I am still on alert for a larger pullback in the market. The larger picture suggests the SPX will li...
Euro Worries Force Me Out of TRW
11/01/2011 2:47 pm EST
Way back on September 29, I wrote that it was time to cut your exposure to the slow-growth European economies.
As an example of how to reduce that exposure (but not take it to zero) in that post, I recommended selling BorgWarner (BWA) but keeping TRW Automotive Holdings (TRW). (At that point, both stocks were members of my Jubak’s Picks portfolio.)
Why? TRW had slightly less European exposure. And it was showing the kind of internal balance-sheet improvement that can help a stock move up even if growth isn’t anything to write home about. (To read that original logic, see my post here.)
But the recently announced outline for a euro-debt grand plan has made me even more pessimistic about European economic growth. Add that to the huge run up in industrial stocks such as TRW—up 25.4% from September 29 to the close on October 31—makes me say now is the time to take profits in TRW.
Now is the time to lighten up even further on industrials with significant exposure to Eurozone economies. (For more on why I’m more pessimistic than I used to be about Europe, read why I think their debt "solution" is no solution at all.)
This doesn’t mean I’ve completely lost faith in the possibility of an end-of-the-year rally—but it does mean that I’d like to find a less risky horse to ride than an industrial with significant Eurozone exposure. TRW would likely do very well if the rally materializes, but it could well get killed if the rally dies on fears that the debt deal—which pushed this and other industrials higher in the last month—is going to be ineffective.
I’ll post tomorrow on a stock in another sector that I think has less risk if the rally fades, and just as much upside if the rally continues through the end of 2011.
I’m selling TRW Automotive Holdings out of Jubak’s Picks today, with a loss of 31.4% since I added it to the portfolio on February 23.Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of BorgWarner or TRW Automotive as of the end of June. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.
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