Best investment opportunities: Where to Invest $10,000 Right Now: Dividend Stocks, Big Pharma, Treasuries

Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. FinanceBuzz is an informational website that provides tips, advice, and recommendations to help you make financial decisions. We strive to provide up-to-date information, but make no warranties regarding the accuracy of our information.

Finally, in a world where global growth is slowing, food producers typically outperform industrial metals, and with expectations of a new El Niño this year, prices on soft commodities should rally. We also expect some investors to lock in gains from the U.S. market after its stellar performance—you’ve just seen three years’ worth of performance in three months! These investors may well begin looking at euro-zone equities thanks to their low valuations. The weak euro and signs of China recovering might boost European exporters—especially in the unloved German market. The record highs seen in the U.S. equity market have come against the backdrop of U.S. 10-year Treasuries falling through 2%, global growth slowing and inflation pressures moderating. Its superior financial leverage profile should offer some protection even if there are still legs down in the equity market.

While Europe is struggling to grow, this appears well-discounted in the market. In contrast, the U.S. economic surprise index is near a two-year low. To be clear, this doesn’t mean that the U.S. will grow slower. But relative to expectations, European growth is coming in better than in the U.S.

Index funds

While investing can build wealth, you’ll also want to balance potential gains with the risk involved. After a bout of high inflation and the Federal Reserve rapidly raising interest rates, investors may still be reeling. Stocks spent most of last year in a downturn, even entering a bear market at one point. And with many top economists fearing a recession could be right around the corner, some investors may think there’s no good place to invest. But extend your investing horizon, and 2023 could set you up for good returns later on.

While investors are looking for cyclical exposure, they are turning more cautious on pure market risk. As a result of a surge in government transfer payments and fewer opportunities to spend in a lockdown inhibited world, consumers have accumulated roughly $2.5 trillion in excess savings. Household wealth now stands at a record 6.5 times the size of the economy, debt relative to income is the lowest in a generation and the cost of servicing that debt is the lowest in decades.

Products

Given the recent pick-up in Covid-19 cases in the U.S. and some European economies, we see increased risks of a brief “double-dip” recession in Western economies. Asia looks well placed to gain from any such economic uncertainty and we see Japan as a better way of playing this than emerging-markets equities, which look expensive. They want to be convinced that inflation will reach their target rate before they ease off the brakes. In this environment, Asian equities stand out as a relative bargain. In recent years, Japanese stocks have traded at a discount to the U.S., and that discount is particularly large today.

The threat of a possible lack of OPEC production discipline also clouds the oil price outlook. New crude oil discoveries since 2013 probably can’t offset the drag from aging oilfield production declines, falling reserves and insufficient replacement of produced volumes. Supply constraints in countries such as Venezuela, Iran, Libya, Nigeria and Mexico may get worse. As a way to play Ketterer’s suggestion of oilfield services companies. Balchunas’s pick to play on Ketterer’s theme of buying battered European bank stocks, rose 7.1 percent. A state-of-the-art automotive plant, for example, uses industrial automation technologies to design the optimal robotics path to boost weld quality and productivity.

Beware of Buying Dips

In September, two large Spanish banks announced they will combine to form the country’s largest lender. Memory chips are essential for performance-hungry applications that power the data economy, and memory is the biggest beneficiary of the AI revolution. In this world of hyper-accelerating growth companies, cyclical growth sounds like an oxymoron. Yet companies that specialize in the design and manufacturing of memory semiconductors fit that description. Saw their prices fall 2.1% and 4.7%, respectively, since the last “Where to Invest $10,000” was published on May 18.

