Cheap Stocks To Invest In Right Now : The Three Best Contrarian Investments To Make Right Now
Tue, Nov 12, 2013
Best Cheap Stocks To Invest In Today
Investing In Cheap Stocks Is Best Option Right Now
When I say cheap, I mean CHEAP.
That’s the definition of a cheap stocks.
Of course, in a market that is up 150% in the last four and a half years, there aren’t many Cheap Stocks available.
To find the cheap stocks, the best place to start is look for the worst-performing sectors. They’ll have a lot of cheap stocks.
Here are three Contrarian Investment sectors where you’re going to find cheap stocks to buy now.
Cheap Stock Market Sector #1: Coal
There is absolutely NO REASON to like coal stocks right now.
Demand for thermal coal has dropped drastically with economic troubles in emerging markets, mainly China.
Cheap natural gas from shale gas deposits continues to be a fair substitute in power plants across the country.
And the federal government is bent on regulating them into oblivion here in the United States.
That’s why coal stocks, as tracked by the Dow Jones Coal Index, are down more than 50% in the past four years.
Of course, when there’s no reason to buy something it is usually at or near its bottom.
Coal stocks are likely there right now.
Cheap Stock Market Sector #2: Gold Mining
Gold continues to show very little appreciation potential.
The run gold and gold stocks made between 2008 and 2011was phenomenal. Gold almost tripled and most gold stocks did two, three, four, or more times better than gold.
The collapse since then has been equally phenomenal. Major gold mining companies have watched their costs soar, revenues decline, and earnings disappear.
They’ve shuttered multiple multi-billion gold mine development projects around the world. Their entire future growth is riding on those projects.
That’s why we like gold mining stocks so much right now. History shows when a metal prices fall below the production costs (a point gold prices are very close to reaching), the bottom in the mining stocks isn’t far off.
Cheap Stock Market Sector #3: Mortgage REITs
The Mortgage REIT sector has long been a safety play for investors. These stocks offer a high dividend yield and relatively consistent returns year in and year out.
However, there are a few times Mortgage REITs do not do well. That’s when interest rates rise.
You see, mortgage REITs primary business is borrowing a lot of money cheaply and then going out and buying mortgage bonds. Through the leverage they take on, they can pay shareholders two to three times as much as just holding mortgage bonds.
Annaly Mortgage (NLY) is the largest mortgage REIT. All it does is borrow money and buys government-backed mortgage debt. As a result, Annaly shares paid an annual dividend yield between 8% and 18% over the last five years.
However, during periods when interest rates are rising, the value of the mortgage bonds falls inversely to how much rates are rising. The drop in value is magnified by the leverage mortgage REITs have. So a drop of 10% in the value of mortgage bonds could easily cut the book value of a mortgage REIT in half that’s leveraged 5-to-1.
So recently with the yield on the 30-year Treasury going from 2% to 3%, the values of mortgage REITs have plummeted.
The decline has wiped away all of the run-up they’ve enjoyed in the past few years. Mortgage REITs, as tracked by the Dow Jones Mortgage REIT Index, is down 25% over the past four years.
For such Safe And Simple Stocks, that a big decline. That for contrarian investors looking to buy stocks on the cheap, won’t last.
These are three of the cheapest sectors in the market.
They are out of favor. No one wants to buy these right now.
It’s the perfect mix for a strong performance over the next one or two years and beyond. And, of course, only the type of investment a contrarian investor could love.
The Group of Big Investors in United States.
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