2 Good Risk Picks for 2011

06/22/2011 3:00 pm EST

Focus: MARKETS

Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

While the recovery seems to still be on track, says Mark Salzinger of the No-Load Fund Investor, not all investors may agree that the short-term future is positive. Salzinger suggests those investors take up with lower-risk equities, like the two he mentions in this exclusive interview with MoneyShow.com.

Mark, what do you think about the stock market and the economy right now?

I think the economy is getting better, despite some pressures from rising gasoline prices. I think the unemployment picture is going to improve, and I think that is somewhat related to the fact that I think the stock market is going to do well as well.

We have decent valuations, we have very good corporate earnings, and we have still a lot of money on the sidelines, though certainly not nearly as much as we had two years ago. So I think we have a somewhat improving economy that can help earnings going forward.

With this jobs picture and of course the housing market, it seems like it’s a headwind. How can we make that a tailwind?

I don’t know that we can make it a tailwind anytime soon. One would think that, with the Federal Reserve easing policies, that housing would have been one of the sectors that would pick up, but it has not. That’s clear.

If there’s a silver lining, if you want to put it that way or if I want to, is that housing now is a relatively small part of the economy, and I just think the damage has already been done there.

What about the end of QE2? What impact do you think that’s going to have on the economy?

I don’t expect it to have very much impact, and one reason is that I think the market is expecting that to some degree. I also think that Ben Bernanke and the Fed will engage in other activities, if necessary, to help keep the economy afloat.

What type of advice would you be giving to investors who are kind of betwixt and between, not confident that this is a rally that is in place? What would you say to them?

I would say they should favor lower-risk equities. So you have the utility sector, and you have large-cap value or so-called blend stocks, stocks like McDonald’s (MCD), or ETFs like Vanguard Mega Cap 300 Value (MGC). These are very attractively valued now, and have very high quality financials, so I think they're low risk for where we are now in the market.

You’ve mentioned higher energy prices may be blunting some of the economic recovery. Do you see that as a real worrisome point?

I do on the lower end. So you have the high gasoline prices and you have higher food prices, I believe, and I think that makes it harder for main-street Americans to make ends meet. However, so much of the economy now is driven by the consumer spending of the upper-income folks for whom food and energy consumption is not a big part of their budgets.

So, going forward say to the end of the year, would you see stocks higher than they are now?

Yes, I would.

And gold?

I get gold as insurance against the world going badly, so if one would be inclined to have 10% in gold, I would probably say why don’t you do 5% instead of 10%.

And commodities—you see a lot about that as a bubble. What do you think?

I like commodities, depending on the commodity. I’m not so much for the agricultural commodities, because of weather and planting variations.

I like oil for the long term very much because you have secular growth for gasoline in China, the Middle East, and some other places, and then you have cyclical recovery in the US. If the jobs picture does improve in the US, you will have rising gasoline usage here as well, so energy should go higher.

For probably the next six months, bringing us to the end of the year, some of the other commodities could be under pressure if you have a lot of new supply—because of the high prices—while you have lower demand growth than expected in some emerging markets because of tightening credit.

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