With political and economic uncertainty growing, investors should have enough cash and bonds in their portfolios to weather upcoming storms and take advantage of opportunities, said one strategist.
Though positive for the long term, Kate Warne, investment strategist at Edward Jones, does not see any more room for bulls to run this year because of struggling profit growth. However, she is more upbeat for 2016.
“We need to see earnings growth for stocks to continue to rise,” she said. “That gives investors an opportunity though to position portfolios for what we do see as better growth next year.”
Warne said investors have become overweight in stocks after a nearly 7-year bull market. The S&P 500 (^GSPC) has gained more than 170% since the market bottomed in March 2009. She recommends investors hold some fixed-income assets and have enough cash to cover about 6 months’ worth of expenses.
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Nonetheless, she sees opportunities in the equities markets. “Within stocks, we think that companies that benefit from stronger economic growth, that pay dividends, and have the potential for dividend increases are a good place to put money right now,” Warne said.
She sees strength in the housing sector, particularly with home improvement giant Lowe’s (LOW). Shares in the company are up 17% in the past 12 months. “It's done recently well,” she said. “It will continue to grow its dividend as well as its earnings.”
Warne is also positive on health care and is bullish on Novartis (NVS), though that stock is down nearly 9% since a year ago. “It has the best new drug pipeline,” she said. “It's also diversified because it has generic drugs and it has eye care. It also pays a dividend.”
Novartis currently has a dividend yield of 2.7%, but she expects dividends to grow.
Warne also sees a buy in the energy sector even though she doesn’t see oil prices bottoming just yet. She picks Schlumberger (SLB) as a buy because it has more non-U.S. operations. As with Novartis, Warne anticipates Schlumberger will grow dividends. The drop in crude prices since last summer has taken its toll on the stock, which is down 19% since last year.
“We expect dividend increases there, whereas most of the majors probably will keep their dividend but not raise it,” she said. “We see better opportunities in a company like Schlumberger that operates around the world.”
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