In his latest strategy note, Donald Coxe of Coxe Advisors gave his 10 favorite trades for 2010. He is an equity market bear, but a commodity bull. His favorite trades follow:
1. This is assuredly an inopportune time to increase equity exposure—and an opportune time for proft-taking. Major stock indices are breaking down. For the S&P, it would take only an 8% retrenchment from its current level to break the 200-Day Moving Average, and take the index to late summer levels.
2. Maintain a strong overweighting in commodity stocks within equity portfolios.
3. Maintain high exposure to gold bullion and the gold miners whose production comes from politically-secure areas. The core belief system for gold is that governments can’t be trusted. Investing in miners dependent on the sustained honesty and wisdom of conspicuously dubious governments may work out for a time, but the principle behind that strategy is oxymoronic.
4. Investors should overweight base metal miners within the cyclical component of their equity portfolios. The base metal miners’ earnings have come back faster than all but the most optimistic would have predicted when the world’s crisis managers were engaged in panic-driven ad hoc strategies to avert a Depression. Few investors grasped the signifcance of the fact that the new players on the global block—China and India—weren’t even in recession. Result: metal inventories never mounted to levels that would have imperiled major miners.
5. Borrow—don’t buy—debt denominated in euros.
6. The Saudi Oil Minister has said that $70-$80 is the “perfect” price for oil. In an imperfect world, this looks like a reasonable price for valuing oil producing companies—and the contango in the futures curve is a reasonable basis for valuing the companies’ Reserve Life Indices.
7. Underweight natural gas-related stocks within energy portfolios. Overweight the oil sands companies.
8. Remain bullish on the leading agricultural stocks. Food price infation is hitting consumers in many emerged and emerging economies.
9. Canadian bonds and stocks should be heavily overweighted in global portfolios.
10. Overweight investment grade corporates in bond portfolios. Would you rather hold long-term debt from a government that cannot manage its fnances or from a great company that manages its money very well?
Source: Coxe Advisors