The U.S. stock market's summer doldrums continue. Wednesday saw the stock market register another data point of ignominious distinction: the S & P 500 entered bear market territory -- a drop of more than 20% from its October 2007 peak.
One would like to make a case for a rebound for the S&P 500 and the DJIA, but current economic fundamentals (unfortunately) make a stronger case for the opposite: sky high gasoline and oil prices, declining disposable income in several income groups, rising inflation, the worst housing market in more than 15 years, the probability of additional, substantial mortgage-backed asset write-offs, more than 400,000 jobs lost in the first six months of 2008. The prognosis: tough times ahead for the Dow. Let's hope it holds psychological support at 11,000 or technical support at 10,750.
If the Dow doesn't hold the above support levels ... well, let's not go there. Instead, let's focus on the positive. Are there any decent plays in these difficult times for the market and economy?
There are, for investors who can tolerate moderate risk or high risk, and who are not interested in a short-term trade of six months or less. These are longer-term investments where the goal is a double-digit, average, annual, total return on equity over 3-5 years. Investors should also be capable of tolerating a 20-25% pull-back.
Reiterating the Fab Five
Potash (NYSE: POT) - Current Price: $216.43, p/e 43. Revised Stop Loss: $170. Potash remains the best of a very good fertilizer bunch, due to its 20% global market share in the namesake fertilizer. Consider buying POT on a pull-back to $211-212 but keep in mind Potash may not retreat to that level.
Mosaic (NYSE: MOS) - Current Price: $137.04, p/e 42. Revised Stop Loss: $97. Mosaic also is well-positioned in phosphate and crop nutrients. Further, the fact that 66% of its revenue is internationally-based is especially appealing, given the U.S. economic slowdown.
Transocean (NYSE: RIG) - Current Price: $145.30, p/e 10. Revised Stop Loss: $110. RIG offers deepwater oil drilling services in all regions of the world, and it's an oil-thirsty world.
Freeport-McMoran (NYSE: FCX) - Current Price: $103.76, p/e 13. Revised Stop Loss: $69. Copper / gold / molybdenum miner Freeport is one of a handful of companies that have the economies of scale to compete in the global mining sector of the early 21st century, and it boasts impressive clients, to boot.
CSX Corp. (NYSE: CSX) - Current Price: $58.43 p/e 19. Revised Stop Loss: $48. Ride the railroad resurgence with this superior trade / commodity / freight transport company. The rails are in the sweet spot: truck transport costs are rising with fuel costs, and the U.S. highway system is inadequate, with increased congestion likely, pending future investment.
And a sixth stock: Nucor
Nucor Corp. (NYSE: NUE) - Current Price: $65.59, p/e 13. Revised Stop Loss: $57. Scrap metal is chic, and also very profitable for this major recycler, given demand for steel beams and bars in both hemispheres. How many stocks do you know that offer a return on equity and the good feeling that you're part of the recycling solution?
Top Pick: Potash.
Safest Pick: CSX Corp.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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