Time to Shift Sectors?

09/10/2010 11:31 am EST

Focus: STOCKS

James Stack

President, Stack Financial Management

The 'forgotten giants' of the tech sector will benefit as the bull market matures, says James Stack, president of Stack Financial Management, and he shares a list of stocks that he's buying for his managed accounts in an interview with Karen Gibbs of MoneyShow.com.

MoneyShow.com: Hi Jim, what do you see today? What looks attractive to you?

James Stack: When you step into the market and look at the fact that we are technically in the second year of a bull market-assuming it hasn't ended-you're starting to see a shift in sectors. This is the time to look at the weighting in your portfolio and decide to start shifting into or out of certain sectors. Right now, we are continuing to avoid the financial sector, anything related to real estate. We're going to be bumping along the bottom for a long time, not months but possibly a couple of years, in the real estate sector. So don't go out there and try to swing home runs by buying a stock like Citigroup. 

In addition, if you look at how a bull market matures, different cycles or different sectors tend to take over. In the first year, the strongest sectors are generally the financial and the consumer cyclicals. As you start to mature, you want to start looking at technology stocks. Corporations are a lot more flush with cash than consumers are today, so I would be stepping out of or tending to not make new purchases in consumer cyclical stocks. The technology stocks are going to be a very good sector: stocks like Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), really the forgotten giants. They have not fallen very much, and they pay a dividend yield of 2% to 3%, which is four to six times what you can get from a money market account.

Another one is Intuit (Nasdaq: INTU), which manufactures QuickBooks and is now going into the medical industry with the same competitive advantage. They have a 14% annualized revenue growth even through the recession.

Q:  How about the energy sector?

A:  Energy has entered a doldrums stage. Oil has been trading between $60 and $80 a barrel, which is going to continue for a period of time. On the other hand, there are some great buys developing out there. ConocoPhillips (NYSE: COP), you have great dividend paying stock there. In addition, what's happened down in the Gulf of Mexico has scared investors away from oil exploration. A great company that we've just recently added to our managed accounts is ENSCO (NYSE: ESV). They operate deep-water drilling rigs, and before you get scared about it, their rigs are brand new. They were the first approved to start drilling again after the temporary shutdown in the Gulf. The company is doing great. Their revenue projections really look very rosy right now.

Q:  How about the ConocoPhillips, do you own that?

A:  Yes, we do. All of the stocks I am mentioning are stocks that we do have in our managed accounts.

Q:  Any others?

A:  Well, there are a number of stocks. We are avoiding the banks, but right now with AFLAC (NYSE: AFL) you can get a great dividend yield, have great growth, and it's also a good international company with a lot of sales in Japan and overseas.

Q:  Thank you, Jim

A:  My pleasure, Karen.

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