Industry Update April 2010




With regard to equity market performance, I am torn.  My head says, “Go with the momentum. Broad rally here.”  My heart says, “Profit margins will be at records with the 2011 earnings estimates; aim for industries that are out of favor.”

If I try to unify the two, I remain convinced that high quality companies are the better place to be — better valuations and far less risk.

In any case, I am looking at modifying my portfolio, and the industries that interest me fall into energy, utilities, healthcare, and stable sectors.

Note for my first model, the green zone is the anti-momentum or value zone.  The red zone is the momentum zone.

Use the model consistent with your personality.  If you like buying mean-reversion buy in the green zone.  Momentum, buy the red zone.

My selections in “Dig Through” reflect higher quality areas of the market that I think will be rewarded over time.  Remember that I am for outperformance over a three-year period, though I have often done that over shorter periods.

The second industry table comes from the S&P 1500 supercomposite, while the first comes from Value Line.  The results are broadly similar.  Still, at this point in the markets, I am more inclined to caution than risk-taking.  I feel that it is 10% upside and 30% downside here.

These are only educated guesses, but as I readjust my portfolio, I sense that I will toss out cyclicality, and buy utilities and other stable  companies.