Filed under: Investing Basics, Commodities & Futures, Stock Markets, Investing
The Dow Jones Industrials (^DJI) and the S&P 500 (^GSPC) have both climbed to new record levels recently, producing gains of almost 20 percent so far in 2013 as of July 18. Yet given how far stocks have come since the market’s meltdown in 2009 — the S&P 500 has risen more than 150 percent since then — some investors worry that buying stocks now is bound to turn out badly.
Before you swear off stock investing entirely, you should realize that not all stocks have equal prospects. Even with the market trading at highs, some stocks haven’t seen the same gains as the Dow and S&P. Moreover, even some stocks that are at or near their own record levels have the fundamental business strength to justify their share prices.
Let’s take a look at these two categories with some tips on how to find good stocks even with markets at record highs.
Strategy 1: Focus On Beaten-Down Industries.
Bull markets rarely take every stock higher. Inevitably, you’ll find some companies or industries that suffer setbacks and end up being big laggards. If the conditions that created those setbacks reverse themselves, though, then beaten-down stocks can catch up with market gains quickly.
We’ve already seen that phenomenon with homebuilders’ stocks. From 2009 to 2012, even as the rest of the economy started picking up steam, homebuilders performed badly as the housing market kept failing to post lasting home-price gains. In 2012, though, housing finally started showing considerable gains, with home prices rising double-digit percentages in the past year.
One possible place to look for a turnaround today is in commodity stocks.
A weak global economy has reduced demand for industrial metals like aluminum and copper, sending prices plunging and hurting producers like Alcoa (AA) and firms that that mine and refine those metals like Freeport-McMoRan Copper & Gold (FCX). Also, with fears of inflation and economic instability having significantly abated, gold and silver have seen dramatic price declines, and precious-metals mining stocks like Goldcorp (GG) and Barrick Gold (ABX) have fallen sharply as well. Those adverse conditions could last well into the future, but eventually, if the global economy starts to regain its strength, then commodity demand should rise and pull commodity-related stocks up.
Keep in mind, though, that turnarounds can take a long time to materialize. If you don’t have the patience to wait for other investors to see the promise of a struggling industry, then this strategy could leave you frustrated for months or even years into the future.
Strategy 2: Seek Out High-Flying Values.
Just because a stock trades at all-time highs doesn’t mean it’s not a good value. If a company expects its sales and income to grow at a fast rate in the future, …read more
Source: FULL ARTICLE at DailyFinance