How to Play the IMF's Global Growth Cut

01/19/2016 9:20 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

Since Michael Berger, of Technical420.com, feels that the recent market weakness has created many investment opportunities, he highlights two stocks he thinks look attractive after the recent pullback.

United States market futures are in positive territory after China announced poor GDP numbers Monday night. During 2015, China’s economy grew at its weakest pace in a quarter of a century and this increased the probability of more stimulus policies out of Beijing.

During the fourth quarter, China’s economy grew 6.8% and this is lower than the 6.9% growth during all of 2015. The possibility of further stimulus prompted a rally in China’s stock markets which are starting to look more and more like a rollercoaster every day.

International Monetary Fund Cuts Global Growth Forecasts

On Tuesday, the International Monetary Fund (IMF) cut its global growth forecasts after they said that they expect China’s to grow 6.3% during 2016. China is the second largest economy in the world and the country’s slowdown, coupled with weak commodity prices were the catalysts behind the lower global growth forecasts.

During 2015, the IMF estimates that the global economy grew 3.1% and this would be the weakest pace since the 2009 recession. If their estimates are accurate, global growth will have slowed down for the fifth straight year. The IMF also lowered global growth expectations for 2016 and 2017. They cut 2016 expectations to 3.4% from 3.6% and 2017 expectations to 3.6% from 3.8%.

Market Bounces Higher on Disappointing Results

Although these numbers were disappointing, the Shanghai Composite Index ended the day up 3.2% and the CSI300 Index—which is comprised of the largest listed companies in Shanghai and Shenzhen—rallied 2.95%.

This move higher may seem significant, however, we think it was just a technical bounce after the recent sell-off. During 2016, the Shanghai Composite Index and CSI300 Index have fallen 15% and 14%, respectively.

United States Markets Poised to Rally

All three national exchanges are trading in positive territory Tuesday morning and we will monitor how the indices trade throughout the day. Recent market weakness has created many investment opportunities and we want to highlight two stocks that look attractive after the recent pullback.

Microsoft Corporation (MSFT) has fallen more than 8% during 2016 and shares are currently trading below its 20-day and 50-day moving average. MSFT is trading right above $50 and shares are approaching oversold territory. Shares have given up a good portion of its gains from 2015 and we expect MSFT to report strong earnings in late January. Our investment thesis for MSFT is based off of both gross and operating margins reversing its declining trend.

Another company that looks attractive at current levels is Baker Hughes Incorporated (BHI). During 2016, BHI has fallen more than 13% and shares are trading below its 20-, 50-, and 200-day moving average. Last November, Halliburton Company (HAL) agreed to acquire BHI for $34.6 billion. This acquisition was done at a significant premium and each BHI shareholder is set to receive 1.12 shares of HAL and $19 in cash per share if the deal closes. Should the deal not close, HAL must pay BHI $3.5 billion or $8 per share, giving BHI shareholders some additional protection.

Michael Berger, Founder and President, Technical420.com

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