The return of long-forgotten stocks
With global manufacturing rebounding, material and energy stocks left for dead since 2011 are making a comeback.
While the market has continued to power higher over the last few years, many of the stocks in sectors most tied to the economy have lagged behind. I'm talking about steelmakers. Small, nimble energy exploration and production companies. Metal miners. Stuff like that.
But now, with signs the world economy is enjoying a manufacturing-led tailwind of a kind not seen since early 2011, I'm seeing many of these left-for-dead stocks come back to life.
Given depressed valuations, many of these are attractive high-risk/high-reward opportunities for nimble investors willing to take a flyer on the idea that, with Europe exiting its longest recession on record, China coming back to life, and U.S. factories spooling up, the upward momentum can continue.
I've written frequently lately about the economics that support this thesis. Yes, the recent jobs report was pretty soft. And yes, the housing market is suffering as mortgage originations drop off due to the dramatic rise in long-term interest rates.
But based on purchasing manager surveys, there is a very real and very powerful reacceleration happening. Summing it all up is the turnaround in the JPMorgan Global All-Industry Output Index, which in August increased to 55.2 from 54 in July (any reading over 50 indicates month-over-month growth) for its best reading since February 2011 as shown below.
Yep, we've finally returned to where we were before the Eurozone debt crisis hit, before the Republicans in Congress and President Obama engaged in multiple budget battles, and before the Arab Spring rattled energy markets.
Leading the way higher is the United States, the United Kingdom (where factory activity is surging on a scale not seen since 1994), Ireland, and Germany.
The surge is real. And with that, many stocks are posting very promising breakouts from long, three-year downtrends.
Just look at Ivanhoe Energy (IVAN). The stock is going vertical as shares break up and out of a double-top downtrend pattern that started in early 2011. The first top of the double top was in early 2010. Shares collapsed from $11 all the way down to 60 cents during the wipeout.
This could be an explosive pick that I've recommended to clients and added to my Edge Letter Sample Portfolio. IVAN is an independent oil and gas company with a unique technology that converts heavy crude oil to light crude oil in the field, creating natural gas as a sellable by-product.
Another pick is Rare Element Resources (REE), which is also moving out of downtrend pattern that dates to early 2011. The company maintains a 100% interest in the Bear Lodge rare earth deposit in Wyoming, an area that the company believes will support a 40-year mine production horizon. The stock is challenging its 200-day moving average on a surge of positive volume.
I'm also adding Molycorp (MCP), another rare earth metals company, that operates in 11 countries including a sizeable presence in China. I'm adding all three to my holdings.
An existing trade with this same theme is Hyperdynamics (HDY). The stock is marching higher smartly after crossing its 200-day moving average in late August. Shares traded as high as $62.50 a share back in 2011 but have been mired in a range near $5 since early last year. I'm up 14.2% since I added it on August 28.
Disclosure: Anthony has recommended HDY, MCP, REE, and IVAN to his clients.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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For anyone who has just now started following this author, you should know his track record is worse than awful. Starting last year, around October, he started writing articles warning of another recession. Then he doubled down, time and time again. All throughout the run up of the last 10 months, he has been saying a recession is coming. Finally, about 2 months ago, probably his boss told him to back off or be fired, so he did. After the boss probably threatened to fire him he went gung ho on stocks. He new found optimism is a warning to everyone that god only knows what is going to happen now. When he says up, the market goes down. When he says down, the market goes up. I learned a valuable lesson from this writer. Stop listening to all the noise on the internet. If all the columnist out there were so smart, why are the writing for a living. Those that can, do and those that can't write. Right now I'm out of the market with about a million and a half dollars. I'll wait for things to cycle back around then I'll do strictly index funds. I refuse to read all the noise anymore. I'll get in when the market goes down only. Don't need anymore noise from the internet.
ivanhoe energy is off over 10 percent today and that is after anthony recommended it to
his followers...that doesn't sound like a good return now does it...because like everyone
else who thinks they know the market anthony doesn't have a crystal ball
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'We're not exactly in a uniformly strong market,' says the notably pessimistic newsletter publisher.
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