by Michael Tarsala
One way or another, Greek elections this weekend are expected to influence where global stocks are headed next.
This is a referendum on Greek austerity, of course. But it's also being seen as a canary in the coalmine as to whether the euro zone will hang together.
Some have argued that a Greek exit from the euro might not impact the U.S. or global economy all that much.
But if you ask me, Jamie Coleman at Forexlive.com encapsulates the euro disintegration worry very succinctly:
If Greece leaves, who's next? Ireland? Small country, who cares. Portugal? Ditto. Spain? Wait a minute! Netherlands? Whoa, hold on now…
That's the problem for the euro. It is only as good as its weakest link, and there are plenty of weak links, at the moment. To mix a metaphor, once the dominoes start falling, there is no telling where (or if) they stop.
To mix Jamie's metaphor even more, the question becomes, how do you keep dominoes from falling on YOU?
As always, I went to the Covestor managers for answers.
Here are four sectors that may be better insulated from Europe's concerns than others -- with the possible tradeoff being that some may also may have less exposure to positive market catalysts, such as QE3:
Read this for background. Domestic energy utilities have weaker ties to European economic woes than most sectors. If there's a caveat, it's that utilities have been outpeforming for a few months now, and are not going to rise forever. But Bill DeShurko, manager of the Dividend and Income Plus model, makes what I think is a compelling case for individual stocks in the sector, including PPL Corp (PPL), his No. 5 overall holding
2) Discount retail
Retail stores would likely suffer in an economic slowdown. But right now, a "consumer deleveraging", as manager Mike Arold of the Technical Swing model calls it, is driving a number of discount retailing stocks near multi-year highs. One of Arold's favorites right now is his No. 4 holding, Ross Stores (ROST) -- partly because it has strong enough business confidence to keep spending on new store openings. He also likes its stock strength relative to the rest of the market.
3) Regional banks
No doubt, banks are in no way insulated from the economy. But one of the banking niches with relatively fewer ties to Europe's troubled banks would be the U.S. regionals. For many, asset quality is still improving. One example is New York Community Bank (NYB), the largest holding in the Financial Services model run by Andy Schornack. Part of his thesis is that the bank's financial ties to apartment buildings in New York City will continue to drive results.
The healthcare stocks have lagged the market in recent weeks, after a very strong June. Still, the need for U.S. medical care has weak ties to the overall European economy. Some of the newer positions in Bob Freedland's Healthcare model include generic drug distributor McKesson (MCK), which he lauds for its strong earnings trend. It's also near multi-year highs with very little stock resistance. And one of hist top overall holdings is benefit management services company SXC Health Solutions (SXCI).
Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.