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Inflation has been a top concern among investors. If prices continue to get out of control, both the Bank of Canada and the Federal Reserve will likely keep raising interest rates aggressively — and that’s not good for stocks.
In August, inflation in Canada rose 7 per cent on a year-over-year basis, down from a 7.6 per cent increase in July. The U.S. is still dealing with red hot inflation. When the latest U.S. inflation report came out on Sept. 13 and showed consumer prices rose 8.3 per cent in August from a year ago, stocks plunged. The S&P 500 finished the day down 4.3 per cent, the Dow fell 3.9 per cent, while Nasdaq Composite tumbled 5.2 per cent.
Still, investment mogul and Dragon’s Den star Kevin O’Leary doesn’t believe it’s time to run for the exits.
“It’s very disheartening to equity markets to lose close to 1,000 points in a matter of 40 minutes,” he told CNBC.
“That means volatility is back. If you’re an investor, maybe the best thing to do here is — since you can’t guess the bottom — is to take opportunities on days like today and buy stocks that you think are attractive.”
Here’s a look at what Mr. Wonderful likes right now.
The semiconductor sector had a strong bull run in 2020 and 2021. But in 2022, it’s giving off a completely different vibe.
Year-to-date, the iShares Semiconductor ETF (SOXX) has plunged 35 per cent. A lot of chipmakers have fallen deep into bear market territory.
O’Leary sees an opportunity in this segment.
“If you buy Broadcom, for example, almost three and a half percent dividend, it has been crushed by the semiconductor correction,” he said.
“Nvidia, the same thing, crushed, absolutely crushed.”
Broadcom shares have fallen about 23 per cent in 2022, while Nvidia plunged an even more painful 56 per cent during the same period.
But business continues to go in the right direction for these two companies.
In Broadcom’s fiscal Q3, it generated US$8.46 billion of total revenue, representing a 25 per cent increase year over year.
In Nvidia’s latest fiscal quarter, its revenue rose 3 per cent from a year ago to US$6.70 billion.
“These stocks have been decimated, and yet they are still growing, they are still needed,” O’Leary pointed out. “The whole idea that we are going to stop needing semiconductors is ridiculous.”
Chinese Internet stocks
Chinese stocks are another out-of-favour group in today’s market. The ongoing tension between the U.S. and China has made these names extremely volatile.
But O’Leary is optimistic about the country’s potential.
“If you are looking for long-term secular growth, there’s no question the Chinese economy over the next 20-25 years is going to become the largest economy on earth,” he said.
“There’s an economic war, technology war, regulation war going on with the United States — that too could be temporary.”
O’Leary is putting his money where his mouth is.
“I own China stocks. I have an index of them, particularly global internet behemoths, large companies like Alibaba,” he said.
Alibaba shares had a rough ride — they are down 25 per cent year to date and a whopping 43 per cent over the past 12 months.
And that could give contrarian investors something to think about.
“If you own Amazon, why don’t you own BABA — The same idea.”
O’Leary further explained that the political issues around Chinese stocks — such as the threat to delisting them — are just “noise.”
“To have no allocation to the world’s fastest-growing economy … is crazy.”
Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174 per cent over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.
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