The stock markets have been uneasy for weeks thanks to a slew of self-inflicted wounds. Investors fear the outcome of the tariff war between the U.S. and China. But more recently traders also fear the intentions of the US Federal Reserve. Fed Chair Jerome Powell has not yet stated that he is data-dependent.
Overall, there is always the macroeconomic risk that threatens all stocks. The fears are overblown but serious. The Fed could invert the curve and that would eventually bring a recession. Furthermore, January could get ugly if the U.S. and China let the tariff premium jump from 10% to 25%.
Eventually, this too shall pass. All parties involved have worked too hard since 2008 to repair the damage the world suffered from the worst financial debacle in recent history. So while investing may seem daunting now, there are trading opportunities even now.
Here are 3 stocks to trade for November:
Stocks to Trade for November: SPDR Gold Shares (GLD)
The Gold luster may be back en vogue. Go long the SPDR Gold Shares (NASDAQ:GLD).
After a long struggle due to rising dollar, the gold trade may be back in style. Last week we finally saw some bids in the GLD that lasted longer than a few hours period. Since 2014, GLD has had a roof around $130 per share. Every time it reaches this level, sellers slam it down into correction. 2018 has been no different as it fell more than 10% since April. But therein lies the opportunity for another swing high into the resistance.
In theory, the value of gold should never fall. This precious metal is hard to find and getting harder to extract. And the world still craves it. Moreover, gold used to be a safe haven trade in times of stock market troubles. Investors used to sell equities and hide in bonds and gold. Of late that hasn’t been the case but there is evidence that it could also be coming back in style.
From here, the thesis is that there’s more upside potential than downside risk for a trade. I was lucky enough to be in a call calendar trade in the GLD that after last Friday turned into a purely long gold and profitable. Regardless, it is not too late to start from scratch. This would be a good time to enter long the GLD at least for mid term. As always I don’t jump in with both feet, I like can start with a partial position and add to it overtime.
Stocks to Trade for November: IBM (IBM)
For years I’ve been an outspoken critic of IBM’s (NYSE:IBM) management for failing to make the turn into the new age of tech using the cloud. They have so far been hanging on to Watson as the new thing to come. While they may be early movers on that front, so far IBM has lagged other companies like Microsoft (NASDAQ:MSFT) in making the adjustments.
But this morning, we learned that IBM is buying Red Hat (NYSE:RHT) for $33 billion. This is a hefty sum and I see it as their last ditch effort to turn this sinking ship around. Big blue’s stock is in bear territory and at five-year lows. This is also a 20-year pivot level for IBM and those tend to be support on the way down.
This won’t be a sharp turnaround so I have to be patient with this trade. My time-frame is long so I am prepared to take some pain. But I don’t build the position overnight. I leg into it with small tranches so not to avoid catching a falling machete too soon.
Stocks to Trade for November: Facebook (FB)
I’ve said before that it would take colossal stupidity to ruin the potential of a billion active users. Facebook (NASDAQ:FB) management created its own crisis with the Cambridge-Analytica debacle. But more recently, the stock fell over 30% triggered by a bad earnings report. It didn’t help that the equity markets are in a tizzy either.
In spite of the technical and reputation damage have been done. My worry still remains that the leadership the Facebook is now more concerned with the public opinion rather than the bottom line. They are now overshooting with caution and could end up overspending on it as well.
Nevertheless, this is a company that has over a billion users engaged on its platforms every day and for hours at a time. This is undeniable potential. They are also making headway into the streaming market. Advertisers have hung in with FB in spite of a few high-profile calls to cancel accounts. I haven’t seen it in any of my circle of friends are family.
Outside of the United States, hardly anyone is paying attention to this self-inflicted wound. There have been calls for Mark Zuckerberg to relinquish control. But since he has about 60% of the voting power in the company, Zuckerberg would need to be convinced to leave voluntarily, which I think is unlikely.
But the potential in the Facebook stock is just too big for one person to mess it up. So this too shall pass. FB now sells at a 20 price-to-earnings ratio. This is half the valuation for Alphabet (NASDAQ:GOOGL) and five times cheaper than Amazon (NASDAQ:AMZN).
Just like gold, I believe that Facebook stock at this level is closer to a bottom than its upside potential. The earnings this week will be the make-or-break event for this trade. The FB upside will unfold over years. So it is important to build the position over time especially going into earnings uncertainty.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.