Bad News Bears
Mar 03 2008
After Friday's market meltdown, Portfolio.com sought out the advice of Dani Hughes, the president and founder of Divine Capital Markets, a boutique investment firm. Here's her take on what the markets could bring this week and a few spots where investors might actually make some money.
Back in the good old days, bad news could only send the market higher; subprime write-downs, a credit crisis, $200 billion in write-offs would have all been seen as good, healthy stuff.
Not this time. Friday was a wake-up call to the realities of an economic slowdown and looming inflation, and we expect to see the market follow through on that idea this week. The month of March historically starts out strong and loses strength; it's also usually the weakest month of an election year.
This week the market will get a spate of economic reports that will most likely be soft—January construction spending on Monday and weekly jobless claims on Wednesday primary among them—but the bad news they're expected to carry will stick to the market instead of sliding off its back.
The housing sector was poised for a fall for two years before the subprime mess pushed Humpty Dumpty off the wall. The slicing and scrambling of mortgages—both subprime and otherwise—prevented investors from truly understanding the risk those investments presented.
Speculators played "flip this house," banks played "flip this mortgage"—moving money around too quickly for the rest of us to fathom. Finally, Mommy Fed and Catch-Up Congress both stepped in. They advised desperate homeowners to refinance and promised everyone a few hundred dollars to spend at the mall.
What's come out of this crisis is that the market's trading range has narrowed, and participation has decreased. While traders and speculators churn out the last bits of spread waiting for the market to respond, investors have stayed resolutely on the sidelines.
Still, with the global economy still booming, smart market pros are looking to pick their spots. Here are some stocks and exchange-traded funds that I own and my firm recommends:
Despite moderating demand in consumer and computer markets, semiconductor maker Diodes Inc. produced record revenue, expanding gross margins, consolidated operations and a mix of higher margin products.
We expect Corning's financial strength to continue to improve, the debt to recede, the dividend to increase and the credit rating to move from BBB+ to A-. Five of the company's operating segments achieved lowest cost in Southeast Asia. Its net sales could continue to expand 10 percent to 15 percent.
To profit from the real estate bust and credit crunch, watch Ultra Short E.T.F.'s gain momentum with investors; Ultra Short Financials and Ultra Short Real Estate are two stand-outs. PowerShares DB Agriculture has been a popular E.T.F. with those who believe agricultural prices will continue to rise in this environment.
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