Tags: Opportunity | stock | markets | investing

Get Ready for Opportunity in the Markets

Tuesday, 17 April 2012 08:28 AM

There’s really only one thing you truly need to know about investing: Markets are the great humblers of men.

Right now, even after Wall Street’s worst week of 2012, optimism reigns. While everyone else is focused on the rose, it’s best to be mindful of thorns.

We could be looking at a larger selloff that most people just aren’t anticipating right now.

Banks have been struggling, and could face further downgrades. High oil prices threaten the economic recovery in the US, and the prospect of future growth in emerging markets. Europe has deftly managed to keep its sovereign debt woes from escalating, but a huge problem is rapidly emerging: Spain.

The pain in Spain is a combination of the worst problems Greece faces (a high debt-to-GDP ratio) and the US (a burst housing bubble that threatens recovery). Add in youth unemployment estimated at over 50 percent, and Spain is also suffering the mix of trouble that led to violence and overthrown governments in the Middle East and North Africa last year.

Unlike Greece, Spain is too large for Europe to completely solve on its own. While the country has rapidly moved towards austerity measures, it is likely to only get backlash among its citizens. Much like the United States has had to deal with banks deemed “too big to fail,” so now Europe has to deftly manage a debt restructuring of a country. Failure is not an option, but it’s hard to see the alternatives right now.

Those are just some of the known problems plaguing markets.

But don’t panic. After a seven month rally that’s sent stocks to their highest levels since the start of the financial crisis, a pullback is overdue. What’s more, a pullback gives investors the opportunity to buy quality companies at a better price and with higher dividend yields.

The best opportunities after the next correction will likely be global behemoths headquartered in Europe.

Such companies include beleaguered Norwegian oil company Statoil (STO). Although outside the eurozone, a recent leak has sent shares tumbling.

Other companies that should continue to perform well include Anglo-Dutch conglomerate Unilever (UN), and Swiss infrastructure firm ABB Limited (ABB). These companies have a global presence, respected brands, and healthy balance sheets.

These companies also have a history of growing their dividend payouts over time. So even if the Eurozone crisis lingers on for years as “too big to fail” countries need to be gradually dealt with, these firms should continue to benefit from a better global outlook.

The market’s recent struggle may simply be the prologue for a larger selloff. Or we may be in for only a few weeks of turbulence before taking off again.

Either way, the opportunity to pick up quality companies amidst the panic will present itself.

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Tuesday, 17 April 2012 08:28 AM
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