Dollar weakness boosts key stocks

As the greenback rolls into a new downtrend, assets like metal producers are perking up.

By Anthony Mirhaydari May 8, 2013 2:31PM

 International currencies copyright Artifacts Images, Getty Images, Getty ImagesWhile the stock market has been supported by the strong performance of defensive, noncyclical sectors like utilities and health care over the past few months, the pendulum is shifting back in favor of economically sensitive areas like materials, energy and emerging markets.

 

The economic data flow hasn't improved. What has changed is that inflation expectations are on the rise as smaller, global central banks join the Federal Reserve's cheap-money party. Also contributing is new weakness in the U.S. dollar, which boosts the price of industrial commodities and crude oil while also increasing the return of foreign equity investments because of currency effects.

 

The end result is some impressive upside breakouts in areas that the market has ignored for months. Here's a look at a few attractive ideas.

 

The best way to play this is to find stocks that provide overlapping exposure to the inflation-dollar dynamic. Look for material and energy stocks from emerging market countries.

 

 

Russian steelmaker Mechel (MTL) is an example, which is benefiting not only from the rise in Russian stocks -- represented by the Market Vectors Russia (RSX) -- but also by the rise in steelmakers -- represented by the Market Vectors Steel (SLX). Shares are blasting out of two-month consolidation pattern. Merely a return to its 200-day moving average would be worth a 43% return for MTL, which is in my Edge Letter Sample Portfolio.

 

 

Another foreign steelmaker idea is POSCO (PKX) out of South Korea.

 

Domestic ideas among steelmakers, if you want to take a less risky approach, include AKSteel (AKS) and U.S. Steel (X). Related coal names, the subject of my last post, also continue to do well. Just look at the breakout in Cliffs Natural Resources (CLF).

 

In energy, I really like Argentinian energy play YPF Sociedad Anonima (YPF) which is a buy here on today's pullback.

 

 

I'm also considering Chinese aluminum maker Aluminum Corp. of China (ACH) which, if it returned to its January high, would provide investors a 32% return from here.

 

The lack of confirmation by these types of stocks was why I've been so skeptical of the uptrend lately. But with cyclical stocks quickly making up for lost time, now is the time to capture some short-term profits in these fast moving names.

 

Portfolio Update

 

 

 

Disclosure: Anthony has recommended MTL and RSX 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 anthony@edgeletter.c​​​​​​​​​​​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

 

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50Comments
May 8, 2013 3:22PM
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Now he's bullish, that must mean stocks are going to tank.
May 8, 2013 3:34PM
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Wake me up if this guy is ever right.
May 8, 2013 3:55PM
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How does this idiot keep a job?  Really?
May 8, 2013 5:06PM
May 8, 2013 4:10PM
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Once you figure this guy out he can make you money.  When he says buy, you "sell" and when he says sell, you "buy".  This guy has a gift for predicting where the market is NOT going, so we might as well take advantage of it.

 

There was an article today which included advice from Warren Buffett.  He mentioned that he cannot predict the market short term but feels it's going up long term.  It's advice MSN financial authors should pay attention to, and stop trying to guess where the market is going short term... that's not doing anyone a favor.  

 

Also it would be a nice change to see where these authors pull their information from, for example: "inflation expectations are on the rise", where does this info come from?  Is this another guess or a personal hunch, and what's your background in economics?  Almost everyone is prepared to comment on the Fed and cheap money, but it seems pretty obvious most people commenting don't really understand, or have any background in economics. 

 

Most people would find it foolish to give a Brain surgeon advice in surgery, but yet - somehow even a man with an 8th grade diploma and no education in Fin/Econ seems to be an expert on Economics and is prepared to repeat parrot-like about “printing money” with no clue as to what it means.  If you have not studied economics or the Fed and what they do, it's best to remain silent.  From what I’ve seen most authors writing about the Fed and economics show little to no background in the field.  The only thing people like this do is to pump an uneducated population full of false and misleading information.

 

A quality article should have references and supporting information from experts in the field, not this garbage we so often see here.

May 8, 2013 3:23PM
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The dollar is not weak it is dead. When other nations decide to let the dollar fall rather than support it as New Zeeland just did. You should have as much as you can get offshore in foreign equities and precious metals. Paper representations of the metals are largely not backed by the metals. So take delivery of the physical metal 
May 8, 2013 3:25PM
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I don't care what you say Anthony I will never again invest in the stock market. I've been down that road. Let the big boys eat it this time.
May 8, 2013 4:58PM
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I will seriously start selling when Tony starts buying. And I mean seriously.
May 8, 2013 6:16PM
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Everybody RUN!  If Tony sees an upside, we must be very cautious...
May 8, 2013 5:11PM
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Almost Comical at this point Anthanoy!
May 8, 2013 6:04PM
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Yes, my finger is near the panic button.
May 8, 2013 5:25PM
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Ouch!  I'm feeling kind of sorry for Anthony at this point so I will abstain from stating the obvious. 

May 8, 2013 5:18PM
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The larger they are, the harder the fall!   Just wait till everyone starts to cash out! 

This market is going too look like a brick house falling from the clouds.      

May 8, 2013 4:59PM
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Isn't that great, destroy the purchasing power of the dollar to support the Wall Street criminals and their merry band of HFT algorithms.

Basic psychology: In order for something to be a bubble,people have to think that it isn't.Can you imagine the contrarian point of view which would be bandied about if gold/silver went up like this everyday? 

The next decade will see this scenarion play out:

More euphoria>more bubbles in stocks,bonds,and real estate>
Popping bubbles>
Pareto's Law commodities price move>
Triffin's dilemma realized>Gresham's Law reestablished>
Paper bugs  dollar phantom wealth obliterated
United States enters the first phase of a deindustrialized, third world economy.

Sleep well sheeple!
May 8, 2013 3:36PM
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lol I started seeing charts and stuff and I had to scroll down and look it's ANTHONY.
May 8, 2013 4:43PM
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These financial writers got to write about something. If they all wrote the same story.... "FED QE Moves Market Up Again Today...... every day it would get a little boring.

May 8, 2013 5:49PM
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Anthony is more confused than a Bast**d on Father's Day.
May 8, 2013 5:48PM
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Man, this is hopeless!
...MSN, Time to sell AM and Cramer short,
use the savings to pay us a special dividend
for having to wade through this shallow pond.

May 8, 2013 4:41PM
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 Guinness book is going to be filled soon the way Wall Street {LIPSTICKED PIGS} are going but there would have to be an asterisk next to them because of the manipulated greed and money printing.

May 8, 2013 6:47PM
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so the rich get richer and we the working class get poorer. I'm so thankful for Ben and the fed for doing what they do best, screw We the People.  I hope when all of this is over every politician and their crooked friends all go to jail where they belong.
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