This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Time to Buy Cheap Blue-Chip Stocks

Stocks in this article: NSRGY UL JNJ MSFT INTC

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Charles Lewis Sizemore, InvestorPlace.com

NEW YORK ( InvestorPlace) -- After the stock market tanked Monday, thanks in part to Standard & Poor's historic downgrade of the United States' credit rating, investors are left with one enormous question on their lips: What do we do now?

Well, I have three tips for you -- and they may not be popular. That's because I advise running against the herd by selling gold, avoiding Treasuries and hiding out in blue-chip stocks.

Why run against the herd? Well, one big reason is the Treasury market itself, which should be linked most closely with the S&P downgrade. In a normal world, this would cause yields to rise, as investors would demand a higher yield in response to lower credit quality. Yet in the upside-down world of today's market, yields instead fell. Investors sold off their stock positions because of the bond rating downgrade ... then promptly plowed their money into downgraded bonds. The 10-year Treasury now yields under 2.4%.

  • Related Article: Is It Time to Pick Up AAA-Rated Stocks?




  • But don't panic. Nothing fundamentally has changed in the economy. It was bad before the announcement, and it still is bad today. S&P's announcement changes nothing. The Federal Reserve has said it will continue to accept U.S. Treasuries as collateral and that, as far as the Fed was concerned, Treasury debt still counts as AAA for the purposes of bank capital requirements. In other words, the people that run the international banking system don't appear to be all that worried.
  • Related Article: Buffett Says Stay Calm, Stay the Course
  • Still, investors are scared, and the markets are in chaos. You need to do something, right? Well here are a few suggestions:

    1. Stay out of Treasuries. Do I think the U.S. government is at risk of default? Absolutely not. I have no doubt the bonds will be paid. But at a pitiful 2.39%, investors are locking in a cash return that is almost sure to disappoint -- and almost certainly capital losses to boot. When the markets return to some semblance of normal, yields will rise back to a more sensible range of 3% to 4%. That means that investors buying today at 2.39% will see their "safe" Treasuries decline in value. More adventurous traders might want to short Treasuries in the futures markets or using an inverse ETF like the iShares Lehman Short Treasury Bond (SHV).

  • Related Article: Dumpster Dive for These 6 Solid (But Oversold) Stocks
  • 1 of 2

    Select the service that is right for you!

    COMPARE ALL SERVICES
    Action Alerts PLUS
    Try it NOW

    Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    • Weekly roundups
    TheStreet Quant Ratings
    Try it NOW
    Only $49.95/yr

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    • Upgrade/downgrade alerts
    Stocks Under $10
    Try it NOW

    David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    • Weekly roundups
    Dividend Stock Advisor
    Try it NOW

    Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Alerts when market news affect the portfolio
    • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
    Real Money Pro
    Try it NOW

    All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

    Product Features:
    • Real Money + Doug Kass Plus 15 more Wall Street Pros
    • Intraday commentary & news
    • Ultra-actionable trading ideas
    Options Profits
    Try it NOW

    Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • 100+ monthly options trading ideas
    • Actionable options commentary & news
    • Real-time trading community
    • Options TV
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!

    Markets

    DOW 18,053.71 +23.50 0.13%
    S&P 500 2,088.77 +6.89 0.33%
    NASDAQ 4,806.8590 +33.3870 0.70%

    Brokerage Partners

    Rates from Bankrate.com

    • Mortgage
    • Credit Cards
    • Auto

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs