Investment Ideas for 2008 (From An American Perspective)

I recently came across this article written by Peter Coy of Business Week and i found it quite entertaining and well written, about his thoughts for 2008. He started off by saying this..."Choosing investments for 2008 is like trying to find a decent Christmas tree in a nearly empty lot. Stocks? Not with earnings expected to fall. Bonds? The safe ones are overpriced. Real estate? You gotta be kidding. With a credit crunch in full bloom, housing still on the skids, and a recession threatening, this is a singularly bad time to be hunting for assets that you can brag about owning a year hence."

True indeed, judging by what has happened so far in the sub-prime mortgage crisis that has taken the world, in particular US, by storm! It's a $23 trillion asset class (housing) that is in a deflation mode, is how he quoted. However, Peter did offer several rays of light, in tandem with several defensive strategies that focus on preserving wealth in trying times. Here's what he thinks:

- Invest in companies that have strong balance sheets and are relatively insulated from the woes of the American consumer. Good examples are health care and technology sector. The former thrives on whatever economic condition while the latter does extremely well from overseas markets, particularly Asia, which is expected to still experience roughly 8% growth this year!

- In fixed income, steer clear of structured products that may or may not be exposed to toxic subprime debt. Buy ultra-safe Treasuries or take just a smidgen of risk on municipal bonds, whose yields are more attractive for taxable accounts.

- Invest globally. Advisers have been saying for years that most Americans are overexposed to the ups and downs of the U.S. market because they keep almost all of their money at home.
That mistake looms larger now that the dollar is sliding, the U.S. economy is soft, and global growth is robust. This is the time to bone up on foreign securities and reallocate that 401(k). Also: Stash money in Treasury inflation-protected securities in case inflation accelerates.

- focus on companies with abundant free cash flow. Seek stocks whose prices are justified by solid, ongoing businesses rather than market speculation about riches to come.

- Watch out for Asian markets such as Singapore, South Korea, Malaysia, and Japan that do business with booming China and India but have lower PE's than those of the twin giants (China and India).

Meanwhile, the Federal Reserve will probably cut rates further if the U.S. economy continues to weaken, which could give stocks a shot in the arm, at least for the short term.

There could be more fiscal stimulus, too, if the White House tries to amp up growth ahead of the 2008 Presidential election. According to Stock Trader's Almanac 2008, the Standard & Poor's 500-stock index has risen in the final seven months of every election year since 1950 except one.

For the risk takers or the Contrarian, consider buying beaten-down banking stocks, which offer attractive dividend yields at current prices. The trick, however, is figuring out which banks have already come clean on their loan losses and which ones haven't.

So here you have it, some great investment ideas for 2008!

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