As we approach the end of the year, sector allocation and stock selection are a main focus for many investors and their portfolios, including ours. This is the time of the year when many look to rebalance, reallocate, take tax losses and position the portfolio for the new year. We thought we would share some of the stocks and sectors that have caught our eye.
AFLAC Inc. (NYSE: AFL), known for their supplemental health and life insurance, has been beaten up in the market, as a result of the European debt crisis. The company has a significant portion of their fixed income portfolio outside the United States, and 70% of their business comes from Japan. They have matched their liabilities with their debt, and as such, the stock has been trading negatively based on the company’s European debt holdings.
As an insurer, AFLAC is in the financial sector; however, we are not necessarily a fan of the sector at this time—especially when it relates to banks. AFLAC has a P/E under 7. It looks really cheap. The Travelers Companies, Inc. (NYSE: TRV) is also in a good pricing cycle now. They have pricing power and not a lot of disintermediation, as interest rates are so low across the board. Customers are not going to try to find higher interest rates, especially, if they have any instruments with a guaranteed rate of return.
We are fans of the Technology sector, as this sector has been the only growth story lately. Suprisingly, we favor a company that hasn’t been a breakout in nearly 15 years: Microsoft Corp. (NASDAQ: MSFT). Microsoft’s operating systems run on nearly 90% of all personal computers and on two-thirds of all servers. The company generates $1.5 billion in cash flow monthly. The company also has the Xbox and Kinect gaming systems, and Windows 7 is being more aggressively adopted as companies upgrade their computers. The tech giant trades at 10 times earnings, and pays a dividend of 3%. As growth is concerned, there is speculation that Microsoft will buy either Research in Motion (NASDAQ: RIMM) or Yahoo Inc. (NASDAQ: YHOO).
Another stock we like is Diamond Offshore Drilling Inc. (NYSE: DO). The offshore gas and oil drilling contractor trades at eight times earnings and yields 6% in dividends, with a growth rate of 18%. Diamond pays a regular dividend throughout the year, but they also have a special payment to return cash to shareholders.
After we added Diamond Offshore to the Henssler Traditional recommended portfolio, President Obama opened up the Gulf for drilling, and even some of the eastern seaboard. Shortly thereafter, the BP oil spill on the Deepwater Horizon happened and offshore drilling was restricted. The stock was kicked around significantly. Diamond has moved many of their platforms to Brazil. The company has more business from outside the United States. We believe we are in a growth period for drilling, and Diamond is poised to do well.
Our last pick for now is the Consumer Staples sector. We feel Consumer Staples is in the catbird seat in terms of pricing power, stability and emerging market exposure. We like several stocks in this sector, including, PepsiCo, Inc. (NYSE: PEP), Kimberly-Clark Corp (NYSE: KMB) and one—perhaps with a lot of “fleas,” but worth taking a look at—Avon Products, Inc. (NYSE: AVP).
We feel Avon has an emerging market story, as they can capitalize on the wage increases in emerging markets. Wage increases in developing areas can lead to more spending; however, the company will need good management in that area to capitalize on the potential growth. The company could see a new CEO in the future. While the market is concerned about the stock’s dividend, we don’t feel the dividend is in danger.
At Henssler Financial we believe you should Live Ready, which includes rebalancing your portfolio when it is needed, and doing the appropriate research on your investments. If you need guidance in selecting investments appropriate for your portfolio, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166, or e-mail at experts@henssler.com.
Disclosures:
All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
