It's not like we shouldn't have expected an equity sell-off.
After the best first quarter in recent memory even the bulls would have readily conceded stocks we're due for a pullback early in the second quarter. Nonetheless, as is generally the case, once the trend was broken perma-bulls were quickly shaken and all those people "waiting for the dip" were nowhere to be found.
Among the small band of bulls willing to remain or even add to their equity portfolios you can count in Hank Smith, CIO at Haverford Trust. Speaking with me last week in the attached video Smith said timid bulls looking to ride out the storm should move not into cash, but more defensive stocks.
Specifically, Smith prefers "more defensive sectors where companies can grow their earnings regardless of whether (U.S.) GDP is at 3% or flat." The easiest way for American investors to be immune to a no-growth developed nation outlook, in Smith's estimation, is playing domestic names with decent yields.
"In each case you're getting better than bond yields," he says. "So you're getting more income from dividends than you would be from buying their 10-year debt. That is a great opportunity."
Heinz and McDonald's (as viewers know, a long time member of my portfolio) are heavily exposed to domestic markets, as well as Europe and China. Offsetting these uncertainties are Emerging markets (EEM) that have 2.5x the growth rate of the U.S., regardless of the headwinds.
The emerging markets have a "long-term secular trend towards consumerism" in Smith's estimation. That means "emerging markets will remain key for McDonalds," as well as his other two favorites.
Micky-D's and Heinz are fairly prosaic names and business models. Burgers and stuff you put on top of them. If past is prelude McDonalds in particular will be able to figure out a way to make money overseas.
As for Abbott, a stock which is 6% higher for 2012, unlike the other two names, Smith says he looks for two things in a good pharma company: a good drug pipeline and reasonably limited exposure to patent expiration. "Abbot compares very favorably in both areas," he says.
Defense may not entirely buffet you from the ongoing selling storm but at the very least their dividends will provide a mooring. With Abbott, McDonalds and Heinz yielding 3.4%, 2.9% and 3.6%, respectively they're worth a look for those looking to stay long stocks in a somewhat guarded way.
- Investment & Company Information