"Please, God, get me back to even and I'll never buy stocks again."
For many investors, the market's return to virtually flat for 2011 has been an answer to The Prayer of the Bad Trade. With the EU missing repeated deadlines for formulating a crisis plan, a preliminary third-quarter GDP reading due out on Thursday, two-thirds of the S&P 500 yet to report earnings results, and general market-driving craziness between now and New Year's Day, the least likely outcome for stocks is staying flat. The question for both agnostic and spiritual investors is whether to press their luck or accept the rally as a gift from above and sell stocks accordingly.
To give some insight on both the market's direction and stock picks that will work right here and now, Breakout welcomed the fearless Jay Pestrichelli, co-author of the book "Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term." Pestrichelli starts with a message sure to assuage those looking to press their bullish luck.
"I think we go higher here for the rest of the year," he says. We like the broad index ETFs to gain that exposure."
Specifically, which is the only way Breakout does stock picks, Pestrichelli says the PowerShares QQQ (QQQ )which mirrors the NASDAQ 100 (^NDX), and the SPDR S&P500 ETF (SPY) are the ways to play this environment, though he suggests limiting downside risk to 10%. (As a matter of disclosure, I'm scaling into S&P exposure through the SPY, with a stop below 1220.)
"If there's anything that's going to lead us out of the market here it's going to be energy," Pestrichelli says. He says the group has more room to run, despite a potential threat from China which continues to slow. He says Exxon Mobil (XOM) and Chevron (CVX) will outperform the Energy Sector SPDR (XLE), suggesting a paired trade for those so inclined.
Here are the rest of Jay's stock wishlist going into the holiday season:
Apple (AAPL): "You have to be a little brave to buy," he says. I bought Apple only slightly under $400 a share, so I've been using much more negative, maybe vulgar, words to describe my purchase decision. There's a fine line between brave and stupid; we'll see which side I'm on by the end of the year.
Safeway (SWY) and Smuckers (SJM): Two consumer staples names as ways to play the fact that folks gotta eat, even if consumer confidence is as low as its been since March of 2009. Smuckers has been a good play and is expanding with this week's purchase of Sara Lee's (SLE) coffee and tea division for the reasonable price of 1.4x sales. Safeway's 2011 results would have qualified as disappointing if not for the fact that nobody expected a good performance from the West Coast's grocery king.
Of all of the above, Pestrichelli likes the QQQ's, an idea that strikes me as insightful and wise, given it's in my personal portfolio. There you have it; seven ways to play what Pestrichelli's year-end rally.
Are you buying it or keeping your spiritual pact to sell, now that we're back to flat? Let us know in the comment section below.