issue’s Investors Column) has been in a slow decline from its peak of almost three weeks ago.  It has finally dropped back below 30 and is on par with its level for most of September.  

There is no doubt that the market has been on a roller coaster since November of 2021.  Do not expect that behavior to change.  

But if manufacturing is strong, and people are employed, then businesses are adapting to the current economic conditions.  

That is not to say economic conditions are good – neither Congress nor the President nor Russia’s war against Ukraine are acting in the best interest of American wage-earners and families – but it shows that businesses are making do as best they can in a semi-hostile environment.

With that in mind, it should be possible for you to make some successful investments.  What stocks should you be investing in right now?  

As always, do your research on any company before buying stock.  That is even more crucial in a difficult environment.  Push the odds in your favor as much as you can.

Also, understand that the upward movement in stock values seen in October may be entirely short-lived.  Stock prices may be too low, but just for the short-term.  Expect “corrections”.  The current conditions are still regarded as a ”bear-market rally” (see the August issue’s Investors Column) – i.e., not a true return to economic improvement and growth.  “Lower lows are still ahead,” says one investing analyst.  He believes the economy – and the stock market – should bottom out in mid-2023.  

Until then, be wary of any indications that the bear market rally is over and that the downturn has resumed.  If you made money, now might be the time to sell some of those  stocks.  Hang on to the cash; you will want it in mid-2023.

Stocks to research:

It is hard to know which manufacturers will be worth your investment.  But most must ship their product by railroad.  learn which railroads serve which parts of the U.S. and Canada.  Find the railroad(s) most likely to grow to meet increased product shipments of a number of manufacturers.  

Discover the major industries you think will be strongest, and consider buying the stock of the railroad(s) transporting their products.  If manufacturing is strong, shipping will be needed, and that railroad’s stock will do well, regardless of what happens to the manufacturer’s stock price.

Medical companies that supply a wide range of products and services can be expected to do well.  Research companies that provide a variety of medical supplies and services.  Also look at home and health products companies.

Despite the anti-oil sentiment, oil products will be needed this winter.  Research various petroleum companies.

Avoid the tech stocks and the communication stocks.  They have been in decline for a year, and still seem to be in a lull.  Stay aware of what the tech stocks are doing, but also be aware that everyone else is doing the same.  Popularity is driving up the tech industry’s stock prices beyond what they should be, and when stock prices fall, theirs will fall disproportionately.  

The same is true for Tesla.  The February 2022 issue’s Investors Column noted that the company’s popularity drove Tesla’s PE ratio was an incredible 188.43.  Tesla stock hit its all-time high in November 2021.  Its stock price has been declining ever since.  Tesla’s PE is still far higher, at 70.75.  The standard PE value is about 17.

A recession scares off the dabbler and dilettante amateur investors, but for the diligent investor who puts forth the effort to learn and to stay informed, profitability is still possible.  

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