what stocks to buy
the financial markets are in a mess, which means there are great opportunities to find potentially undervalued assets. fear and irrationality has likely driven down the prices of some stocks beyond their value. So, what should you buy in this market? I haven’t had the time to check out a mass of annual reports and quaterly statements but there are some areas that warrant further investigation as profit making opportunities. Here are two…
1. Buy Oil - When looking at companies to invest in I like to mix a look at macro trends with basic value investing tenets a la warren buffett. I like oil because the western and developing world have few energy alternatives. Nuclear power is concentrated in the most developed countries, uranium is no longer as cheap as it used to be and many nuclear power plants built in the 60’s and 70’s are on the verge of the collapse, especially in Britain. Coal on the other hand is stigmatized by its environmental damage and with the movement to oil and gas from the mid 70s onwards there are now not as many energy plants specifically designed for burning coal. Let’s not even get started on alternative energy, we are a few decades from such sources offering a meaningful contribution.
So what type of Oil company should I buy? I was speaking to a friend who works in finance about this and he recommended mid-cap oil firms in general. Find a company with good exploration fields and production capacity. The fields ensure future grwoth and production ensures a steady cashflow. This is crucial in such economic times. There are quite a few firms trading below their net asset value. Take a look.
2. Tesco - The british discount food retailer. I haven’t checked their books properly for a while but I like what I see. Economic downturns are the perfect time to take market share from competitors. I expect M&S, Waitrose and maybe even Sainsbury’s will feel the pinch. Asda (owned by Wal Mart) and Tesco will need to battle it out. But what I really like about Tesco is their international expansion, I think it shows promise and it seems really well thought out. They have hatched deals in the US, China and India. Though these new store openings are slowing I feel they are well placed for a recovery. Thankfully, Tesco is not living on borrowed money unlike many other firms of today. JP Morgan seems to think Aldi is a credible threat to Tesco due to its low prices. In the short term I would agree, but Aldi just doesn’t have the same national coverage as Tesco and when times get good again, no one will be shopping in Aldi. In these times I cannot help but feel as Tesco continues to expand globally they will be getting cheaper land, cheap staff and better partnership deals.
That’s all for now. Other areas worth a look would be corporate bonds from companies with a decent cashflow, rare metals (typically used in things like phones etc).
Now I need sleep.
Ciao!
