Once there's a more attractive entry point for new positions, Mitchell recommends considering investing in stocks in these three top sectors for stock market speculators in 2011.
Very good earnings continue to flow from smaller companies. This is a great sign that the economic recovery is real and not just due to growth in other regions of the globe. The stock market in my view is getting very close to being fully valued, with all the good news factored into valuations. Most companies that reported solid earnings have share prices trading right around new 52-week highs. This makes life more difficult for investors looking to take on new positions.
There isn’t a lot of value in the marketplace at this time, and we need a correction to provide a more attractive entry point for new positions. I would still be long, however, as investor sentiment seems strong enough to keep the market ticking higher.
The one group that continues to be in the doldrums consists of U.S.-listed Chinese shares. There are a lot of great values in this sector, but they remain highly speculative obviously. Institutional investors have been avoiding this sector for the most part on concerns about accounting standards. In response, a number of these Chinese companies are changing their auditors to the big, brand-name firms that global investors recognize. As I say, the lack of interest in this sector has created some excellent values for investors and I would be buying some of these stocks in this market.
The other group that’s been an excellent performer for speculators is mining stocks. But because precious metal prices are now trading close to their highs, as are most of the good stocks within this group. This means that there isn’t a lot of value for investors at this particular time.
So, other than being long the market, there isn’t a lot of action I would take right now. In equities, everything’s already gone up and the returns going forward are incremental. If there was a significant correction (which would actually be a healthy development and I do expect to happen), I would definitely be a new buyer of mining shares. The cash if flowing like mad in this industry and we’re going to see all kinds of takeovers and mergers this year. In fact, it’s already going on.
A number of professional investors like the healthcare sector and I agree with that view. There have been quite a few new listings on the stock market from biotechnology companies, and speculators can be looking here as well. Given the current state of things, however, there’s no big need to be a new buyer of stocks. Share prices now are becoming stretched.
Iconic Chart Shows Biggest Devaluation of Our Generation
Yesterday, China’s central bank said its foreign-exchange reserves have hit $3.0 trillion for the first time in its history. China is awash in dollars. The U.S. itself has too many dollars floating in its financial system. Is it any wonder the U.S. dollar is collapsing in value against a basket of currencies made up of other major currencies?
Taking Stock: A Lot of Good News Already Priced Into Stocks
Most capital markets are due for a correction and that makes it more difficult to be a new buyer of stocks, bonds or commodities right now. All you have to do in the equity market is pull up a one-year stock chart on the S&P 500 Index and you’ll see the tremendous capital gain. The market has already priced in strong first-quarter earnings and, if companies don’t announce strong second-quarter visibility, share prices will retreat. So, what's next for investors?
A Safer Way to Invest in China: The Large-cap Chinese ETF
Playing the Chinese capital markets involves excessive political and economic risk. While the risk is high in trading Chinese stocks, especially of the small-cap variety and for smaller trading accounts given the current selling of Chinese reverse merger stocks, there's another, lower risk way you could play China.
