Crude oil prices fell to a six-year low today and traded under $37 today.Prices of other commodities such as Iron Ore, Copper, Coal, etc. have also declined heavily in the past few months hurting miners. The S&P 500 is flat year-to-date. Though the US market has been through trials and tribulations over the past 11 months, it has gone basically nowhere based on S&P 500 returns. Though US stocks are poor performers until so far this year many developed European markets had decent gains.

Some investors may be tempted to abandon the equity market. However that is not a good idea now. Here are three factors to consider before avoiding or selling stocks:

1.  A few months ago world equity markets declined sharply due to the collapse of Chinese stock markets. However after China implemented policies to prop-up the equity markets, global markets recovered quickly within a short period of time. At one point during the China-triggered panic it seemed that China may push the global economy into a recession and may even cause a new Global Financial Crisis. But when investors realized that China can’t possibly trigger a worldwide meltdown, they returned to the markets. So simply dumping stocks because of China fears is not a wise move.
2. Though crude oil prices have plunged to multi-year lows, oil is one of the most volatile commodities in the world. So investors should take that into consideration before making any buy or sell decisions during high volatility.
3. Even when commodities and oil prices decline, there are winners and losers. For example, lower oil prices benefit heavy users of oil such as chemical manufacturers because oil is one of the major ingredients in the manufacture of chemicals.

Investors looking to deploy cash at current levels can consider researching some of the stocks mentioned below for potential additions:

Technip (TKPPY) – Most firms in the Oil Equipment & Services sector have seen their stocks crushed in the past year or so due to lower oil prices. France-based Technip is no exception. But trading under $12 now it is a good long-term bet since the order book is strong and the company took decisive actions recently including worker layoffs.

Bancolombia SA(CIB) – Colombia bank has a 4.98% dividend yield and currently trades at around $24 a share. The stock has fallen sharply recently since Colombia is a big oil producer and exporter.In addition, the decline in the value of peso has also contributed to fall in share price.

DBS Group Holdings Ltd (DBSDY) – Singapore-based bank has been affected due to the its exposure to China. But DBS is a strong bank with a solid management and has growing operations in other Asian countries outside of China.

Some of the other stocks that investors can keep on their radar ar: Empresa Nacional de Electricidad S.A. (EOC), Legal & General Group Plc (LGGNY), Fresenius Medical Care AG & Co. KGAA (FMS),LyondellBasell Industries N.V. (LYB) and BASF SE (BASFY).

Disclosure: Long TKPPY and CIB

Investing in stocks of auto parts makers is a wise move for many reasons. For example, the demand for automobile parts is stable during economic expansions and contractions. In fact during recessions demand goes even higher as consumers try to repair their existing vehicles and use them instead of buying new ones. During good times, the demand for auto parts continue as consumers replace worn-out parts in their vehicles or add accessories to even newer vehicles. As cars are a necessity for most Americans living in places other than the world-class cities of Los Angeles, New York,  Chicago, etc. there will always the need for  replacement parts for automobiles. I written about the auto parts sectors many times such as here and here and here and here over the years.

Recently I came across an interesting piece at Alliance Bernstein that discussed how auto suppliers are more profitable than auto makers.From the article:

Suppliers Are Highly Profitable

Auto suppliers are already much better businesses than perceived. Many of these companies streamlined dramatically after the 2008 global financial crisis because they weren’t propped up by governments like the carmakers. There was a wave of mergers and acquisitions in Europe and the US, along with drastic cost cuts and consolidation of production.

Today, the supply base is brimming with technology. This gives suppliers more pricing power than in the past because their products are more sophisticated. Combined with industry restructuring and investment in new products, suppliers have improved returns on invested capital to levels well above those of the automakers (Display)—which adds resilience to downturns.

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Barriers to entry are high. Since quality standards for car parts are very stringent, it’s not easy for an upstart with a sharp product to challenge an incumbent and win support from big auto manufacturers.

From an investment perspective, the authors note that European suppliers are now trading at n attractive valuation and have stronger balance sheets. In addition, their organic growth rate is higher than US auto parts suppliers.

Source: Does Volkswagen Fallout Taint the Auto Industry? by  Tawhid Ali, Andrew Birse, AB Blog, Nov 30, 2015

The above evidence validates my long-held theory that in order to profit from the rebound in the auto industry, it is a good idea to invest in auto parts makers instead of auto makers as part suppliers offer the “picks and shovels” to the auto manufacturers.

Some of the foreign auto parts makers to consider are: Continental (CTTAY), Michelin (MGDDY), Valeo (VLEEY), Autoliv Inc (ALV), Magna International Inc(MGA) and Bridgestone Corp. (BRDCY).

Major US-based car parts suppliers include Johnson Controls, Inc.(JCI), Genuine Parts Company (GPC), AutoZone, Inc.(AZO),  Lear Corp (LEA), Visteon Corp (VC), etc.

Disclosure: Long MGA