... plus derisking your equity portfolio and choosing ‘recession-resilient’ stocks to invest in
Hope you all had a good summer break! Now that we’re back to work, we’re sharing with you some awesome tips on managing your money. In this week’s edition of the Gist, we’ll discuss how you can derisk your equity portfolio and look for ‘recession-resilient’ stocks to invest in. Also, you’ll find out whether this recent little dip in the stock market is worth buying.
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So here are your questions for today’s edition:
Does the recent dip in the stock market present a good buying opportunity?
How should I diversify my all-stock portfolio? My money has been fluctuating up and down exorbitantly, which has been an emotional roller coaster for me.
If we’re going into a recession, what stocks are still considered a good investment?
Let’s preview the answers first.
Be careful about buying dips when the economy is decelarating. What we’re seeing now is that the private sector is slowing down, while the trade war is raging, and world economies (arguably outside the US) are not in best shape. So think twice before buying the dip.
The textbook answer to portfolio diversification question is to add some bonds to your all-stock portfolio. Long-term treasuries counter the impact of stocks. But through our research we found out that you can also buy short- and intermediate-term treasuries to balance out your stocks, and we’ll explain the benefits of using those vs. long-term bonds in the Deep Dive section.
If we’re heading into a global recession, and you wish to buy ‘recession-resilient’ stocks, decide on sectors you'd like to invest in first. Generally, Healthcare, Telco, Utilities and Consumer Goods stocks do better in downcycles. You can find more on specific stock recommendations here.
Let’s look at the details now.
1. According to UBS, this recent pullback in the stock market is not a good investment opportunity. This analysis is based on the purchasing managers index (PMI) for private-sector businesses, which fell down to the low 50s. A value below 50 means that the businesses could be contracting.
So if the private sector is not growing, why buy stocks? Of course, that’s just one point of view...
2. What’s a good way to diversify your portfolio if you’re heavily invested in stocks?
The answer is bonds. Traditionally, we would go for long-term treasuries, which are negatively correlated to stocks.
But the issue with long-term treasuries is that sometimes that could be as volatile as stocks.
So we looked at short- and intermediate-terms treasuries, and surprisingly, those tend to be negatively correlated with stocks as well, but are less volatile than long-term government bonds.
How do you find out about possible investment choices for short- and intermediate-term treasuries? Ask Finny! Try:
3. OK, times are volatile, but what stocks still may be a good buy relative to the rest of the market, if we’re heading into a recession in the next couple of years?
First of all, decide on sectors you'd like to invest in. Generally, Healthcare, Telco, Utilities and Consumer stocks do better in downcycles than the other sectors.
To come up with individual stock ideas, we dug deeper into those sectors looking for value buys, and here is what we’d like to highlight:
Roche: it has a healthy cancer drug pipeline to counter the impact of biosimilar drugs being introduced to the market. It’s a very innovative company. The stock might be expensive at this price point, but still may be a good buy for the long-term investor.
Pfizer: has some exciting new drugs in the cardiovascular space. Also, the stock is near the one-year low now.
Anheuser-Busch: people don't stop consuming booze in recessions, and the company has true world exposure, dominating markets from Brazil to Belgium.
Of course, those are only some ideas, and we urge you to do much more thorough research before buying any of these stocks.
That’s it for this edition. What would you like to hear about in our next Gist? Ask us a question here.
The AskFinny Team