2 Key Themes for 2012

09/30/2011 3:00 pm EST

Focus: STOCKS

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

The Canada Report’s Gordon Pape discusses two very different asset classes that he thinks are two of the four dominant themes that investors should be prepared for in 2012, in this exclusive interview with MoneyShow.com.

Right now, you’ve mentioned gold, and you mentioned dividend-paying stocks as two key themes for 2012. Now I can’t think of two investments that are more unlike each other, and yet they are two of your themes. Can you explain that please?

Yeah, let me put it into context for you. First of all, we are in tough times, there is no question about it. Whether we have a recession again, I can’t say for sure, but the odds on that happening are getting shorter and shorter all the time I think.

I think the consequences of that, is going to be downward pressure on the stock market. There certainly is a big loss of confidence among investors, both in the markets and in leadership. I think that’s a very major concern.

That’s true all around the world, actually.

Yes, exactly…except here in Canada. You look at these two things, and you say, alright, what’s going to do in troubled times?

Let’s start with gold. Gold has become the one universal store of wealth. Whether you live in China, or India, or Brazil, or Malaysia, or the US or Canada, you believe that gold is a store of wealth. People have believed that for centuries, and they still believe it today.

When we get difficult times, and especially then there is a loss of confidence in paper currencies, people move to gold. That’s why we’ve seen the price of gold continually moving higher. Yes, it’ll retreat, sometimes $200 a day, as has happened recently. But if you look at the chart, it’s moving higher and higher and higher.

I think gold is somewhere to invest. I’m not a gold bug. I’ve never been a gold bug. I just believe in riding a wave when we see it. We’ve got a wave there.

Can you give us one way that you favor investing in gold?

Well, you can invest in the metal itself. But right now one of the interesting things that we’ve seen so far this year is that the producing stocks have not kept pace with the metals.

No, they haven’t.

The metals have actually done better. Which suggests the producing stocks are actually better value at this point in time, bcause if the thesis is correct that the gold is going to continue to go higher, than these stocks are undervalued.

Would you buy an ETF in this area?

I would not. I would own something like Barrick Gold (ABX)…That’s the world’s largest gold producer.

They’ve just made two big strikes in Nevada, that they’ve just announced. It’s become a very dynamic company. Growth company. I think that ABX is certainly a stock that I would want hold going forward.

Okay, let’s move on quickly to dividend-paying stocks. Obviously, we know the allure of them. They are more conservative, they’re less volatile, and you get paid to hold them.

Well, exactly. That’s the rationale. If we are going to be in a turbulent market, if we are going to be seeing downward pressure on the markets, I want to have some stocks in my portfolio.

Therefore, I want them to be the most stable stocks that I can find, and so I like the dividend payers. Especially those in stable industries—the utilities, the pipelines, that kind of thing.

A stock like Enbridge (ENB) would be a good example. It’s a natural-gas distributor and a major pipeline company. It is a solid company if you look at what it did during the 2008 and 2009 crash. The stock held up very well. It didn’t go down like anything like what the markets did.

It pays a yield of about 3%. Long history of dividend increases. It’s one of my top picks.

Okay, now do you own either Enbridge, or…

Barrick Gold.

Barrick Gold.

No. I don’t own Barrick Gold, but I do own Enbridge.

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