Defensive Stocks for the Summer Slowdown

When Breakout needs a fresh perspective from someone with a proven ability to skate to where the puck is going, not to where it has been, we turn to is Raymond James' Chief Investment Strategist Jeff Saut. I put a lot of stock in what Jeff says, in short because I've known him for about ten years during which he's been talking about China growth, commodity demand, financial bubbles and a few other topics I'm forgetting. In other words, he's helped me make money. I have no higher praise.

While Saut is in a somewhat defensive posture right now, having made additional sales even in the weakness of last week, he's hardly a perma-bear. The S&P 500 "did break below the 50-day moving average... and also violated the failsafe support zone of 1,316 to 1,340". The drop lead to his more cautious posture, though he doesn't see a major sell-off in the works.

Unlike folks fleeing from energy and commodities in the face of an apparent slowdown, Saut isn't sweating it. "I still like the energy space, even though I think the commodities are on a summer holiday," he says. He likes to buy "undervalued embedded options in certain companies." Basically, he likes to find companies where the market is ignoring certain assets for various reasons.

Case in point, Saut loves EV Energy Partners (EVEP), a name he mentioned on Breakout during his last visit. EV Energy has an enormous amount of shale resources used to make oil and natural gas. These assets have been somewhat ignored by the market due to ecological concerns and the expense of extracting the fuels. The higher prices of the commodities and better extraction technologies have yet to be priced into this stock, according to Saut.

Saut has an outperform rating on EV Energy with the expectation that shale resources will be displacing, or at least taking a share of energy development traditionally reserved for drilling.

Here's what makes Saut such a bull on commodities in the big picture: He doesn't think the world's economy is slipping into a double-dip recession, no matter what China does. And "when per-capita income goes higher people consume more stuff." In this case "stuff" means just about everything.

Saut also likes a financial. Yes, a financial. But not one of the big names which often spring to mind. Instead, Saut encourages investors to take a look at IberiaBank Corp. (IBKC), a regional bank which is conservatively managed and has a business model investors can actually understand. Unlike Citi (C) and other big banks, IberiaBank has made it almost all the way back to prior highs and never dipped as low as others during the financial meltdown -- a result of good risk management and a strong business model.

As a final word on his current posture, Saut says he's in risk management mode until the market "shows (him) it wants to go up, in terms of price action."

Specific picks, big ideas and no trend fighting. That's precisely the kind of thinking that made Jeff Saut one of the original Friends of Breakout.