With stocks on the defense as the bond market melts in the sweltering heat of a probable
rate hike, investors face a classic conundrum: What to do? Keeping it simple (and real, for the homies), three possibilities emerge.
Choice one: Get out of the way. Judging by the paltry trading volume in recent days, this seems to be the choice of many. With uncertainty about how forthcoming economic data -- namely Friday's
Producer Price Index
Consumer Price Index
reports -- will affect the decision-making of
and his merry band of central bankers, there's a compelling argument to sit it out for a while, or maybe just "tinker" with the portfolio. But the two-day
Federal Open Market Committee
meeting doesn't begin until June 29, and that's an eternity to do nothing in this age of instant gratification and online trading.
Which brings us to choice No. 2: Follow. As in, follow the pack, which is shedding positions, albeit
at a terribly alarming rate. Not surprisingly, the long bond being reunited with a 6-handled yield doesn't feel so good for interest-rate-sensitive stocks and growth names, such as drug makers and Internet favorites. But unless you really need the money now, it's not advisable to sell when stocks are down. It's an old saw, but the stock market is the only market (it seems) where people would generally rather buy at a higher price and sell at a lower one. Instead, why not buy now, when the getting is (relatively) cheap?
Which brings us to the third (but not necessarily final) choice: Lead. As in, seize the initiative, be proactive and buy
when stocks are weakened and the mood is shaky, rather than waiting for the interest-rate storm to pass.
To embark upon this third plan of action, one must first assume the Fed will only tighten 25 basis points this month (if at all) and will eschew the temptation to begin a series of rate hikes. Stocks will rally soon thereafter when, coincidentally enough, second-quarter earnings -- which are expected to be strong -- start being reported. Buying now also assumes the stock market is not some Zeppelin approaching Lakehurst, N.J.
, we all know what happens when you assume. There are more than a handful of purportedly smart people who think the stock market is akin to the
and about to flame out like the career of '80s Euro-metal giant
. But, let's be honest, those people have been wrong as rain and we're going with a bullish premise anyway. Then, of course, there's the question of what to buy.
We are not a financial advisor (nor do we play one on TV), but here's a quick rundown of what some of the pros are saying:
At a conference call this past Monday,
chief investment strategist Jeffrey Applegate reiterated a conviction that growth will resume its outperformance vs. value in the second half of the year and big-cap will best small-cap. The "single biggest" overweight in Lehman Brothers' portfolio is technology at 36% vs. 20% of the
, he said.
Today, the strategist told
he's mainly standing pat in tech at present because "the part of tech that's been hit most is Internets, and I don't think that's done." Applegate recommends pharmaceuticals for investors of the buy-now mentality, specifying
as top picks.
"Unless one thinks fundamental demand for products in the pipeline is going to fall apart, which I don't think is an appropriate expectation, that's the direction I'd point people in," he says. "These stocks have had significant corrections" and sport earnings growth rates far in excess of the market average.
At press time,
could not confirm if Lehman Brothers has done any recent underwriting for either Lilly or Pfizer.
One of the biggest (literally and figuratively) bulls on Wall Street -- Joseph Battipaglia, chairman of investment policy at
-- agrees with Applegate about the attractiveness of pharmaceuticals and technology, recommending Pfizer,
in the former and
in the latter.
"I think the prior leadership is going to reassert itself on the other side of this concern over interest rates," Battipaglia says.
In that light, he also recommends financials
, as well as currently disfavored transports, such as
But Battipaglia is less focused than Applegate on the issues of market-cap or value vs. growth.
"It's a function of what companies are benefiting from the ongoing expansion, which ones are hitting and beating expectations and focused on returning shareholder equity," he says. "You can have big and small working at the same time."
Among smaller names, he recommends
Of the aforementioned, Gruntal has done underwriting for Lifecell and Immune Response.
Alan Skrainka, chief investment strategist at
in St. Louis, says he likes financials, technology and some lesser-known names.
Specifically, Skrainka recommends
, which has been "clobbered by value and international investing being out of style."
His favorite pick in tech is
, which he says trades at a relatively low multiple given its ability to benefit from the "explosive growth of the Internet."
Finally, Skrainka recommends
Leggett & Platt
, a maker of components for furniture which trades at a discount to the market's multiple while sporting 15% annual growth rates.
Edward Jones has not done any underwriting for the aforementioned.
So there are a few potential targets for the adventurous investor. Happy hunting.
As originally published, this story contained an error. Please see
Corrections and Clarifications.