Looking forward the greatest challenge facing investors in uncertainty. Whether we are talking about the fiscal budget issues, impact of higher taxes, slow growth, slower earnings or European sovereign debt issues, they are all formidable issue that will take time to resolve and restore confidence to investors. When you consider all that is on the horizon it makes the issues relative to the ‘fiscal cliff’ seem small in comparison. Thus, we have to take a different approach to managing our portfolio to adjust and compensate for each, whether they become reality or only a fear that never materializes. As we conclude a shorten week of trading stop and consider what strategy will work best going forward based on the what we know, and just as importantly what we don’t and will need to make adjustments for going forward.
Technology stocks have been under pressure all year from sellers. The PC stocks have been the worst performers as the tablet market moves to replace the desktop PC. The result is selling pressure on the semiconductor stocks as they have to adjust and change to the new retail outlet of tablets and smartphones versus desktop computers. That said, there are stocks with in the semiconductor space worthy of tracking and making investment decisions going forward. Some names to track are Qualcomm (QCOM), Maxim Integrated Products (MXIM), Microchip Technology (MCHP) and ASML Holdings (ASML). Each of these are in a position to capitalize on and benefit from the shift in chip sales within the technology sector overall. Each are semiconductor stocks, but they are not part of the SOX index giving them less stress of being lump into a fund with all the other semiconductors. Put them on a watch list and track for the potential opportunities going forward. The networking, software and internet sectors within technology have equal opportunity if the current bounce finds traction to move higher off the recent lows. Track XLK, SPDR Technology ETF, IGN, iShares Networking ETF, IGV, iShares Software ETF, and FDN, First Trust Internet ETF. The advantage to tracking the ETFs is when they start to move you can dig into the ETF to find the stocks that are leading the sub-sectors higher. The key to any successful investment strategy is have a disciplined approach to find the assets you want to own long term or simply trade short term. Tracking the sectors and then digging into find the stocks that are leading works consistently even in the current market environment.
Financial stocks continue to have a love/hate relationship with investors and consumers. However, they remain one of the value sectors overall. Earnings from Q3 were positive with some banks exceeding expectations. Even with a positive earnings period the Price-to-Earnings Ratios remain low. The current P/E for the sector is just over 11. Despite the value play in the sector the expectation from Wall Street remain lackluster, but the balance sheets continue to improve and that allows for more lending by the banks. In addition they are still a benefactor of zero percent interest rates from the Federal Reserve. The large banks continue to be the sector to watch and track short term. Bank of America (BAC) remains one of the stocks to track and own within the sector on any pullbacks. KBE, SPDR Bank ETF is the simple way to track the sector and dig into the sector for the leaders. KIE, SPDR Insurance ETF is another opportunity worth tracking as well. The balance sheets have improved, and the property and casualty component has fared well this year despite Hurricane Sandy hitting the northeast. Watch KRE, SPDR Regional Bank ETF as it has been a laggard, and if the sector overall turns around it will offer some upside opportunities on any bounce or move to the upside. Financials are a sector to watch, track and develop a strategy to capture the resulting move going forward. In addition this is a key sector for the broad markets if we are going to mount any type of rally or sustainable move to the upside.
Time and space doesn’t permit me to cover all the ideas we see going forward and the various strategies for tracking and investing in the opportunities as they develop. We will cover them in the days to come as we put in place the strategy to capture the opportunities the market presents. Be disciplined and patient as this all plays out moving forward.
I want to wish everyone a very Happy Thanksgiving! Enjoy your time with friends, family and loved ones. For those of you willing to experience the shopping festival that is black Friday… Spend plenty the economy needs stimulating.