Stay Away From Consumer Stocks
There is not a bull out there who hasn’t been hurt by the 16% drop in the S&P 500. Such a steep decline in less than 2 months is certainly cause for panic. I am sure I don’t need to remind you that this decline has not only impacted financials and retail, but it has also impacted emerging market stocks. EEM, is down 21% from its all time high back in November. FXI, the Chinese ETF is down 35% during the same period. I will be the first to admit that our markets were due for a breather. In fact I have been cautious for a while now. More recently, in October of 2007, I cautioned against buying stocks like Baidu (BIDU), Apple and Intuitive Surgicals. These stocks, since, are down anywhere from 20-30%.
If you haven’t lightened up on your long positions, it might be too late. Wait for that oversold bounce and sell some into strength. The only people who will make money in this environment are traders who buy on dips and flip it into strength or those who short into strength and cover on dips.
Above all, I am staying away from consumer names like retailers, restaurants, and gadget makers (read Apple). On the other hand, I think Research in Motion will be ok considering it is more of a play on corporate spending. Additionally, healthcare and drug names are safer (recession proof). I opened a position in Intuitive Surgicals (ISRG) and am looking for a pullback in Hologic (HOLX) and Gilead (GILD). Finally, I still like infrastructure and agriculture plays like Jacobs Engineering (JEC) and Potash (POT).
Oh and by the way, we are definitely in a recession. No doubt about it. I said it last April and you will see that it will be officially announced at some point during Q1 that the US economy entered a recession back in Q3 of last year.
– Faisal Laljee
Full Disclosure: I own RIMM and ISRG but my positions can change anytime without notice.