Kelley Wright, a value & dividend investor, is cautious on the market; nevertheless, he sees long-term opportunity in the health care sector. Here's the latest from IQ Trends.
"I suspect that much of the current rally is attributable to fund managers moving their large stash of cash from the sidelines into the markets.
"No manager wants to miss out, even if their research and instincts tell them otherwise. Heaven forbid their performance is beneath that of their peers.
"I suspect though that this embrace of equities will be short-lived and will move elsewhere at the first hint of trouble. In short, the economy will present many challenges in the years ahead. The stock market, as it has always done, will create opportunities from these challenges.
"Meanwhile, investors have apparently chosen to throw their lot in with more cyclical industries and stocks, which is entirely to be expected as the market is in the throes of a very strong rally.
"Little, if any of the current affection for cyclical issues is based on historic good value, rather, it is based on speculation that the recession has ended and the earnings for cyclical stocks will rebound as the economy strengthens. We will know soon.
"Meanwhile, the largest group of defensive stocks at current levels of undervalue are those related to health care.
"This is obviously due to the fact that the largest overhaul of healthcare in history is currently being debated in Congress. While speculation is rampant about what will emerge, if anything, investors seem to be willing to sit this one out until the view is significantly less murky.
"Based on our experience and the propensity for the dividend-value strategy to isolate opportunities when they are less obvious to the large majority of investors, I would suggest that regardless what does or does not develop with healthcare overhaul, blue-chip stalwarts will not only survive but prosper.
"In particular, we would point to companies such as Abbott Labs (NYSE: ABT), Becton-Dickinson (NYSE: BDX), CVS Caremark (NYSE: CVS), and Johnson & Johnson (NYSE: JNJ) will not only survive but prosper.
"Long-term, I seriously doubt that seniors and the baby-boomers will give up their medications, therapies and ancillary healthcare services without a fight."
