Nine money-makers for 2009
— -- 1. A tip on TIPS
Mass deleveraging around the globe has raised the specter of Japanese-style deflation — a persistent drop in consumer prices and asset values. If that fear turns out to be overblown and there's even a whiff of inflation, investors who buy, say, a five-year TIP, or Treasury Inflation-Protected Security, could reap a very nice return on an extremely safe investment, says Brian Rogers, chairman and chief investment officer at T. Rowe Price.
2. Profit from corporate debt
Due to the upheaval caused by frozen credit markets and growing fears that more companies will default on their debt, yields on investment-grade corporate bonds are 4 to 6 percentage points better than comparable lower-risk U.S. Treasury bonds. You can get yields in the 7%-to-9% range for bonds issued by high-quality companies with staying power. "It's better than holding money in a bank account or Treasury security," Rogers says.
3. Re-emerging markets
If you think the stock carnage was bad in the USA in '08, it was even worse in the emerging markets, or developing economies, such as Brazil, Russia, India and China. This asset class is selling at roughly six times earnings, which is cheap from a historical perspective. So "intrepid investors … who can deal with the uncertainty of the next three, six to 18 months can make a bunch of money in emerging markets over the next few years," Rogers says.
4. Oil boom II
The financial fallout from oil plunging more than $100 a barrel from its July peak of more than $147 has been massive. But the long-term thesis for crude, namely a spike in demand due to resurgent growth of emerging economies like China, remains intact, says Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors. "Sometime in 2009, the price of oil will return to an equilibrium level of $80 to $84 a barrel," says Johnson. "And I think that will be reflected in the stock prices of large integrated oil producers going up."
5. Recession-resistant plays
When money is tight, companies that sell necessities people need no matter how tight cash gets tend to hold up better, says Johnson. So-called defensive stocks such as low-price leader Wal-Mart Stores, or Procter & Gamble, which sells shampoo, diapers and potato chips, or drugmakers that make prescriptions you need when you are sick, are "buys," Johnson says.
6. Bottoms up
There are certain sectors and stocks that have a history of rallying sharply off market bottoms, says Linda Duessel, equity market strategist at Federated Investors. Her picks: small-company stocks, emerging market shares and technology names. And don't forget the "cheapest," or lowest-priced, stocks.
7. Make money with munis
Local governments will likely have to raise taxes to increase revenue due to the weak economy. And municipal bonds offer tax-free returns, Duessel says. If you're worried that the town or city you lend money to won't be able to pay you back, that risk is likely to be reduced due to the massive stimulus package being touted by President-elect Barack Obama. "(Municipalities) will get a big piece of it," Duessel says.
8. 'Runway' stocks
"The greatest opportunities are in stocks, both U.S. and international shares," says Dan Chung, CEO and chief investment officer at Alger Funds. But not just any stock. Chung says the stock has to fit the following "profile": have high-quality management; be market-share leaders or "takers"; and wield pricing power. The company should also have a lot of long-term "runway" ahead of it, or the ability to grow a brand, product line or store outlets a lot bigger five years down the line. Examples include J. Crew Group and Bed Bath & Beyond, he says.
9. Bet with Uncle Sam
While he thinks it's still early to be buying stocks, Thomas Lee, chief U.S. equity strategist at JPMorgan Chase, says investors should focus on industries that will benefit from government bailouts. "The government," he says, "is targeting the mortgage sector, the auto industry and ways to forestall foreclosures. What is attractive to me are home builders, airlines and small-cap banks because I think there is going to be a measure of confidence returning to these areas."