The Assets That Will Do Well in the Coming Stock Market Correction

Monday, 17 Jun 2013 07:43 AM

By Sean Hyman

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The Dow Jones Industrials, Dow Utilities, Standard & Poor's 500, Nasdaq, etc. are all becoming overvalued from a fundamental perspective. This doesn't mean that they have to fall tomorrow, but it does mean that no new money should be committed to these broader stock market averages.

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It also means that it may be wise to lighten up some positions if you're anywhere near retirement (within five years or so).

Additionally, if you've never used stop losses before with your stocks, now may be the time to do that.

In addition to this, you should consider doing what we're doing in the Ultimate Wealth Report. We've bought huge, solid companies on the cheap from a fundamental perspective.

They're multi-billion dollar market cap companies with billions of dollars in earnings and cash on their books. They have price-earnings ratios that are a third to a half of the broader stock market averages. It's a very defensive approach. But it allows us to not have to sell into the major correction in the stock market that's coming.

Additionally, many of our positions have dividend yields in the 3 to 5 percent range. This is far greater than are the 1.5 to 2.5 percent yields on the major stock market averages.

You see, when you buy assets on the cheap, you don't have to fear stock market corrections like the ones that have stocks trading at multiples in line with the overall market. This is the position many investors are stuck in right now, and they're about to feel the pain of that very soon.

It's true that up until this point, I've been bullish on the stock market. Back when the Dow was at 13,800 I announced on Fox Business Network that I felt the Dow could go to 15,0000 and maybe even 15,500. Well, now both of those have been reached.

On another occasion, I mentioned that the S&P 500 would likely go to 1,600 or even 1,650. That's happened too.

However, these were the top of my ranges because at that point, the stock market averages would be overvalued fundamentally. That means from this point on, it becomes dangerous to commit new capital to the market overall until the correction is over.

But even in the midst of stock market corrections there are things that will very likely flourish. It will most likely be some of the most defensive assets that have been beaten down up until this point.

The first one that comes to mind is the Swiss franc. (Remember, you can trade the franc through your stock brokerage account by using an exchange-traded fund [ETF] that tracks it.)

The franc hasn't done well as stocks have risen. But there's a huge chance that it gets a near-term pop once the correction starts. I've seen where Jim Rogers is beginning to invest in francs, and I'd imagine it's because he's seeing the same things I'm seeing.

What else could do well? Gold and silver (and the ETFs that track them) will likely finally find some support during the stock market correction and even see a nice bounce higher when this all unfolds. Silver would have the biggest percentage gain. It's the more volatile of the two.

What about the dollar? It typically does well when stocks correct lower. However, this time around, it rose when stocks did and has been falling as stocks have fallen lately too. So I'd shy away from this one as a defensive asset at this time.

So your best bet is to be in positions you can hold for a long time, like what we're doing in the Ultimate Wealth Report. We're actually able to make investments that will stand the test of time there.
 
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But aside from that, the next best thing is to "trade" these defensive assets above as stocks correct. That becomes a bit trickier and demands more timeliness of you. That's why my subscribers and I will stick to solid companies that are trading at cheap multiples relative to their earnings and book values, yet have a ton of cash on their books.

These companies will make it through the correction just fine. In fact, as the stock market correction really gets under way, institutions will be looking for a place to "hide out." That's when they'll be rotating into the type of stocks that we got to first in the Ultimate Wealth Report portfolio.

So if you're not sure where to start, come join us here.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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