2 Buys and 3 Sells in a Slippery Market

08/04/2011 11:30 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Between weak numbers, a huge debt overhand and unpredictable Tea Party politicians, it’s hard to get a handle on the direction of the broad market…but here are some specific stocks to buy as well as avoid, writes Jack Adamo of Insiders Plus.

As the old bromide goes, “I’m not a bull or a bear…I’m a chicken.”

While it seems inconceivable that the Fools On The Hill (Sorry Paul) will fail to reach a compromise on the debt ceiling, the market will take a huge header if they don’t.

On the other hand, if the children learn to play nice, we’ll probably have a decent relief rally, which will be tempered or enhanced by whatever earnings reports are most prominent that day. Such is the nature of earnings season.

So far, earnings have been a mixed bag, with some of the tech darlings like Google (GOOG) and Amazon (AMZN) really showing their stuff (though Amazon’s P/E is absurd), while stalwart industrials like 3M (MMM) and the golden boys at Goldman Sachs (GS) disappointed.

But the bottom line in all investing is the risk-to-reward ratio. If you get that right more than you get it wrong, you make money. It’s that simple. (And that difficult.)

Some say the risk of a government default over the debt issue is as much as 50% because the Tea Party Young Turks won’t budge. I think there aren’t enough of them to bring down the house. I put the chance of default at 10% to 20%, although one good friend of mine says I continually underestimate how stupid people can be.

Nonetheless, if default occurs, the downside for the market is far worse than the likely upside if they sort things out, so I want to lighten up on a few positions and fortify our hedges a bit.

Two Buys
I want to emphasize that anyone who has not filled out our gold positions should do so—the ones still within buy range. Goldcorp (GG) is still buyable, and I’m raising the buy range on ETFS Physical Swiss Gold Shares (SGOL). We are up a lot, but they all still have a long way to go.

Although gold is acting a little out of sync from its normal seasonality, and may pull back a bit in August, the long-term picture is still brilliant thanks to the brain trust at the Federal Reserve, which continues to turn our currency into confetti.

Buy the Swiss Gold ETF up to $165. [Shares just crossed the buy threshold in late trading on Wednesday, when the story went to press. Goldcorp is also climbing again, but still well under $50—Editor.]

Three Sells
The dividend is nice on Waste Management (WM), but the stock is looking technically vulnerable right now. Let’s take the small loss in the shares for now.

I hate to let go of any of our Seaspan Corp. (SSW), but again, like Waste Management, the stock is technically vulnerable at the moment. We may get a chance to buy it back a little lower later in August, when the outlook is clearer.

Finally, the iShares S&P US Preferred Stock Index (PFF) hasn’t done much in the brief time we’ve held it…and while I’m not impatient, it’s an easy way to reduce our exposure to the market.

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