Where To Find Safety Among Uncertainty

By Kristina Zucchi, CFA | November 30, 2010 AAA

It seems like there is negative news everywhere these days, which makes finding a safe haven for investing nearly an impossibility. How will the fighting among the Koreas affect its neighbor China? What does the bailout of Ireland do to the European market? Does it affect the euro? Will the U.S. continue to feel comfortable with the U.S. dollar value? Hidden among these questions lies stocks that may supercede these negative unknowns and appreciate in value. (For more, see Investing During Uncertainty.)
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Safety, Safety, Safety
Commodity stocks seem to be the most likely to weather the geopolitical and economic uncertainty. Not only are they considered a store of value, they also participate in the rise and build-out of the BRIC nations. One way to participate in this market is to buy a gold ETF like the SPDR Gold Trust (NYSE:GLD) or to buy a gold miner and producer like AngloGold Ashanti Ltd. (NYSE:AU), a South African Gold E&P company. However, the choice of gold is not an unexpected one and investors have benefited from the market uncertainty by buying these stocks. AU has experienced more than 35% appreciation since its lows in late February. Despite this appreciation, the gold bulls believe that the inflation fears resulting from the U.S. dollar value as well as the unrest in other parts of the globe will continue to propel the price of gold.

In addition to gold, other commodities are benefiting from the inflation fears. Copper and crude oil have been very strong this year and are expected to show strength in the short term. However, if geopolitical events continue to scare investors, commodity stocks may feel the negative results, as investor seek safety in the U.S. dollar, a move investors made this past week as news of the recent fighting between the Koreas hit the markets. (For more, see Inflation Portfolio Picks.)

Strength in Surging Markets
Some other areas of the market are poised to benefit from the uncertainty. To combat the falling dollar and resultant inflation fears, technology stocks historically have outperformed the market . Consistent with this premise, tech stocks have performed well over the recent time period. Global Traffic Network (Nasdaq:GNET) provides traffic and news information reports to television and radio stations in exchange for airtime which it sells to advertisers. GNET has experienced more than 100% price appreciation resulting from over 50% revenue growth over last year. Many other tech stocks are offering high yields. Three of the highest yielding stocks of the S&P 500 are telecom stocks. Frontier Communications (NYSE: FTR) still offers a yield of over 8%, despite being up over 30% since early July.

Bottom Line
Uncertainty creates opportunity. The opportunity to invest in good companies that may insulate investors from the negative worries facing the market exists. Investors need to understand their investing premise and find companies that will insure or protect them from the market worries. (For more, see 4 Stocks For An Uncertain Market.)

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