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Bullish On Tech And Healthcare. Bearish On Bonds

 January 15, 2013 06:10 PM
 


(By Leif Eriksen) I am a bit disappointed that we didn't go over the "fiscal cliff." Now we'll never know if any of the dire predictions bandied about would have ever come to pass. Now that we've come to a stop at the edge of the cliff – imagine it as a canyon or ravine – how do we get to the other side?

I don't mean for the economy – that's the business of our esteemed representatives in Washington. I mean how do you and I find a way to make some money in the current market?

After twenty-plus years of participation in the stock market, I have come to one definitive conclusion: no two years are alike. In that time I've experienced bull and bear markets, irrational exuberance, three recessions, double digit inflation, and a wide range of political regimes.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

I've mostly been long the market, made bets on segments such as technology and energy, and been net neutral (through hedging). I don't have a crystal ball but I do have the battle wounds to inform my view of the risk/reward equation we face in 2013. But before I share my thoughts on what might be in store for 2013 I'll divulge the 2012 performance of my two Covestor model portfolios.

The 2012 performance of my two models once again diverged. The more conservative PWP Growth and Income model was particularly hurt by its exposure to energy and natural resource stocks which have lagged the market.

The more aggressive Global Growth Brands model benefited from having a concentrated portfolio of secular growth names in industries such as entertainment, online shopping, food & beverage and online photo services.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

For 2013, I believe markets will continue to climb but at a slower, perhaps less erratic, fashion than in 2012.  I believe dividend stocks will continue to benefit from the contribution of dividends to total return but, more significantly, by the lack of compelling income generating options for an expanding retirement population.

In my opinion, significant growth will continue to be found in the technology, healthcare, and consumer discretionary sectors but profiting from it will require careful stock selection. At some point, I believe interest rates will start to rise and this will have a negative effect on bonds but not stocks. In anticipation I have taken a small position in the ProShares UltraShort Lehman 20 Plus Treasury Fund (TBT).

The focus of the PWP Growth and Income fund will continue to be dividend paying stocks with a mix of growth stocks added to boost returns. My recent moves have put more emphasis on value stocks (per my market assessment above) and include the following additions: Energy XXI (EXXI), Gannett (GCI), Honda Motor (HMC), Linn Energy (LINE), National Oilwell Varco (NOV), Shutterfly SFLY, and Western Union (WU).

SFLY was also added to the Global Growth Brands portfolio based on my expectations of a strong holiday season and significant insider support in 2012. I will also stay the course with the GGB model by focusing on brands with secular growth prospects.  Recently I've favored larger brand names such as Apple, Honda and Starbucks.

AAPL, in particular, was added during the exodus out of the stock in Q4. I expect the tide will turn again as investors realize it is still the company to beat in smart phones and tablets.

Until next time many happy returns!

Performance discussed is net of advisory fees, and includes reinvestment of dividends or other earnings. Past performance is no guarantee of future results.

The investments discussed are held in client accounts as of January 13 . These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Any index comparisons provided in the blogs are for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors. The Dow Jones Global Indexes (DJGI) is a family of international equity indexes, including world, region, and country indexes and economic sector, market sector, industry-group, and subgroup indexes.

Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.

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