4 Stocks to Own as China Makes a "Soft Lading"

Goldman Sach's issued a report in late October saying, Stop Freaking Out, China Will Have a Soft Landing. They gave several reasons to support their thesis;

1.) Inflation is easing
2.) Government looks to be loosening monetary policy
3.) More room for debt
4.) And Chinese companies are still doing well

Goldman sites that the biggest drag on China has been fiscal tightening because of inflation fears. However, that could be about to change. Inflation is slowing, and that means the government will have room to lower interest rates and allow more lending.

So which sector should benefit the most as China rebounds? One of the worst performing sectors this year...

As you can see from the chart above, basic materials have significantly out-performed the S&P 500 during the last five years. However, Basic Materials has been the second worst performing sector this year and could be a good mean reversion trade as demand for the sector picks up.

Why?

China's long-term appetite for commodities, materials and industrial consumption stems from the rapid growth in transportation, housing and infrastructure projects. This has lead to the lower and middle classes increases in wages and demand for food related goods and services. As a larger portion of the lower and middle classes income increases, so will the demand for agricultural related products. This ultimately should drive earnings power for our three favorite basic materials stocks and one industrial that has a high correlation to the sector.

1) Freeport-McMoRan Copper & Gold (NYSE: FCX) engages in the exploration, mining, and production of mineral resources. The company primarily explores for copper, gold, molybdenum, silver, and cobalt.

2) Monsanto Company (NYSE: MON), together with its subsidiaries, provides agricultural products for farmers in the United States and internationally. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. The Seeds and Genomics segment produces corn, soybean, canola, and cotton seeds, as well as vegetable seeds, including tomato, pepper, eggplant, melon, cucumber, pumpkin, squash, beans, broccoli, onions, and lettuce seeds.

The Mosaic Company (NYSE: MOS) engages in the production and marketing of concentrated phosphate and potash-based crop nutrients for the agriculture industry worldwide. The company also offers phosphate-based animal feed ingredients and produces and sells potash for use as fertilizers and animal feed ingredients, as well as for use in industrial applications.

Potash Corporation of Saskatchewan Inc. (NYSE: POT) produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes.

Action to Take --> Friday's rally has pushed the prices of some of these securities above our recommended "buy" levels stated in the graphs. I recommend traders wait for a pull back before jumping into these trades.