Three 'Cheap and Hated' Sectors Worth Watching
Steve Sjuggerud's most popular mantra... 'Cheap, hated, and in an uptrend'... Three sectors worth watching... The weaker-dollar catalyst... Relief for gold... Silver is taking off... The power of a simple strategy...
Longtime subscribers know the most famous mantra of our Dr. Steve Sjuggerud...
Cheap, hated, and in an uptrend.
Following the guidance of this six-word phrase can lead you to a lot of potentially lucrative buying opportunities... and help you avoid devastating losses in assets that don't meet these characteristics.
Steve has used this philosophy for decades to identify seemingly contrarian buy calls, which are really just something he has seen work over and over again.
And he has made a lot of subscribers to his signature True Wealth publication happy over the years.
For example, in November 2020, Steve wrote it was time to get bullish on energy, specifically oil. It was cheap, definitely hated, and just starting an uptrend. In his view, that's the best time to buy something.
The oil-related fund Steve recommended in that month's True Wealth newsletter was up 66% within a year. It's still up 132% since the original recommendation and remains a buy in Steve's model portfolio.
Breaking it down...
The "cheap" part of this mantra is fairly self-explanatory... The price of an asset can be well off its previous highs or relatively low based on various metrics. For stocks, this could be measured by a simple valuation metric like price-to-sales ratios.
The "hated" part may be a little bit harder to quantify, but not by much. You know it when you see or hear the hatred. People hated oil stocks in 2020 as the world was dealing with pandemic-related lockdowns... And they hated real estate in 2010 after the housing crash.
The third part, Steve will tell you, is the key... When you're looking for great buys with outsized returns and minimal downside risk, the cheap and hated assets must be in an uptrend. As Steve wrote in a Digest Masters Series essay on January 2 of this year...
Neither of the [first two] pieces matter if prices are still falling...
If there's one thing I've learned in nearly 30 years of investing, it's that prices can always fall further than you'd imagine. And that means you must wait for prices to begin moving higher. That's the market's way of telling you that things have turned a corner.
For instance, there's a reason Steve was bullish on housing in 2010, but not 2009 before an uptrend was established. (That's one of the faulty ideas a lot of folks in the markets have, that you have to nail the precise bottom. Getting in early enough allows you to enjoy long-term gains while also potentially lowering the risk of losses from being too early before an uptrend has established.)
This is critical advice all the time. And it's especially applicable to today's market, where we've seen signs of a bottom in certain sectors or broader indexes – but certainly not all of them. Different assets and sectors are behaving differently.
And a lot of cash remains on the sideline of the markets. Maybe you also have some that you're looking to put to work soon. But it can be difficult to know what the best buying opportunities really are.
To this point today, I (Corey McLaughlin) want to share three asset classes that several Stansberry Research editors and analysts have highlighted recently. All three currently fit the first two parts of Steve's criteria... and could be great buys if they start an uptrend.
You see, they're close – and they're definitely cheap and hated already.
Here is the catalyst for all of them...
As we've reported to you lately, the bull run for the U.S. dollar over the past year-plus has lost steam. In fact, it has taken an elevator ride down.
As measured by the U.S. Dollar Index ("DXY") – which compares the dollar to other major world currencies – the dollar's short-term trend has rolled over. It's now also trading below its 200-day moving average (200-DMA), a simple technical measure of a long-term trend.
As our colleague Chris Igou wrote in Friday's edition of DailyWealth Trader...
This is the first real sign of a trend change in nearly two years. Take a look...
This is a big deal. All along during the bear market of 2022, the dollar had been getting stronger and performing as an uncorrelated or low-correlated asset to stocks. That means it tended to go up when stocks went down, and vice versa.
So, if the dollar is now getting relatively weaker, that could potentially change the game for a lot of assets. It will reduce the effective prices of assets denominated in dollars, while currencies in other parts of the world may now get relatively stronger amid waning U.S. dollar strength.
Enter emerging markets...
As Chris noted, a rising dollar is a headwind for foreign markets, but the opposite is also true. When the dollar falls, it offers relief to stocks outside of the U.S.
We won't get into all the details about why today, but a relatively weaker dollar generally makes business easier for foreign businesses – and governments – and has been a bullish catalyst for emerging market stocks.
As Chris wrote on Friday...
We can see this playing out in the early 2000s. The U.S. dollar fell below its 200-DMA in April 2002 and mostly stayed below it through 2007.
The MSCI Emerging Markets Total Return Index was up 293% over that period. And U.S. stocks were up just 34% (not including dividends).
A similar thing happened in 2020.
The dollar broke below its 200-DMA in late May 2020. It stayed below it for the rest of the year. Emerging market stocks were up 42% over that period, while the S&P 500 Index was up 24%.
Today, emerging market stocks are down 29% since June 1, 2021. Meanwhile, the U.S. market is only down about 3% over the same period, setting the stage for potentially similar outperformance from emerging market stocks.
The key is whether these recent trends stick. If we do have a weaker dollar and a rise in emerging market stocks (which have just moved above their 200-DMA), emerging markets could be a great buy heading into 2023.
Same goes for gold...
The price of gold, measured in dollars, has frustrated a lot of investors in a year with record-high inflation... But that's because a stronger dollar hurts the price of everything measured in it, including gold.
Gold has fallen for seven straight months – a first. That qualifies as "hated."
But for reasons similar to emerging market stocks, a sharp run higher for gold may be in the making, too...
