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08/18/2011 7:00 am EST
Big Joe Clark sees baby boomers continuing to spend in the areas of health care, retail, and education. He also cautions that BRIC nations Brazil and India may not present the opportunity at this moment that they did a few years ago.
Kate Stalter: We are speaking today with Big Joe Clark. He is the chief investment officer at the Financial Enhancement Group in Indiana. Thank you so much, Joe, for joining us today.
Joe Clark: Happy to be here. Thanks for having me.
Kate Stalter: Give us your take on the market. Obviously, there’s been a lot of volatility that scared people a lot. What do you think is important for individual investors to be aware of right now?
Joe Clark: Well, rules are rules, and you have to be very disciplined about why you own anything. We always tell clients, if you don’t know why you own it, if you don’t know what you anticipated for it to do, and if you don’t have a clear exit strategy, you probably shouldn’t own it in the first place.
When you’re looking at this marketplace that we’re in, this volatility, it scares professionals, let alone people who take a snapshot of their 401(k) in the middle of the day. It’s confusing people on both angles.
When we look at the professional markets, the top-down investors—the people who look at the big macro picture, and worry about Greece and debt ceilings and credit ratings—are very, very concerned. They’ve lowered their earnings estimates, and they’re seeing the same news headlines that our listeners are hearing, and it’s scaring them to death.
On the other end, you have the bottom-up analyst who looks at a specific company, and they don’t care at all about what’s going on in the macro world. They’re looking at these individual companies and going “how can you not buy a company like Apple (AAPL) with no debt, great margins, and that seems to print cash every quarter?”
You have these two contrasting issues that are battling back and forth.
So, I think first and foremost, the individual has to have the discipline of how they are going to look at this market. Am I going to try to buy individual companies that I think are great, and stick with that, and not get caught up in the headlines?
Or am I going to look at the risk that’s going on in the broad-based market, and when the market wants to throw the baby out with the bathwater, I’m going to join them? I think you either have to pick one or the other, or let a professional manage the money.|pagebreak|
Kate Stalter: Given all that, Joe, are there any areas that you do see showing particular strength right now, either in terms of sectors or asset classes or global regions?
Joe Clark: The answer is, absolutely. I call it camouflaged opportunities.
What happened because of the great baby boom, in our opinion, we watched a marketplace where you were better off to be in the right sector then you were to even be in the individual equity.
I remember back in 2003-2004 era, I showed where you were better to own every stock in a sector rather than the best performing stock in a different sector, you actually had a better return. It was sector-driven, and where the baby boomers were spending their money, where the economy was driving, you were better off being in that right location.
Things started to switch in late 2008, first part of 2009, again in our opinion, where you would start to see individual companies who would really break away from the pack.
Express Scripts (ESRX) and Medco Health Solutions (MHS) are two great examples. Now, interestingly enough, Express Scripts is buying Medco Health Solutions. But, if you went back, there are two companies in the same business with exact opposite earnings calls late in 2010. You’re starting to see that separation.
So, I don’t think it’s as simple as saying a sector. I think you have to find the right company, and you have to figure out where people are spending their money.
In our opinion, that’s going to be in four areas. It’s philanthropy, it’s really hard to make a market in that. It’s health care, you’ve got to be very selective. Hobbies, which you’re seeing inside of retail sales and things of that nature. And the fourth is education, more on them than on their kids.
If you’re going to be in domestic-based companies, you’ve got to be in companies that are focusing on trends where the earnings numbers are going up. The biggest success, obviously, is coming from domestic companies that have most of their revenue coming from the international environment.
Kate Stalter: Any areas, Joe, that you believe are showing weakness and investors should make sure they avoid right now?
Joe Clark: Well, I think you have to be very cautious in some of the industrial companies that are having challenges with municipal contracts, with places where they had been counting on the shovel-ready programs that are obviously going to endure some political risk and some things of that nature.
Part of this Keynesian economic theory that we just need to get all of the jobs that are on the books done seems to be dissipating, and you’re seeing some of those industrials begin to fall by the wayside.
I think you’ve got to be very careful in the utilities space. It’s very, very tempting to go into with the yields relative to what we’re seeing in other areas, but the regulation environment and again, the political risk that could come of that, could be very challenging in the climate.
Our real focus is in the strength that we think you’re going to continue to see inside of health care and inside of technology, especially as it relates to communication.
Whether it be this clip that people are going to listen to, the broadband that we’re on, FaceTime, Apple, take your pick. The ability for us to communicate with our friends and with people we want to communicate with in short order has become the primary importance for families and for companies.
Kate Stalter: You’ve named today some of the areas that you do see showing strength. What are some of the vehicles that you are putting clients into these days, and what do you think in particular individuals might want to research?
Joe Clark: Here’s where I think you have to be really careful, when people start to use the word value. Just because things have gone down in price does not mean they’re done falling in price.
We talked for years about the BRICs, Brazil, Russia, India, and China in the emerging markets, and they have really taken it on the noggin, especially Brazil. I think people are trying to look to climb back into that country.
You’ve got to be very careful with Brazil and India, on the standpoint that they have raised their interest rate to try to control economic growth. They’re doing things to battle capital investment.
At the same time, it’s precisely those consumers that I think you want to track. So, if you’re really willing to do your research, if you can find domestic-based companies that service Brazilian and Indian consumers, I think you’ve got some real strength and some real possibilities going in that direction.
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