Where to Turn When the Markets Go Haywire

Here we go again!

Uncertainty is back. If this were a boxing ring, we'd see Europe hanging on the rope, trying to avoid a knockout call for the world's secondary reserve currency.

We might find China dangling Cirque-du-Soleil-style on a trapeze high above the ring, wondering whether gravity would once again take hold on its lofty growth. We might even see the United States banging its head into the post, frustrated with the sheer persistence of this global debt crisis that was never truly over.

Near the center of the ring, those high-flying commodity stocks that investors have turned to -- both for exposure to pan-Asian demand, and for protection from projected inflation -- are being pummeled by punches below the belt. If you're the referee wondering how to officiate such a free-for-all, you may just be hopping out of the ring.

I won't attempt to dissuade anyone from paring down equity exposures during a moment like this, but I would like to offer two brief points for investors to keep in mind as they navigate this apparent sea change in market direction:

  • Strong moves to the downside routinely yield opportunities in shares of carefully selected companies that are unduly punished in the initial exodus.
  • Some common safe haven assets that investors turn to when reducing equity exposure may not be as safe as they appear.

The falling knives that may not cut
I have a list of stocks on my watch list within my silverminer portfolio over at Motley Fool CAPS that I believe will retain strong opportunities for long-term growth within any of the economic scenarios that investors are currently attempting to project. At a glance, I can see which of those prospective holdings have taken the worst beating during a given day of selling pressure, and I can easily sort them by cumulative performance against the S&P 500 from the time I added the stocks.

In this way, I can begin to identify which of my defensive picks may present the best relative opportunity in case I'm ready to stick out my hand and catch a falling knife. Looking over my list at present, I see that some of the more compelling plays staring me in face include:

  • Brookfield Infrastructure Partners (NYSE: BIP  ) is more than a mere blip on my radar screen. Following a strategic purchase of highly attractive assets last year -- which included a 49.9% direct stake in the Dalrymple Bay Coal Terminal in Australia -- this well-managed, diverse portfolio of infrastructure assets offers the kind of reduced correlation to economic activity that can translate into safety at a time like this. With a dividend yield currently above 6%, and a nod from three of The Motley Fool's newsletter services, it's no wonder I already converted this watchlist selection into a full-fledged CAPS pick back in December.
  • Shares of fertilizer producers PotashCorp (NYSE: POT  ) and CF Industries (NYSE: CF  ) have been hammered recently amid softness in product prices. In the longer-term, however, I agree wholeheartedly with Jim Rogers and others that the agricultural sector will experience a dramatic growth trajectory based upon market drivers that are only lightly correlated to the state of the global economy. After listening to PotashCorp President & CEO William Doyle suggesting that, "the pressure on food supply around the world is going to be enormous" over the coming years, I will be watching those shares closely for an attractive entry point.
  • Leading mining equipment manufacturers Bucyrus (Nasdaq: BUCY  ) and Joy Global (Nasdaq: JOYG  ) recorded some breathtaking intraday declines Wednesday. I believe that even the array of concerns over reduced demand from China and Europe and a potential super-tax on resource profits in Australia are insufficient to derail what remains a multiyear bull market for mined resources from coal to copper. These are global market leaders in the niche industries they serve, and I view further weakness in these shares as compelling long-term investment opportunities for even the most nervous equity investors.

The safest safe haven of all
It's been only a matter of days since gold notched a fresh all-time high above $1,240 per ounce. Already, the surreal moments that saw even vocal dollar-champions like Larry Kudlow referring to the metal as the "world's new reserve currency" are fading into the shadows of short-term memory loss. You see, during a major sea-change like this one, from boisterous rally into uncertain future, many investors are conditioned to move quickly into cash or U.S. Treasuries as their default flights to safety.

Since the last major market sell-off took place, however, many more investors have come to realize that gold is indeed a currency, and that cash and Treasuries carry their own sets of risks in this macroeconomic environment. Therefore, I expect gold and silver to display some weakness only during the earlier stages of any significant market correction.

When Fools consider raising cash to improve their defensive posture, I encourage them to consider carrying a portion of that liquidity in a reliable gold bullion instrument like the Sprott Physical Gold Trust.

Finally, those who share my long-held conviction that silver and gold prices are still headed substantially higher may wish to seek opportunity in this surprisingly fierce sell-off ongoing in gold and silver mining equities. After an abrupt retreat from recent highs, I view my top pick Silver Wheaton (NYSE: SLW  ) and low-cost miner Silvercorp Metals (NYSE: SVM  ) as particularly attractive investments at this juncture. Whatever strategy you decide to pursue as this bout unfolds, remember to keep your guard up, maintain your balance, and don't let yourself get knocked out of the ring. Please share your comments below, and join us in CAPS ... where investors are helping each other hone their strategies.

Fool contributor Christopher Barker carries a silver coin that reads, "Honest value never fails." He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Silvercorp Metals and Silver Wheaton.

Brookfield Infrastructure Partners is a Motley Fool Inside Value recommendation, a Motley Fool Global Gains pick and a Motley Fool Hidden Gems choice. The Fool owns shares of Brookfield Infrastructure Partners. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a depression-proof disclosure policy.


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