As our colleague Brett Eversole, the lead analyst on Steve's team, wrote on November 30 in the most recent True Wealth Systems Market Extremes, gold has a history of boom-and-bust cycles – and it looks primed to enter a boom phase soon...
When the selling gets this crazy, it often signals a looming reversal.
That's the case for gold right now.
Since this is gold's first seven-month losing streak, I looked at all cases where it fell for six straight months. That has happened six other times. And each instance was a darn good opportunity to buy...
The metal has been an impressive performer over the past 50 years. Its 7.5% annual gain is about what we'd expect from stocks. But you can do much better by buying gold after extremes like today's...
Similar setups led to 6.1% gains in three months, 12.9% gains in six months, and 15.1% gains over the following year. Plus, only one of the six cases led to losses over the next year... while the biggest gain was 40%.
All this points to a major gold rally on the horizon.
In fact, that gold rally might already be beginning. The metal was up nearly 10% in November, snapping the seven-month losing streak. It's now trading just below its 200-DMA. If it starts a new uptrend, don't miss it.
It's a similar (and better) story with silver...
Silver is like gold's younger and more volatile brother.
When silver moves, it really moves. And recently, the price of the precious metal has broken above its 200-DMA after bottoming back in August at cheap levels. As Chris wrote in DailyWealth Trader today...
Silver has been below its 200-DMA for most of the past six months. But it broke above that level in late November. And it's continuing to climb...
(I'm not going to speak for Steve and his team, but like with gold, six months of poor performance qualifies as "hated" to me.)
Chris also illustrated how this type of price action – breaking above the long-term trend after these periods – is typically a bullish sign for silver. Chris showed instances in 2016, 2019, and 2020 that led to big rallies in the metal.
Silver rose 31% in the six months after crossing its falling 200-DMA in February 2016... It rose another 31% in a similar situation in 2019... and then 66% from May 2020 through May 2021.
Of all the three assets we've talked about today, silver is the one already in a longer-term uptrend. As Chris said, "If you've been looking for a reason to buy the metal, this offers a great opportunity."
Yet he also said if you want to be more conservative, you can wait until silver's 200-DMA begins trending upward itself... That's the sign of a strong uptrend.
You could take the same approach for emerging market stocks and gold if current trends continue.
If you're looking to add exposure to these sectors, get ready...
Because they're cheap and hated, showing the final piece – an identifiable uptrend – means a possible liftoff to higher prices in the new year.
Similarly, if you've had your eye on individual emerging market, gold, or silver stocks, now would be a great time to check back in on them and see how they're valued and whether they're trending up. You might find reasons to buy already.
That's the beauty of a simple mantra, put into practice. You can apply it across asset classes, sectors, or thousands of individual stocks. You don't have to go with your gut and see what happens, as many investors do. This is a repeatable strategy... and Steve has proven results with it.
The Fallout of the FTX Disaster
Our editor-at-large Daniela Cambone moderated a panel discussion featuring some of the world's best-known bitcoin experts – including our Crypto Capital editor Eric Wade – to talk about the fallout from the FTX disaster and more crypto news...
Click here to watch this video right now. And to catch all of the shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 12/2/22): Automatic Data Processing (ADP), Alamos Gold (AGI), Atkore (ATKR), Bristol-Myers Squibb (BMY), Cintas (CTAS), Gilead Sciences (GILD), General Mills (GIS), iShares U.S. Aerospace & Defense Fund (ITA), Leidos (LDOS), Lockheed Martin (LMT), Novo Nordisk (NVO), Constellation Brands (STZ), and Valmont Industries (VMI).
In today's mailbag, feedback on Dan Ferris' take in Friday's Digest on the latest in the saga of FTX and its CEO, Sam Bankman-Fried... Do you have a comment, question, praise, or rage to get off your chest? As always, e-mail us at feedback@stansberryresearch.com.
"Bankman-Fried made some very serious mistakes, for sure. Whether he committed anything criminal remains to be seen. Most media outlets seem to jump to the conclusion that he is guilty, a criminal, a Ponzi-schemer, etc., without knowing, not to mention understanding, the details.
"You made an 'admission' after bashing him that there was a run on the bank/FTX and no bank would have survived a run like this. I agree, and I believe that the run on this bank was orchestrated by Coinbase and [Binance CEO Changpeng Zhao] together to get rid of a dangerous and fast growing competitor. This, if correct, is not criminal but highly unethical, especially of [Zhao]/Binance. Of course, without SBF over-extending himself with way too much leverage, most backed by the value of the FTT [token], FTX might have been savable without bankruptcy. Hence, he bears a lot of responsibility for what happened, which he openly admitted.
"I watched the whole Sorkin interview (not just snippets in the media). My impression was that SBF was honest, was trying to grapple with what happened, admitted his mistakes, some of them very serious, and cares deeply about the losses FTX's customers have suffered. This is much more than what we have ever heard from the crooks that precipitated the 2008-9 financial crisis (like [Angelo Mozilo of mortgage lender Countrywide Financial], or the management of Moody's that rated junk [mortgage-backed securities] as [Aaa] without actually analyzing/evaluating them, etc., etc.). BTW, no one went to jail of the people that caused that severe world-wide crisis, for which I hold Obama and [his Attorney General Eric] Holder directly responsible.
"So, before jumping to conclusions, let's wait till all the facts come out and let's keep things in perspective." – Paid-up subscriber Thomas S.
All the best,
Corey McLaughlin
Baltimore, Maryland
December 5, 2022