Beaten-down industrial-metal stocks will be the next group of investments to rebound
MarketWatch - Stocks that I said were unfairly beaten down by fears over the coronavirus took off this week as China’s central bank stepped in to cut interest rates and support the economy.
By the end of Tuesday, the 14 stocks I suggested last week were up about 2.6%, almost twice that of the S&P 500 Index SPX, -1.25% and the Dow Jones Industrial Average DJIA, -0.98%.
Nike NKE, -2.66%, Walt Disney DIS, -1.16%, Starbucks SBUX, -1.50%, Hyatt Hotels H, -1.32%, Wynn Resorts WYNN, -4.39%, Marriott International MAR, -2.71%, Tapestry TPR, -3.33% and GreenTree Hospitality GHG, -2.36% — all of which do big business in China — led the way, with gains of up to 5%. They have more to go, but here’s another way to bet against exaggerated coronavirus fears: Buy industrial metals.
The reason: China is not done with stimulus. The People’s Bank of China is going to announce big fiscal spending programs to offset the economic hit from cornonavirus, believes Larry McDonald, author of the Bear Traps Report.
That will boost industrial metals, which you can get exposure to by purchasing the SPDR S&P Metals and Mining ETF XME, -0.50%, Global X Silver Miners SIL, +1.43%, and iShares MSCI Chile ECH, -0.27% and iShares MSCI Brazil Index EWZ, -0.93% because those two produce industrial metals including copper and iron ore. Below I also list six mining companies that insiders and analysts say look attractive.
The deadly coronavirus will shave as much as 1.3 percentage points off China’s gross domestic product (GDP) this year, say economists at Barclays, which would bring growth down to 4.7%. Chinese officials are not just going to stand by.
“China responded to shocks with fiscal juice in 2009 and 2016, and it won’t be different this time,” says McDonald. “When you get the fiscal response from China, these stocks are going to be up 50% to 60%.”
Fresh fiscal stimulus from China will get layered on top of more than $1 trillion in 2020 “fiscal juice” already coming from China, Japan, South Korea, India, the U.K. and the U.S., among others.
“The coronavirus only will accelerate the government-spending largess,” says McDonald.