Is it time to invest in CRAP?
By Craig Lines | February 6, 2017
Investing in CRAP may not be as bad as it sounds! In fact, many noted analysts expect CRAP to be a great investment. C.R.A.P. is an acronym for Computers, Resources, American Banks, and Phone Carriers—these industries are “levered to the investment recovery, inflation, and deregulation expected over the next years.” The new US President Donald Trump hasn’t made it completely clear yet as to which economic policies he will be prioritizing and how they will be implemented. As a result there is much uncertainty over how the US economy will fare under his administration. Some analysts are pretty optimistic about it while others warn for some policy risks. Fundstrat’s head of research noted the market ‘will not necessarily go bearish’, but his prediction is below consensus. He believes that the first half of 2017 will be a difficult period for the market, especially when compared to its current record highs.
In the inflationary, deregulatory, tax cutting Trump economy, the first three in this investment repertoire, C and R and A, may have the greatest potential for upside and as a hedge against inflation or potential market de-globalization, although the heavily inter-grated global supply chain makes de-globalization unlikely without disastrous consequences. Investors that do not work with a Financial Adviser or have time to research individual companies in these sectors might look to sector Exchange Traded Funds. (ETFs)
The ‘C’ in CRAP: As companies retool and re-invest in computer technology, a large part will be in automation and artificial intelligence. Automation companies stand to make progress as new technologies are developed and perfected allowing greater market penetration as automation and robotics are applied to a wider range of industries from traditional service industries to electrical power generation. Robotics and Automation ETFs, ROBO and BOTZ, are positioned to benefit from this long term trend. Automation should also translate to higher demand for computers and software from companies; NASDAQ’s tech-centric index should benefit. Google, Facebook, Amazon, Apple and Cisco stocks will continue as important drivers.
The ‘R’ in CRAP: Resource companies, such as those in the energy and mining sectors, are expected to continue from a position of strength due to deregulation of the sector. Supply and demand imbalances specifically in gold mining sector and OPEC’s decision to cut production could then help firm prices. For broad sector diversification, search out ETFs such as GDX, GDXJ, XOP or UNG; these provide exposure to companies with hard assets. Historically, hard assets such as resources have performed well in an inflationary environment.
The ‘A’ in CRAP: In this expected US rising interest rate environment and reduced regulation, American banks’ operating margins will widen, which has been reflected in stock prices since the Trump win. IAT and KRE provide exposure to US regional banks; for large US banks research Vanguard’s VFH.
The ‘P’ in CRAP: the argument for Phone carriers may not be as strong. It assumes they should thrive in a deregulatory environment, but the Trump Administration’s focus appears to initially be more on bank regulation, to allow smaller regional banks to thrive, and less on big telecoms.
Be careful in what CRAP stocks you invest in, but as part of a balanced portfolio investing in some CRAP stocks may well be what your portfolio needs to come up smelling like roses!