However, due to industry consolidation into a few scale players, formidable barriers to entry and supply discipline, this cycle should be brief. Markets typically discount future events many months before they occur. In our current world of massive monetary liquidity, with historically high levels of investment in all types of assets, this anticipation mechanism is working in overdrive. For those looking to mimic the advice using exchange-traded funds, Bloomberg Intelligence analyst James Seyffart suggests the best ways to invest in the experts’ recommended themes. Skepticism toward stocks has been growing on fears that a string of aggressive rate hikes by the Federal Reserve will stretch out longer than anticipated and lead the US economy into recession. Using the Roth-like benefits of the Coverdell and 529 college savings plans removes the tax burden, resulting in more cash to pay for education.

How much of your money should be in stocks?

In the U.S., investor demand for high-dividend-yielding stocks, and exchange-traded funds that track such stocks, has risen sharply in our own prolonged low-interest-rate environment. Mrs. Watanabe, the proverbial Japanese retail investor, wants income. It may make sense to own some of these income-generating, better-quality Japanese stocks before she does. Holds tech companies that pay the highest dividend, which means it has the largest percentage of “legacy tech” names such as Intel Corp., Microsoft Corp., Cisco Systems Inc., and Oracle Corp. This “I love the 90s” portfolio has the lowest volatility, lowest average price-to-earnings ratio, and highest dividend yield of the technology ETFs.

As I mentioned above, you could invest in a stock market index, or you could invest with stock options, or—and this one’s my favorite—you could invest in individual stocks. Exchange-Traded Funds, or ETFs as they’re commonly called, are similar to index funds in that they track a popular index and mirror its performance. Unlike index funds, though, ETFs are bought and sold on the stock market.

This means that when you take your money out of the bond, you’ll actually have less buying power than when you put it in because the rate of growth didn’t even keep up with the rate of inflation. CDs are an extremely low-risk investment – but with low risk, comes low reward. Most banks offer CDs at a return of less than 2% per year, which is not even enough to keep up with inflation. Low-risk investing involves buying assets that have a low probability of incurring losses.

Holds stocks that consistently increase their dividends, Bloomberg Intelligence’s Balchunas said. Top holdings include Microsoft Corp., Apple Inc. and Johnson & Johnson. Note, though, that the yield is only 1.7%, because the ETF holds companies that raise their dividend — not necessarily companies that have high dividends. While preferred stocks aren’t likely to send anyone’s heart racing, a yield of 5 percent-plus in a world still characterized by low rates, high valuations, and uncomfortably low volatility is worth a look. In an environment in which investors are more sanguine about economic growth, they are more likely to notice that value stocks are not only cheap but also offer better leverage to any economic acceleration. Historically, many of these markets, especially Korea, have traded at a discount.

While total U.S. health-care spending continues to increase, the percentage attributable to prescription drugs has stayed flat, at around 10 percent. Importantly, utilization growth rates are greater than unit cost rises, indicating product efficacy. If the drugs weren’t effective, doctors wouldn’t prescribe them. Assuming buyers will pay for efficacious drugs, then the prognosis for the more innovative pharmaceutical companies is good. Top holdings Exxon Mobil Corp., Chevron Corp., and Schlumberger Ltd. make up more than 40 percent of the portfolio.

Treasury yields unlikely to rise above 2% in the coming year, relative valuations should also continue to support equities. While many investors fret about the risk of stagflation, we see inflation moderating as economic activity slows. This should create downward pressure on longer-dated bond yields — even as the Fed raises rates. However, the rise in bond yields last quarter has shifted the relative attraction of equities versus bonds. Our models now suggest that it is time to sell equities and buy bonds on a 12-month view. The MSCI All Country World Telecommunications Services Index is made up of 81 constituents in developed and emerging-markets countries.

Value stocks tend to be the cheapest based on metrics like price-to-book or price-to-earnings, while growth stocks experience the fastest earnings growth. For example, one way to measure this attribute is with a PEG ratio, which divides the P/E of a company by the expected growth rates; the lower the PEG ratio, the more attractive the stock. Why do several of the large global pharmaceutical stocks trade at above-market dividend yields and below-market price/earnings ratios? Perhaps the repeated threats by President Trump to cut drug prices have scared investors.