Last year was great for owning risk assets. Yet with more than a few compelling reasons to hedge Wall Streetâs enduring and endeared bull market, itâs time to consider a portfolio hedge with precious metal stocks. Today weâll look at three risk-adjusted plays to profit and smartly diversify.
The historic bull run in equities is running on fumes as we begin 2020. More than a decade since the financial crisis crippled economies and the stock market, investors are partying harder than weâve seen since 1999.
We know how that played out.
The well-defended rally, which in hindsight became known as the Dot.com bubble, saw even the best and biggest companies like Apple (NASDAQ:) and Microsoft (NASDAQ:) hammered in the aftermath. Of course, today is obviously different than that eraâs pricing miscalculation. And for the better. Nonetheless, todayâs environment has many of its own risks that shouldnât be ignored.
The thing is, now and with trillion dollar plus market caps in the rear-view mirror, a dazzling 2019 rally in hand led by dizzying gains in AAPL and MSFT, kicking the tires isnât unreasonable. Moreover, with frothy market multiples questionably pricing in more good times to come and political instability offered in spades both inside and outside the White House, buying into a low-correlated bull market just underway in precious metal stocks makes total sense.
Stocks to Buy: iShares Gold Trust (GLD)
The yellow metal proxy iShares Gold Trust (NYSEARCA:) is the first of our precious metals stocks to buy. Gaining direct exposure to the underlying hard asset without the potential headaches of company-specific risks, as well as GLD stockâs top-notch liquidity makes this vehicle a terrific choice.
Technically, a buy decision in this precious metals stock is made even easier in todayâs market. Shares in January have staged a breakout from a three month lateral consolidation pattern to multi-year highs. The observation is that GLD stockâs breakout is the beginning of a momentum-driven second leg. If correct, shares should conservatively rally toward $170 over the next few months.
GLD Stock Strategy: Use momentum to your advantage. Wait to buy GLD stock if an overbought monthly stochastics can regroup and form a bullish crossover. Iâd also require this precious metals stock to maintain what Iâd label âpattern and pragmatic price supportâ above $140 as a prerequisite for purchase.
Pan American Silver (PAAS)
Pan American Silver (NASDAQ:) is the second of our precious metals stocks to buy. Donât let the name fool you. While primarily a silver company, PAAS stock also produces and sells gold, zinc, lead and copper. More importantly, it would be even more foolish to overlook this precious metals stockâs formidable relative strength. And right now Pan Americanâs technical story just got better. On the daily chart shares have confirmed an oversold pullback entry within PAASâ market-leading and sturdy-looking uptrend.
PAAS Stock Strategy: Buy this precious metals stock today. Iâd advise $25 as a spot to take initial profits. Conversely, if todayâs confirmed pullback falters, an exit beneath the pattern low is smart business off and on the price chart.
Sibanye Gold Limited (SBGL)
Sibanye Gold Limited (NASDAQ:) is the last of our three precious metals stocks to buy. This gold and diversified metals play was a technical standout in 2019. Follow-through in 2020âs early going has been checked by SBGL stockâs lifetime 50% retracement level and a tight layer of price action acting as resistance. In our view, todayâs hesitation is temporary and overbought conditions will continue to reward the more daring.
SBGL Stock Strategy: Buy this precious metals stock on a move above $10.65. This entry looks to buy into momentum as shares clear resistance. To ensure investors arenât left holding foolâs gold, keep a stop beneath $9.50 to avoid an undesirable change in technical character and unwarranted monetary exposure.
Disclosure: Investment accounts under Christopher Tylerâs management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tylerâs observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter and StockTwits.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.