The Market Rages Back
Whiplash has probably set in for most investors after the market went up 4% today. A little certainty in Europe apparently goes a long way for the US markets. What these dips do is give an opportunity to see what the market undervalues and underestimates right now.
If you’re like me and you think we’re headed for a long slow recovery you should take a long term look at where the economy is going. I would stay away from anything to do with housing. The housing market will be mired in a slump for 5 maybe even 10 years before we get back to normal. I would also start to be cautious with China. There’s a lot of bubble talk and even though a Chinese bubble wouldn’t be as bad as a US or Europe bubble it could be disastrous for China focused companies.
What I do like is energy and tech. Whether you believe in natural gas, oil or renewables there are great values given the uncertainty in our energy future. I’ve talk at length about my renewable picks but if you like fossil fuels this might not be a bad time to take advantage of a dip after the gulf spill. Check out Atwood Oceanics (ATW) for a drilling play that’s relatively cheap.
In tech I like the big names like Intel (INTC) or AMD if you want a little more risk. I still think Apple is overvalued but HTC (2498.TK) is in a similar market and also makes innovative products. HP (HPQ) and Dell are also reasonably valued.
A way to reduce risk in these markets is to sell call options on stocks you own when the market is up. It gives a little protection especially with volatile stocks. I’ve recently sold LVS call option to cover my position. If they get called I have a nice 10-13% return in a month. If not I pocket an extra $1 per share.
Disclosure: Author is long LVS and short LVS calls. No positions in other stocks mentioned.