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Hidden beneath the flat ASX stock market is a whole other world of opportunity

Earnings season is now over for another 6 months.

For all the ups…

Newcrest Mining Limited (ASX: NCM) — up 14% in the last 30 days
Cochlear Limited (ASX: COH) — up 11%
Medibank Private Ltd (ASX: MPL) — up 11%
Santos Ltd (ASX: STO) — up 11%

And all the downs…

Bluescope Steel Limited (ASX: BSL) — down 20%
QBE Insurance Group Ltd (ASX: QBE) — down 13%
Telstra Corporation Ltd (ASX: TLS) — down 11%
Commonwealth Bank of Australia (ASX: CBA) — down 10%

… the S&P/ASX 200 Index closed virtually FLAT for the month of August.

For passive investors, dividends aside, earnings season was much ado about nothing.

Regular readers will know none of this surprises me. Back in July I suggested the index of leading ASX companies was likely to go NOWHERE for the rest of this year.

I’m now saying it’s unlikely to go far over the next 12 months.

It’s not rocket science.

The big four banks are under the pump from the regulators, from government, from investors, from slow economic growth, from doubts about the sustainability of dividends, from cooling house prices, and from highly indebted and increasingly financially stressed households.

Not to mention they still trade at premium valuations, particularly Commonwealth Bank. An AFR article today quoted Morgan Stanley as saying they believe CBA shares to be “over-valued and execution risks have increased.”

It’s hard to imagine an investment with lower upside potential and higher downside risk.

The big miners have had a good run, with the BHP Billiton Limited (ASX: BHP) share price up 6.5% in August, and the Fortescue Metals Group Limited (ASX: FMG) share price bouncing higher after it reported a doubling in profits and a tripling in its full year fully franked dividend.

Both miners benefited from a reduction in costs coupled with a big jump in the iron ore price.

On the former, hats off to the management teams of both companies. They made some significant productivity gains and cost savings, reduced debt, and focused on sweating their key assets.

On the latter — higher commodity prices — when your luck is in, it’s in.

Looking ahead, BHP chief executive Andrew Mackenzie said the Big Australian would deliver strong “shareholder returns for decades to come.”

Count me in, please Andrew.

Although I’m on record as having sworn off mining stocks for life, I’m happy to hang onto my BHP Billiton shares for a bit longer.

That said, I’m not expecting fireworks. And there will be volatility ahead. As a reminder, in January last year, with the oil price crashing and the stock market correcting, the BHP share price fell as low as $15.

As for Fortescue, for those of you willing to wade into mining stocks at what could be a cyclical high point, at around $6, the Fortescue share price trades on a fully franked dividend yield of 7.5%.

Before buying, just make sure you familiarise yourself with the golden rules of buying capital intensive, highly cyclical resources stocks…

1) Buy when the P/E is at its highest (because earnings are at their lowest).

2) Never buy mining stocks for their dividends.

In case you haven’t worked it out, I don’t think there’s too much near term upside for the banks or the miners.

Nor for Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) — both trade on premium valuations and both are operating in highly competitive and slow growing markets.

As for my Telstra shares, they’re on the chopping block, heading out of my portfolio in the coming weeks.

After that, there’s not much else that can move the S&P/ASX 200 Index significantly higher between now and the end of the year… or indeed over the next 12 months.

Maybe CSL Limited (ASX: CSL) although its share price has already jumped 30% higher in 2017, and it trades on 33 times earnings — a very rich multiple for a $59 billion company.

Maybe the two big infrastructure stocks Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) could carry the day.

Both are high quality companies with virtually impenetrable competitive positions. Both pay strong and growing dividends, with both being winning picks for our popular Motley Fool Dividend Investor advisory service.

But again, both have had nice runs so far this year, with the Transurban share price up 18% and the Sydney Airports share price up 24% year to date.

These are not small companies, and neither are cheap. The upside from here — certainly for the rest of 2017 — looks limited.

So, looking ahead, where do you get your investing kicks?

Not bitcoin. I’m happy to let this fad pass me right on by.

Not gold, even though the price of the precious metal might be edging higher as tensions escalate in the Korean peninsula. Over time, through wars, depressions, recessions and stock market crashes, gold has consistently proven to be an awful long-term investment.

I’m sticking with equities… just not the popular large cap blue chips that dominate the ASX, dominate the top holdings of many funds, by definition dominate many passive ETFs, and dominate many SMSFs.

Last week I highlighted Altium Limited (ASX: ALU). A smaller member of the S&P/ASX 200 Index, the Altium share price is up 18% over the past 30 days, putting it in the top 5 gainers for the index over that time period. The designer of printed circuit boards is growing quickly, making smart bolt-on acquisitions, and has a long growth runway ahead.

A small cap I mentioned last week was software technology company Adacel Technologies Limited  (ASX: ADA). Its share price has jumped 16% higher in the aftermath of reporting a solid set of results, including declaring a special dividend, followed quickly by news of two contract wins.

Over the years, we’ve met and heard from thousands of Motley Fool members.

Many are reluctant to part ways with their big blue chip stocks, particularly the banks.

I get it — the banks have served many people very well over many years. And they are still paying nice, chunky, fully franked dividends.

But, given their pure size, and the economic headwinds, the road forward from here is likely to be bumpy.

So why not diversify a little?

Why not take some of the billions of dollar worth of dividends that are about to be showered on ASX shareholders, and direct the cash towards buying some smaller, faster growing stocks?

I own BHP and Telstra. I also own Altium and Adacel. And, I own a bunch of other growth stocks too, many of which are taken from The Motley Fool universe.

And I’m looking to add more money to the market. Now results season is over, and we’ve had a chance to review and digest the news from many of our favourite stocks, the timing could be perfect.

As it so happens, this week our own Scott Phillips publishes his latest 3 ASX Best Buys Now Stocks report, exclusively to members of his incredibly popular Motley Fool Share Advisor service.

From a list of around 40 ASX stocks he currently rates as a buy, Scott whittles it down to just his best 3 ASX stocks to buy right now.

It would be hard for me to think of a better source of new stock ideas.

Click here for more details on how to join Motley Fool Share Advisor.

Why Elon Musk’s “secret weapon” was the most shorted share in Australia...

On 9 March, the visionary Tesla co-founder and CEO made a bold $63,000,000 to save a large swath of Australia. But in the process, he accidentally revealed the small Melbourne-based company that allows him to consistently make the impossible possible. At one point, this little understood company was actually the single most heavily shorted share in all of the ASX. Yet oddly enough, nine out of 10 analysts call it a screaming BUY! And that includes Motley Fool Australia.

We just isolated this company as Elon Musk’s “secret weapon”, and think it’s dynamic run (up more than double after initially floating shares just two and a half years ago!) is only getting started. For the full story on this company, as well as how to get invested alongside us today, simply click here!

Of the companies mentioned above, Bruce Jackson has an interest in BHP Billiton, Telstra, Transurban, Altium and Adacel.

5 ASX Stocks for Building Wealth After 50

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See the stocks now