Don Coxe has more than 39 years of institutional investment experience in Canada and the US. He is Strategy Advisor to BMO Financial Group. His investment journal, Basic Points, published since 1992, and his conference calls are distributed exclusively for their clients in North America, Europe and Asia.
ValueWalk has obtained his latest newsletter. Below are a summary of his top nine latest ideas for investors:
1. Income investing is here to stay in a deleveraging, slow-or-no growth
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
world. Collapse of the CAPM means bond investors should run—not
walk—away from government bonds and seek quality corporates—and
find new equity-based income vehicles.
2. Emerging Markets stocks and bonds look relatively attractive. The vast
oversupply of debt means economic growth in the industrial world will be,
at best, modest. The relative scarcity of debt in the Emerging Economies
means their growth rates relative to the First World will improve.
3. Go with growth—buy commodity stocks. Emerging Markets citizens spend
more of their earnings on commodities than we do, and their demography
is more favorable for economic growth than ours. A world in which EMs’
share of growth continues to increase is a world in which commodity
prices will be strong relative to other prices.
4. Within the industrial commodity stock groups emphasize oil stocks
over gas stocks, and emphasize copper stocks over aluminum stocks. As
the Freeport McMoRan debacle shows, miners in Third World countries
sometimes face worse risks than commodity price risks.
5. Record-low Treasury yields and record-high real fiscal deficits have combined
to produce 2% economic growth. Those stimuli are unsustainable but
they should sustain the Obama Presidency. He will have to deal with the
problems in his second term, and that will mean much higher taxes—if
not higher interest rates. US economic growth will be closer to Continental
growth rates next year. Invest for dividends—not growth.
6. Gold’s yield is now roughly the same as T-Bills’. It was an excellent
investment when T-Bills yielded 5%. Its relative value continues to improve,
as economies struggle and governmental finances deteriorate. It belongs
in all portfolios—either as bullion or stocks. Bullion has been better for
a surprisingly long time. The next time gold is nearing $2,000, investors
will take the stocks more seriously. Those with virtually no political risks
are astonishingly cheap.
7. The really oily Canadian and US stocks are excellent value, particularly
the oil sands companies. Oil stocks haven’t kept up with oil prices, mostly
because of the drag from collapsing gas prices. Obama is losing big with
voters on Keystone, and he may need to disappoint his deep-pocketed
environmentalist backers who invest in government-backed windmills that
slaughter birds and bats, and in government-backed, money-losing solar
panels, and cars that catch fire. Naturally, they hate profitable pipelines
that supply low-cost, reliable energy with near-zero impact on animal
8. Grain prices remain strong, despite mostly good crops worldwide and
a mild winter in the US corn belt. The agricultural sector has the best
blend of profitability and economic variability in an uncertain world. It
is also the sector that has the greatest offering of great global companies
at modest cost. (The risk of crop disappointments due to Colony Collapse
Disorder in apiaries continues—as does the absence of certainty about
the cause of the annual destruction of at least one-third of the honeybee
9. An Israeli attack on Iran need not lead to strangulation of Gulf oil flows—as
long as Iran’s oil production facilities and the mullahs’ cash flows are left
largely intact. The surprise could be that Israel launches a surgical strike,
and Iran’s Hezbollah minions launch hundreds of rockets from Lebanon
and Gaza, and oil prices spike—then fall back. In other words, investment
programs should not, perhaps, be held hostage to Armageddon fears.