Is it time to switch sectors?

[JWR]

Hi,
BHP and most other resource stocks look expensive at the moment (further from its lows than its highs.) CSL, QBE, TLS, QAN, TAH and other defensive stocks look cheap at the moment.
Eventually, BHP will fall and the defensives will rise if and when a correction occurs in the market. Does it make sense to switch now from the 'expensive' stocks to the 'cheap' stocks given that stocks can't go up forever? What are some other stocks to take advantage of the pullback in the market if it comes? Is it just a case of throwing out the ones that have run up and picking up the ones that are unloved right now? Or is it a case of stock picking in order to outperform the market? It would be great to hear everyone's views.

Regards,
JWR

 

[sammy84]

Hi,
BHP and most other resource stocks look expensive at the moment (further from its lows than its highs.) CSL, QBE, TLS, QAN, TAH and other defensive stocks look cheap at the moment.
Eventually, BHP will fall and the defensives will rise if and when a correction occurs in the market. Does it make sense to switch now from the 'expensive' stocks to the 'cheap' stocks given that stocks can't go up forever?

If you are so certain that this will happen there is no need to ask the question.
IMO just because something has gone up so fast, doesn't necessarily mean that a deep correction will have to occur. The price can simply move sideways for a period. Trade where the momentum is, which in this case is currently commodities. Also QAN isn't exactly a defensive stock.

 

[nomore4s]

I agree with Sammy, trade with the momentum.

Also what's to stop the "defensive" stocks falling with the rest of the market? The fact the relative strength of those stocks is weak against the market wouldn't have me rushing out to buy them without a very good reason.

I would think moving to cash rather then trying to pick rising stocks in a falling market would be the way to go - or even better trade the short side. You'll quickly learn that fighting against the overall direction of general market is hard work, trading with it is alot easier.

 

[JWR]

surely though its better to buy low and sell high so with basic logic you say buy the cheap and safe ones and sell the expensive ones? momentum may be there now, but I can't really tell about technical analysis yet, so I'm just using fundamentals really...

 

[Amor_Fati]

I think a lot of it depends on your timeframe, goals and investment philosophy. Cheap is not always safe and stocks can continue to run but really it sounds like you favour a "value" approach which is no bad thing, particularly over a longer timeframe.

Given that, yes maybe value is a bit harder to find in resource stocks, (particularly energy stocks it seems to me) but the trade-off is that is where there is perhaps more growth potential.

 

[JWR]

It's not long term trading. I want to be in and out of stocks for a few months at a time, basically putting most of my eggs in one basket - whichever sectors are likely to go up. I just see the resources as more downside than upside and the defensives and some others that look cheap, so I think the market will eventually turn, not sure when (then turn back) so I wish to take advantage of the sectors that have upside potential.

 

[sammy84]

surely though its better to buy low and sell high so with basic logic you say buy the cheap and safe ones and sell the expensive ones? momentum may be there now, but I can't really tell about technical analysis yet, so I'm just using fundamentals really...

This buy low sell high idea has landed a lot of people into trouble (Including myself a long time ago). It can quickly turn into- buy low, sell lower. The whole concept of cheap and expensive stocks just doesn't sit well with me. Its fine for Buffet to determine whats cheap when he is able to get the grand tour of a company, but can laymans really do this from reading the newspaper at home? I'm sure many people out there can, I'm just not one of them.

 

[nomore4s]

Or what about buy high, sell higher?

Stocks are normally at highs or lows for a reason.

 

[son of baglimit]

Hi,
BHP and most other resource stocks look expensive at the moment (further from its lows than its highs.) CSL, QBE, TLS, QAN, TAH and other defensive stocks look cheap at the moment.
Eventually, BHP will fall and the defensives will rise if and when a correction occurs in the market. Does it make sense to switch now from the 'expensive' stocks to the 'cheap' stocks given that stocks can't go up forever? What are some other stocks to take advantage of the pullback in the market if it comes? Is it just a case of throwing out the ones that have run up and picking up the ones that are unloved right now? Or is it a case of stock picking in order to outperform the market? It would be great to hear everyone's views.

Regards,
JWR

why do you think resources stocks are expensive ?
from where i sit, while SOME resources stocks have gone a long way to regaining their higher SP, thats mainly been due to factors that those stocks normally either rely on (improving commodity prices) or the demise of competition (small players unable to raise cash to compete).
so those factors, and countless others, have effected the SP of resources, and likely all sectors. look at TAH for example. you call it defensive, but as a former TAH holder, it would take extraordinary news for me to reenter - why?
due to governments plummeting revenues, and lost investments, gambling is a sure winner in raising revenues - taxing gaming profitability is easy, and politically its a winner too, as the media love it and gladly pass on the news. i expect gaming to continue to suffer at the govt hands for a long time yet.
back to resources - energy as an example - i expect it to continue upwards for a long time yet, as supply fails to respond quickly enough to economic recovery, and demand (at prices still low compared to 2 years ago) continues to climb.