by Will Ashworth | September 6, 2013 11:44 am
Military conflicts produce irrational fear.
CNN highlighted that fact in a short piece Sept. 3 about the impact of war on stocks and oil prices. Previous conflicts where the U.S. was involved (Iraq, Libya) produced declining stock prices and increasing oil prices in the days and weeks leading up to the beginning of those conflicts. Not surprisingly, once the uncertainty was removed and the conflicts actually began, stocks went up and oil prices went down.
Now that we’re on the verge of a U.S. missile strike against Syria, some worry it will escalate into an all-out Middle East war, wreaking havoc with stocks and driving up oil prices. While things will probably go back to normal once the military action begins, it’s better to be safe than sorry.
With that in mind, here are my five Syria-proof investments.
First, let’s look at companies that Barron’s describes as “investor insurers” — such as Berkshire Hathaway (BRK.B) — because they invest the cash generated by their insurance operations in other non-related industries. Recently, it noted that Deutsche Bank analysts Joshua Shanker and Phil Stefano initiated “buy” coverage of Loews (L), another of the so-called investor insurers.
The analysts argue that purchasing Lowes’ shares — which are trading at a discount to book value despite growing book value 10% annually over the past decade — gets you several assets for free, including Loews’ hotel chain. It might not be quite risk-free, but it’s pretty darn close given its valuation.
I like this company a lot, no matter the economic situation.
Next up is a play in healthcare, which remains an important sector regardless of international struggles.
The population is aging, which I witnessed firsthand yesterday when I took my mother for her first of two cataract surgeries. While young people are sometimes afflicted with these problems, cataract trouble is generally something for the 60-plus crowd.
According to the Administration on Aging, there were 57 million Americans who were 60 or older in 2010; by 2050, it expects that number to jump to 112 million. More importantly, those over 60 will represent 26% of the overall population, up from 18% in 2010. The importance of eye care in this country is only going to increase.
My mom has to take three different types of eye drops over the next month — two manufactured by Bausch + Lomb, and a third by Allergan (AGN). Bausch + Lomb was acquired by Valeant Pharmaceuticals (VRX) in August for $8.7 billion, virtually doubling the company’s annual revenues overnight. Valeant and Allergan also participate in the dermatology industry, which is another fast-growing part of the health care sector.
Both are good stocks entirely separate from action in the Middle East. Of the two, however, I’d be inclined to buy Allergan over Valeant, but that’s only because of its more conservative balance sheet.
My next pick is the entire automotive sector. But rather than try to cherry-pick the best of a very strong lot, I’m going to recommend the First Trust NASDAQ Global Auto Index (CARZ), up 28% through Sept. 4. Although its expense ratio is a hefty 0.7%, the car industry’s on too much of a roll to ignore.
According to BusinessWeek, Ford (F) sold an F-Series truck every 38 seconds in August. Americans are finally replacing their old beaters (the average age of cars on road is more than 11 years), and CARZ will be a major beneficiary of this cyclical trend — with or without higher oil prices.
My next pick plays very heavily into the economic instability created (albeit temporarily) by conflicts in Syria.
When the world is going to hell, it’s always good to own assets that protect against inflation. Mark Donnelly, a portfolio manager with AEPG Wealth Strategies in Warren, N.J., tells the Wall Street Journal that the SPDR SSgA Multi-Asset Real Return ETF (RLY) provides “an all-in-one source for tapping into alternative asset classes.”
The ETF is a fund-of-funds, charging 0.7% annually, which isn’t half-bad considering it’s actively managed. Invested in a total of 14 ETFs, natural resources account for 47% of RLY’s $128 in total assets, with inflation-linked bonds another 24%, real estate at 19% and commodities and cash the remaining 10%.
RLY’s performance since its inception in April 2012 has been awful, but that’s to be expected with low interest rates and minimal inflation. That’s going to change soon enough. Syria might just be the kick in the pants it needs.
My final pick is an American pastime that won’t go away despite what naysayers think, and I’m not talking about baseball.
Movies, whether watched in the theater or at home, are a staple of everyday life. Seventeen movies generated domestic box office revenue in excess of $100 million this past summer; add in a very healthy international market, and you have a lucrative business.
I’d much rather own a movie theater or film studio than a commercial airline. Some people might never get on an airplane, but almost everyone has gone to the movies. Just look at the success of Alamo Drafthouse, which has grown from a single, repurposed warehouse and has now expanded into eight states. Unfortunately, it’s not a public company.
However, Cinemark (CNK), which has industry-leading operating margins and is the third-largest chain in the U.S., opened its first “Movie Bistro” on Aug. 30, providing theatergoers with a similar experience. I expect this to become a big part of its future growth.
And the best part? None of that is predicated on what’s going on in Syria.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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