The baby boomers’ bull market may have become a bear, says this analyst, but there are still stocks to buy, like three mining firms.
This bear market is the second worst in the history of North America over the past hundred years.
In short, the so-called baby boomer generation has surely come closer than it ever expected to repeating the experience of its forebears in the 1929-1932 bear market that dragged the world into the Great Depression.
In the meantime, market rallies tease investors with the thought that finally, things may be turning around.
While you shouldn’t expect a bull market overnight, Mr. David Chapman says, you can trade profitably during these rallies.
Writing in Investor’s Digest of Canada, he concedes that any such trading must be done with care. We’ll take a closer look at what he has to say about this very jumpy market and how to deal with it.
Let’s start with some stocks you can actually buy. This analyst has three of them, and they may seem to be rather daring choices.
But the criteria at Mr. Chapman’s shop, Union Securities, makes these three stocks buys for the longer run. In fact, they could be the forerunners of a new bubble.
Three metal stocks
With the exception of gold, metal stocks have pretty much been in the dumps since the economy began to drag its tail. And gold stocks haven’t exactly been models of consistency, either.
But here are three Canadian metal stocks you should “have a look at,” Mr. Chapman says.
First is First Quantum Minerals (TSX: T.FM, Stock Forum), “a giant metals and mining company primarily in Africa in gold, copper and cobalt.”
Another firm showing positive signs is Inmet Mining (TSX: T.IMN, Stock Forum), which also has a global reach, with resources in copper, zinc and gold.
Finally, there is a company with all of its resources in Canada. Hudbay Minerals (TSX: T.HBM, Stock Forum) mines copper, zinc and precious metals in Manitoba, Saskatchewan and Ontario.
Base metal prices have been making headway, and so have the prices of these three stocks. In a market that is still “dangerous,” the analyst says, these three metal stocks stand out as buys.
Mr. Chapman takes the measure of the danger in the market. Using the Dow Jones Industrial Average as benchmark, this bear market has gone on longer than the financial panic of 1936-37.
But it is still almost 200 days shorter than the average bear market in the past century. The analyst calls it “the boomers’ collapse.” Members of the boomer generation have been at the controls during through the years of boom that came just before the breakdown.
Generation X will have to clean it up, he adds. And maybe the generation after that, as well.
The chairman of the Federal Reserve Board is a boomer and so are many of those in positions of power in politics and business. This is a generation that launched the counterculture of the 1960s and then grew more conservative with age.
So how conservative should this, or any other generation for that matter, be with its investments today?
Not sure about bank stocks
Fund managers are talking up the low valuations to be had in the market, says Mr. Chapman, particularly with bank stocks.
While the risk is still rather high, the dividends are healthy, say these bank stock enthusiasts. But Mr. Chapman is not so sure. He is not among those who believe Canada’s big banks would never cut their dividends.
Those same fund mangers preach the virtues of taking the long-term view. But how long, asks this analyst? If you were invested at the peak of the bull market, this market has to more than double for you to get your money back.
The market high reached in 1929 wasn’t seen again until 1954, 25 years later. Another unhappy prospect for the suddenly unloved boomer — if you’re on the cusp of retirement, a recovery of that magnitude could pretty much take the rest of your life.
There is good news of sorts. Some of the bear market rallies that roar through the markets are “tradeable” in Mr. Chapman’s view.
But you’re only counting on a temporary rebound, not the dawn of a new bull market. “We have not yet determined where the low is,” says this analyst, “and trying to call it is just bottom-fishing. That’s fine for traders, but one should not confuse that by calling it an investment plan.”
Your investment plan should be grounded in three safer options. The safest is short-term money market funds. Of course they don’t pay much.
Corporate bonds do, but you should keep the terms short, says the analyst, since the risk for most companies is still high.
Option number three brings us back to metals. “All the evidence suggests that one should be in gold right now,” says Mr. Chapman. While the Dow Jones has outperformed gold over the past 25 years, that lead is being whittled away, he states. And that’s where there’s a bubble in the works, he informs his Investor’s Digest of Canada readers.
“The financial, economic and political events we are witnessing ensure that we will have another bubble — only this time it will be a commodity bubble, led by gold and gold stocks and even metal stocks.”
If you’re a baby boomer, you’ve been through more bubbles than a champagne supper. If this analyst is right, you may want to get in on the next one while the getting’s good.