Volatility in equity markets has created a minefield for investors to navigate through. Over coming days, expect this market volatility to remain high.
Chinese retail sales and industrial production data, the U.S. Federal Reserve's interest rate decision, tax loss selling, hedge funds liquidating positions, and negative news headlines are creating investor anxiety and selling pressure. Furthermore, markets often overshoot to the downside, just as they do to the upside. So what should investor do? Not panic, and accumulate shares of strong, fundamental companies on weakness.
When looking at stocks to hold in your portfolio, you want to own those with strong underlying industry fundamentals. This means that, for the most part, investors should avoid owning resource stocks. Commodity prices have experienced large declines - the price of gold is down approximately 10 per cent year-to-date, oil has collapsed 30 per cent, and natural gas prices have dropped 29 per cent. Industry conditions remain weak and the strengthening U.S. dollar remains as a headwind, as commodities are priced in U.S. dollars, making them more expensive for many global buyers. Furthermore, capital spending cuts, dividend cuts or suspensions can be expected by companies who are struggling to survive with depressed commodity prices and declining demand. While many resource stocks are cheap, they are cheap for a reason. It will take time work through the imbalances caused by an oversupplied market.
The pressure on commodities stretches across industries such as equipment providers and banks. On December 8, financial services powerhouse, Morgan Stanley, announced plans to close all of its base metals trading desks.
So what stocks may investors want to consider and do more due diligence on? To start, if you exclude stocks from the energy and materials sectors in the TSX index, you are left with 137 stocks. What I like to see are companies that are surpassing expectations - stocks with positive earrings or cash flow revisions, as well as positive returns year-to-date. Below is a list of 16 companies that may provide a springboard for investors to do further fundamental analysis on.
|BYD.UN-T||Boyd Group Income Fund|
|FFH-T||Fairfax Financial Holdings|
|IAG-T||Industrial Alliance Insurance & Financial Services|
|QSR-T||Restaurant Brands International|
|RBA-T||Ritchie Bros. Auctioneers|