Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: David Morrison, senior market strategist at Spread Co.
I'm not particularly optimistic about the global economic outlook. It seems extraordinary that seven years on from the nadir of the last financial crisis we have central banks resorting to negative interest rates. Further monetary stimulus is coming, but I doubt it will work. Policymakers remain unwilling to make the fiscal adjustments that are so vital for any chance of a sustainable global recovery. Additionally, major US and European stock indices look as if they topped out in the first half of last year and are now rolling over. Given all this, I'd buy into companies for the long term the ones that should survive the next crisis more or less intact.
I believe the lows for gold and silver are in. I want exposure to both for protection against the predations of governments and central bankers. Silver is well known for its dual role as a monetary and industrial metal and, according to the Silver Institute, demand is set to rise in 2016. I think silver is set to outperform gold and we'll see the gold/silver ratio fall from its current level above 80 to something nearer 50, its long-term historical average. Fresnillo (LSE: FRES) is the third-largest silver producer in the world and Mexico's second-largest gold producer. So it ticks two boxes. The shares look a bit rich after rallying this year, but the firm has a solid balance sheet and a modest silver production cost of around $11 per ounce.
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On the oil front, I feel prices must be closer to the lows than highs and crude remains the world's top energy source. Producers use machinery and equipment that needs to be serviced and replaced.That's why I like Schlumberger (NYSE: SLB), market leader in the oil-services industry. It has held up remarkably well during the protracted oil sell-off, thanks in part to its geographical diversity. This means it isn't levered to the North American market, where there could be more pain to come. I don't believe oil cartel Opec nor non-Opec producers will stick to a price freeze, let alone make the cuts required to run down inventories in the short term, so Schlumberger's services should remain in demand. The firm has a strong history of paying dividends and the shares yield 2.76%.
Finally, water is one commodity we can't do without, and for which there's no substitute. I'm going for the biggest privatised American company, American Water Works (NYSE: AWK). It has treated-water storage facilities and owns and services around 48,000 miles of water mains and collection pipes, servicing around 15 million people across 47 US states and parts of Canada. It has already earmarked around $6bn for infrastructure improvements that should help counter moves to return water services to the public sector. Last year its corporate credit rating was upgraded by both S&P and Moody's. The shares trade on a current yield of 2.0% and have just been added to the S&P 500. They certainly aren't trading at bargain-basement levels, but the trend is up and momentum is positive, so it could be worth hanging on for the long term and reinvesting the dividends.
David Morrison is a senior market strategist at Spread Co
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