After a nine-week stock market rally it is time to tally up the winners and losers. In a market where almost everything gained, there must eventually be separation between those that went with the flow and those that had something to show.The financial stocks, with the help of the government, were able to show some positive earnings. The banks do raise the suspicion that this is a case of "managing the numbers".
The government has helped them along by "reshaping" some accounting rules and giving them advance warning (and leaking to the public) of the results of its stress testing. Until now, they have gone with the flow as the hardest hit stocks and rallied the most.
Federal Reserve chairman Ben Bernanke has made some positive statements lately about the economy showing signs of improvement, but others remain cautious. The more cautious among us have missed out on a 31% ride upward from the March 19 low to the market close last Friday.
There are many who view the rally with great skepticism, and others who want the market to trip up so they can get in before the next leg up, which might not come for a while after such a rapid climb in such a short time. I was buying when the market was down and I will continue to buy value propositions.
I think the energy stocks are almost all value plays now, and they pay nice dividends and will do well in the long run. I have written about Anadarko Petroleum (NYSE: APC), Marathon Oil (NYSE: MRO), and the Williams Co (NYSE: WMB), but I think you could almost buy the entire sector, and might consider buying into an Exchange Traded Fund (ETF) as a safer way to play the sector. If you're interested see: Chasing Value: Marathon Oil -- simply too cheap!
ETF's may be the best bet for the financial sector as well so that you do not have to be the one to pick the winners and losers. I have favored Wells Fargo (NYSE: WFC). My last post on the subject was Chasing Value: Wells Fargo - squeezing out the shorts!
One down sector that I favor that has not been lifted with the tide is the utilities. I think this remains a safe haven with potential growth even if they only return to their long term patterns. Among the companies I am following are Duke Energy (NYSE: DUK) and the Southern Company (NYSE: SO).
Among the real wait and see sectors is health care, which has been stagnant for several years. Although there has been some recent consolidation and most observers expect this to continue, I do not think there will be much appreciation until the president and the congress give some clear indication about the much talked about health care reform initiatives that are being discussed.
My expectation is that there will be continued volatility over the next few months with the end result being a horizontal market. We will continue to see upward movement when the news supports it and downward movement on more solemn news with profit taking by traders, as seems to be the case today.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of APC, SO, WFC, WMB, and have open options as well.
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