It’s a signature of almost every major investment bust…
As an asset falls, investors start panic-selling. Often, this means we see tons of investors getting out at the bottom of a massive decline.
Then, when the asset starts to rise, these investors are too scared to get back in. They’re scarred from the recent loss. So they want to wait until things get better.
That’s exactly what’s happening in much of the U.S. market right now… and one area in particular.
This sector is up 33% since bottoming in late March. It’s come roaring back from the COVID-19 bust. But most investors still aren’t buying.
This might be the most hated area of the U.S. market. But if you’re willing to step up and buy, it could lead to hefty gains.
Let me explain…
The industrial sector surely isn’t the sexiest out there. Most folks focus on the exciting tech names like Amazon and Netflix these days. But industrial stocks are tried and true.
The sector includes defense contractors like Lockheed Martin (LMT), shipping company United Parcel Service (UPS), and multi-product producers like Honeywell (HON) and 3M (MMM). And right now, investors want nothing to do with this group of companies.
To see that, all we have to do is look at the major sector exchange-traded fund (“ETF”), the iShares U.S. Industrials Fund (IYJ).
The ETF structure means this fund can create and liquidate shares based on demand. That makes it perfect for this kind of analysis.
If folks are champing at the bit to buy industrial stocks, IYJ can simply create more shares. And if investors lose interest, it can liquidate shares to adjust.
That’s what’s happening with IYJ right now. Investors want nothing to do with the industrial sector. It might be the most hated area of the U.S. market.
Shares outstanding are now at a multiyear low. Check it out…
Shares outstanding have only been this low two other times in the past 10 years. And buying when investors hated this sector turned out to be a good idea both times.
IYJ’s shares outstanding hit a multiyear low before bottoming in late 2012. Investors wanted nothing to do with the sector. In hindsight, that was a bullish sign… Industrials rallied 32% over the next year.
We saw another example of this in 2016. Investors lost all interest in industrial stocks in March 2016. Again, ignoring this sector back then was a big mistake. IYJ rallied 27% over the next 12 months.
Today, investors once again hate the idea of owning industrial stocks. And if history is any indication, it could mean solid upside potential in the sector over the next year.
Importantly, the sector is trending higher too. It’s up 33% since its March bottom. So if you’re interested in making a bet on this hated sector, now is a safe time to do it.
Good investing,
— Chris Igou
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Source: Daily Wealth