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Just take a look at the table below.
These are my seven favourite penny stock companies to buy right now.
They are either mispriced, seriously undervalued or best positioned to profit from the ongoing crisis…
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Sell off in global markets on the horizon
The US Federal Reserve Bank has propped up markets by boosting investor sentiment as it buys up financial assets on the market. Today it will start buying corporate bond ETFs in America to help boost prices of corporate debt and provide a lot of liquidity.
Investor sentiment has caused this latest relief rally as positivity around relaxation of lock downs around the world start to emerge.
But this has happened at the exact time that company earnings are forecast to contract in the next 12 months. And over the long run, share prices track earnings.
Look at the chart below showing a 20-year history on the S&P 500 to illustrate the long-term relationship.
Since the start of the ‘dead cat bounce’ we have seen a major divergence in the relationship. While the massive amount of financial stimulus might be able to cause this relationship to weaken in the short to medium term, investors won’t be prepared to overpay for future earnings.
The S&P 500’s forward PE ratio was 20.4 on Friday, this was the first time since 10 April 2002 that the ratio was above 20. Long- term averages are 16.7 for five years, 15.1 for years and 14.6 for 15 years.
Investors with short term investment horizons should be selling into strength as global markets rise. At the very least you should be placing a few protective stop losses as volatility has decreased and prices are less erratic.
Important: If your portfolio has plummeted thanks to the Covid-19 crisis, you should look at how to give your portfolio, the “Hedge Fund Advantage”.
Lock in gains on DRD by placing a protective stop
Last week we said you should be taking profit on DRD and traders could short sell to profit from the pull back. The price has started to pull back and is already 5.5% lower.
Adjust your stop loss to R18.00 to reduce your risk and as it falls trail the stop loss lower to lock in gains and ride the pull back to R13.25 (initial target) and lower (R10.25 final target to be evaluated as it falls).
See you next week.
Contributing Editor, Money Morning