Earlier in the week I wrote about one of my main themes for 2018, a rising inflation/interest rate environment. In this post I will lay out which sector I believe will do well against a backdrop of rising inflation and rising bond yields (including offering some stock picks), and I will also specify which sectors and asset classes you will want to avoid in 2018. Let’s start with what to avoid…
XLU (Daily – 1 Year)
Gundlach believes that investors should hold a basket of commodities including copper, gold, oil etc. Not only are commodities cheap relative to stocks but they also act as an inflation hedge which could prove to be valuable over the coming years.
We have also begun to see investors pile into mining and oil stocks during the last couple of weeks:
A diversified basket of commodity producers such as BHP, FCX, RIO etc. is a solid way to play the commodities theme. For the more aggressive investor who wants to allocate a small portion of their portfolio to stocks that could become 10-baggers (instead of “just” doubles or triples) there are dozens of beaten down and out of favor junior miners that could see enormous gains in 2018 if the commodity theme takes hold of investors’ consciousness. Three weeks ago I highlighted 5 stocks that I think are attractive values at these levels, and I will offer a few more small/mid cap names that I like right now:
Copper may not seem too sexy to most people, however, make no mistake that copper is a great way to play the looming electric vehicle boom while remaining underpinned by a strong long term supply/demand dynamic (declining mine ore grades and strong global growth):
While I don’t care much for politics and rarely use it as part of an investing thesis, I cannot ignore the fact that the current political backdrop in the US couldn’t be much more favorable for the mining, nuclear energy and oil industries. The commodity sector might just have found its sweet spot as we enter 2018 and investors have just begun to catch on to this notion.
Disclosure: Author is long MIN.TO, KC.V, NXE.TO and JCO.V at the time of publishing and may buy or sell any of these stocks at any time without notice.
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