If the Dow Jones Industrials (^DJI) were to suddenly shed 6,000 points and was about 30% cheaper than it is today, it’s safe to say that a lot of investors would be taking a very close look and eyeing it as a cheap buying opportunity.
And yet, that is exactly what has happened to gold (GLD) and some of the broad based commodity indexes (DBC, DBP) over the past year, although the rush back in has yet to materialize. And that is not really a bad thing says Jeff Saut, chief investment strategist at Raymond James.
“Just because they’re down in price does not mean they are necessarily cheap,” Saut says in the attached video. “I still think it’s a bit early. I think you’re 12 to 18 months early on both emerging markets as well as commodities,” he says, before conceding that on a P/E basis, “some of them look pretty cheap.”
This marks a big change for Saut who has advocated owning commodities and what he calls “stuff stocks,” since China joined the World Trade Organization in 2001 on the (correct) belief that rising per capita incomes would cause Chinese people to consume more stuff, and not just oil, gas and coal, but water, electricity, steel, aluminum, copper, fertilizer and cement.
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To be sure, 2013 was not good for emerging markets (EEM) but it was nowhere near as bad as the beating taken by precious metals.
“They’re arguing because a number of emerging markets are trading at single digit P/E multiples,” Saut says, noting the S&P 500 (^GSPC) is, in some cases, two to three times as expensive and growing more slowly.
“Just because they are cheap doesn’t mean they’re going to go up,” he says, predicting that a strong dollar and rising interest rates will likely serve as headwind, and turn what looks like bargains into a trap.
Disclaimer: Merrill Lynch is not responsible for the editorial content of this program.
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