Question:
Are there any sectors that you would suggest overweighting? As well as suggesting some stocks within those sectors. Also is QCOM a buy?
Answer:
The most attractive sector according to valuation is Information Technology. On a price to earnings basis, the Information Technology sector trades at a nearly 6% discount to its five-year average with a price to earnings ratio of 15.40. Now if you include growth and yield, it trades at a price to earnings to growth and dividend yield ratio (PEGY) of just 0.89, the lowest of any of the 10 sectors. Specifically we suggest focusing on those companies with a cloud presence, as the world continues to shift towards cloud technology. We like EMC Corp. (NYSE: EMC), as they are involved in both the storage aspect of the cloud, as well as the software and cloud solutions aspect with their 80% stake in VMWare, Inc. (NYSE: VMW). We also like International Business Machines Corp. (NYSE: IBM), especially with a recent pullback after their most recent earnings release. IBM is typically a defensive stock within the Tech sector.
Energy is second on a valuation basis, but for good reason. The fracking technology has increased the supply of natural gas, meanwhile energy demand has slowed in Asia and Europe. We do not recommend becoming too overweight Energy, but the sector looks cheap right now as revenue and earnings growth have been negative in recent quarters. Materials are relatively cheap. This sector is usually the first to improve in an economic recovery and can provide good inflation protection, but holdings in this sector will not likely move significantly until we see economic growth
The common dividend paying sectors (Utilities, Telecommunications Services, Consumer Staples and Healthcare) have been hot year–to-date. Investors seem to be bidding the prices of these sectors higher in their quest for income. Their prices have risen to a level that makes us nervous about their prospects for future growth. Utilities and Telecom currently have a PEGY of 2.04 and 1.78 respectively, while Consumer Staples are right behind them at 1.45. This would show they are expensive relative to their earnings.
As for Qualcomm, Inc. (NASDAQ: QCOM), we deem it a buy. We like the stock for a smartphone and tablet play as their technology is used throughout various devices.
Question:
With a small investment in gold, is now the time to get out, or do we wait out the recent price rout?
Answer:
We recommend selling gold. Gold does not pay a dividend, nor does it have any earnings. You have to pay for storage and insurance. Gold is only worth what someone is willing to pay for it. It has no utility.
After rising nearly 500% over the past decade or so, the gold rally may finally be coming to an abrupt halt. Gold has fallen 30% from its highs, including a 10% drop on Monday, April 15, 2013, amid rumors that the European Central Bank would force Cyprus to sell its gold reserves in order to repay some debts.
Much of this goes back to Basel III liquidity regulations established in January. The Bank of International Settlements not-so-covertly indicated that gold could not be counted as a liquid asset, meaning governments and central bankers should not consider gold a currency. So, in turn, Cyprus sold about $500 million worth of gold to raise cash.
After years of pushing the price up through its easy money policies, the Federal Reserve hasn’t exactly been a friend to gold lately. The Fed continues to indicate the period of quantitative easing may end sooner rather than later, albeit at a trickle rather than just sapping it all up in one fell swoop. Another factor is China and the recent slowing of its rapid growth, which would likely mean fewer Chinese consumers will be willing to buy gold, possibly resulting in lower demand.
The recent fall in gold prices has pushed more buyers into the market, particularly in India, but that’s more for the jewelry.
At Henssler Financial we believe you should Live Ready, which includes understanding how to weight the sectors in your portfolio to your advantage. If you have questions regarding your portfolio, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. 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. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
