Bubble’s portfolio in the making

My first UK stockbrokerage account is all set and ready to rumble. Not to mention Bubble’s Junior ISA.

That’s not my daughter’s real name. It’s a reference to the endless slobberbubbles she uses to… I’m not sure what.

Regardless, the question now is what exactly to buy for the both of us.

Going by your emails, there are a few of you in the same boat. With cash on the sidelines. You want to know what to buy into at these lower levels.

Well, as I hope you know, it’s not time to buy just yet. But it is time to decide what to buy. To research what to buy.

Today, I’ll reveal where I’m drawing my shortlist from. The types of stocks and what makes them worth looking into properly.

But first, a warning.

Cash on the sidelines is at risk, if you ask me. And I’m not referring to inflation. I’m referring to a banking crisis which leads your bank deposits to be converted into bank shares at the whim of the Bank of England.

But that’s another story, as is how to protect yourself from such a banking crisis.

Incidentally, one of my top tips in the report has outperformed UK and US stocks, with less price volatility, since 2003. So don’t think you need to give up on returns.

Still, lesson one is “don’t own any bank stocks”. Banks need deposit insurance and central banks for a reason. They have a habit of blowing up. Or imploding, depending on how you look at it. It happens so often that the government backs banks in all sorts of creative ways. Ways that aren’t necessarily great for shareholders or depositors though.

That’s why I don’t think it’s a good idea to have too much money in the bank – not in stocks, nor accounts.

Not that kicking bank stocks off of my list of what to buy narrows things down much.

But I do know where I’m beginning my search.

The gold stock ETF GDX is down 50% since 2007. Gold has more than doubled since then.

Now that is a golden opportunity.

Although, what’s gone wrong for gold stocks? Why are they down?

Well, gold mining is a risky sort of business. You borrow money to pay for exploration. You borrow money for the capital expenditure needed to get the mine up and running. And then you’re running on borrowed time before the mine is exhausted. At which point you start over again.

That’s not exactly conducive to stable profits, nor dividends. Unless you’re a large company rolling over many mines at any point in time. But those don’t promise big profits for investors.

Because of all the financing needs, any debt crisis can undermine a gold mining business, pun intended. And gold mines tend to be in politically iffy places. Governments have long since established the idea of royalties. It only takes an increase in that royalty to undermine a mining venture – hardly a shocking crackdown politically, unless it’s your mine.

Because of all this, the gold mining sector is a bit of a wildcat. Especially during a debt crisis. And that is reflected in stock prices, with miners regularly hitting choppy water, despite the rising gold price.

Still, if you know what to look for, gold stocks can boom. And precisely when you need them to as well – in the crisis. They’re often the first thing to turn up too.

Eoin Treacy knows that it takes more than a gold boom to make gold stocks move. But right now, he says it’s time to buy into the right names. Find out what they are here.

So banks are out and gold stocks are in. What else is there?

Eoin Treacy profiled Apple in his Exponential Investor Premium video yesterday. You can watch it here. The pullback in blue chips stocks could be a huge opportunity.

As I see it, if you’re going to buy large cap stocks to hold, a crisis is the only time to do so. Because they’re much cheaper, but highly likely to survive the Covid-19 crisis and return to normal.

The same goes for many other stable large caps like Coca-Cola. A crisis is the only time worth buying.

But I’m more interested in stocks that have room to grow. Especially if it’s buy and hold. Growth and decline time. It’s better to have time on your side if you’re investing in the long run. So I’d go with growth, not stocks at risk of decline over time.

What could be more “growth” than Virgin Galactic – the first stock you can invest in to gain exposure to commercial human space flight. The stock was down about 60% thanks to the Covid-19 crash, at one point. It’s caught up in the volatility more than most, despite the current crisis verging on the irrelevant for the company.

Hypersonic flight and commercial human flight are only a matter of time. This stock should ride the boom. And it has bookings with deposits up to its ears already for space tourism.

What about shopping from home? Ocado’s platform is sold out for weeks, but the share price is down. International ventures continue, with my wife’s Japanese hometown now using Ocado software to deliver groceries.

You could also look to hoover up the most beaten-down sectors of the stockmarket. Commodities like oil and other resources, for example. In this sector, enormous blue-chip companies are selling for cheaper than they’ve been in a long time.

Given I used to juggle knives for a profession, I’m also looking to catch a few of those. Airlines and cruise ship companies will recover. Some of them, anyway. The Aussie owner of theme parks Ardent Leisure is down almost 90% since January.

From here on in, I’m digging into the details. Closely examining the companies on my short list. Something you could leave to Eoin Treacy when it comes to the gold stocks he’s found for you.

But here’s what all stocks you buy should have in common.

In times like this, it’s not just about earnings, dividends and growth. Those forecasts are out the window for the next six months.

It’s all about who will survive the lockdowns, quarantines and economic showdowns. Because anyone who makes it out the other side will outperform, for a while at least.

If you can evade the coming busts, it’ll soon be a great time to buy the right stocks.

Nick Hubble
Editor, Southbank Investment Research

Category: Commodities

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