|Written by GSCR Staff|
|Wednesday, 07 November 2012 09:07|
Now that the election is over, and life goes on, institutional and retail investors must align or in some cases re-align their portfolios. After all, the expectation of certain policies will have an impact on both the stock market direction and specific sectors. Generally speaking, we believe that a deal of some sort will come on the fiscal cliff. However, we would avoid big cap dividend stocks as we are leaning toward the notion that part of the compromise will still include a hefty dividend tax increase.
We believe that in the near term, we will see much of what we have seen with the economy and unemployment, which could be a drag on stocks for quarters to come, but still believe that seasonality favors the market for the next few months. Here are sectors to accumulate and sectors to avoid:
Gold: With the current budget crisis and fiscal cliff looming, and the expectation of continued monetary easing by the Federal Reserve, gold will surely rise. When the dollar falls, gold rises. Moreover, some investors, who are concerned as to how the market will react in the near to intermediate term will seek a safe haven. When there is a fear of inflation, gold is the first stop. One gold ETF that attempts to mirror gold bullion prices is (NYSE – IAU). Other gold ETFs and small miners make sense as well.
Health Care: Obamacare is here to stay. There will be no repeal now. To borrow a phrase regarding Chicago elections, buy early and buy often. There are a number of stocks which should do well. A rising tide lifts all boats. We would avoid medical device players but like pharmaceutical plays and even medical insurers. ETF fans should consider (NYSE – IHE) which is a proxy for big pharma, and (NYSE – IHF) which tracks insurers.
Clean Energy: Despite all of the bad press on the subject and the Administration’s missteps, this space will still be a good one. The demographics of the electorate lean in this direction and even though it may not be at the top of agenda policies, the space has legs. We have covered a number of small stocks here and ideas abound.
Gaming: Expanded gambling won out in some states and the sentiment among voters appears to favor broad-based access to gambling as a means of meeting budget deficits. Much like Obamacare, it is here to stay, even if the economy continues to be sluggish.
Limited Tech: There aren’t a lot of segments that appear to be under accumulation in tech, but the insatiable desire for gadgets, mobile technology, mobile apps, and productivity tools may be the best plays. The stocks that are working will still work, and we believe buying March 2013 calls on Apple may be a very attractive strategy. Other individual stocks are too numerous to mention.
Energy: For the near term we would avoid oil and gas. Still, long term, it is a good place to be, even in a shrinking economy. We will likely be in a trading range on oil anyway but we will highlight some excellent plays in the very near future. Coal? Run away.
Financial: With no debt reduction in the offing, and no pressure on banks to assist in lending increases, large banks may still have difficulty making real inroads in revenue and profit growth. Ditto for investment firms that are behaving sluggishly.
Industrials: Too much regulation, slow economic growth (aside from some homebuilders) mean this group is in the not ready for prime time players category.
Defense: Expect cuts in spending. Not a good thing for this space.
Tech (Guts): We would avoid some of the hardware providers and those that provide product to in the component or servicing sectors. The weak economy does not bode well.
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