Hello, Reader.
Washington has certainly thrown us a few curveballs this year, and this week brought another.
Congress failed to reach an agreement on keeping government services running, and as a result, the federal government officially shut down at 12:01 a.m. Wednesday.
So, we’re now in shutdown Day 2.
These are strange and unpredictable times. We’ve never had an administration quite like the one we have today, making this shutdown feel different… with more uncertainty than before. Mass firings at the federal level are expected this week, adding fuel to the volatile fire.
But it is important to note that most shutdowns are short-lived and do not significantly harm markets. Even the longest one, under President Donald Trump in 2018, didn’t stop the S&P 500 from gaining 10% over that 35-day period.
So, in short, I advise investors to “keep calm and carry on.” There is a high chance that this shutdown turns out to be nothing more than a nonevent, just like the ones before it.
That said, I do think stock market gains will be much harder to achieve over the next few months. Not because of a market crash, but simply because markets are sitting at near record highs, and the leading stocks are even more richly priced than the overall market.
Additionally, CNN reported last week that U.S. stock ownership is at a record high – 45% of households. That means if there is a pullback, it’ll be widely felt.
So, to use an overused phrase, we’ve entered a “stock-picker’s market.”
That means focusing on specific stocks with attractive growth characteristics, rather than relying on one or a few broad trends.
But what stocks should you pick?
In today’s Smart Money, I’ll share where you should – and should not – be looking in this jungle of a market.
These are the kinds of stocks I believe will thrive despite a government shutdown… and keep thriving once we get past it.
High Valuations, Low Prospects
Let’s start with where not to look. I recommend steering clear of overvalued companies.
Simply put, valuation matters when narrowing down stock picks.
The fact is that stock valuations in the U.S. today are close to record highs, which means their wealth-building potential is close to record lows, all else being equal.
In many ways, today’s market resembles the high-flying stock market of the dot-com bubble 25 years ago. As internet stocks rocketed toward all-time highs, the signs of “irrational exuberance” lined up like billboards along Route 66.
Many money-losing dot-com companies were so sure of their “inevitable” success that they spent millions of dollars to buy Super Bowl commercials and/or name professional sports stadiums after themselves.
Nineteen dot-com companies paid more than $2 million for 30 seconds of time during 2000’s Super Bowl XXXIV. Nearly half of those 19 companies had ceased to exist two years later.
In today’s market, the “Magnificent Seven” tech stocks are trading for 50 times earnings, on average.
Yes, these are spectacular, industry-leading companies. But because they are selling for spectacularly high valuations, they may struggle to “grow into” those valuations.
But outstanding investment opportunities remain, even in the midst of a richly priced stock market. The key is to look for opportunities where the crowd is not.
For instance, when tech stocks are flying high, many non-tech stocks are usually flying low. Often, you will find these stocks in out-of-favor industries – and foreign markets.
This brings me to where you should look…
Looking Beyond the U.S.
I have long advocated for investors diversifying their portfolios with foreign stocks, especially during times of high valuation.
For instance, I made a series of what I called “Franco-American” trades during the dot-com bubble. Basically, “Sell America… Buy France.”
And I found great success…
I recommended selling the iconically American Coca-Cola Co. (KO) and buying Danone Group (BN.PA), a French global food and beverage company. Over 10 years, Coca-Cola fell 5%, while Danone jumped 322%.
I also recommended selling Hilton Worldwide Holdings Inc. (HLT) and buying Bains de Mer Monaco (BMRMF), a French resort company. After nine years, Hilton was up just 26%, while Bains de Mer soared 866%.
In a third example, I recommended selling Citigroup Inc. (C), the United States’ third-largest bank, and buying Banque Nationale de Paris, a major French bank that, after a series of mergers, is now known as BNP Paribas SA (BNP.PA).
Although it may sound unbelievable, investors who bought Citigroup in 1996 and held have not made a single dime on their money in three decades. On the other hand, BNP has delivered a whopping 1,355% gain.
In these three Francophile recommendations, $10,000 into my three sell recommendations would have landed you a disappointing $32,300. While that same amount of capital in the three buy recommendations would have had you sitting on a six-figure sum of $229,600.
That is the potential power of foreign stock markets.
While the current government shutdown may not have a significant long-term impact on the markets, it is still an opportune time to look beyond the U.S.
Foreign stocks deserve a place in our portfolios at all times, but especially those rife with domestic uncertainty.
And I’ve had my eye on a South Korean company that the smart money is already moving into…
The Foreign Stock to Watch
This e-commerce retailer has been growing rapidly over the last several years, as it has expanded its dominance and improved its profitability. It already generates over $30 billion in annual revenue.
One aspect I like about this company is that it uses acquisitions and targeted investments in foreign markets to increase its market share.
For example, last year it acquired a London-based e-retailer of luxury clothing and beauty products that sells primarily to customers in the United States and Europe. Plus, this company is making a big push into the Taiwan e-commerce market and has plans to expand into other East Asian markets.
The company has also impressed on the revenue front, reporting a 16.4% year-over-year increase in its latest quarterly earnings release.
As this South Korea-based company expands its empire and its earnings continue ramping higher, I expect its share price to post solid market-beating gains for many years. Projections are showing that it could become 700% more profitable by 2027.
In fact, I reveal the name of this foreign play in a free special broadcast.
I also share six more free trade ideas, both for current buys and sells.
My “buy now” list contains under-the-radar, early opportunities with compelling valuations – stocks poised to soar in today’s stock-picker’s market.
On the other hand, my “drop immediately” list is full of companies with significant headwinds that could drag down your portfolio.
Click here to watch the replay now.
Regards,
Eric Fry
P.S. Meanwhile, my colleague Luke Lango isn’t letting the government shutdown slow him down…
In fact, Luke and the entire InvestorPlace team are working furiously to finish up a big event we have planned for this coming Monday, October 6. Luke has uncovered an ambitious master plan coming out of Washington that’s set to inject $4 trillion into a tiny sector of the market starting October 21.
And at his free private summit, at 1 p.m. Eastern on Monday, October 6, he’s going to tell us more about seven investment vehicles that could soar as these trillions flow into the economy. Plus, Luke is going to reveal the name and ticker symbol of one of them, for free, during that broadcast.
