Nobody likes to leave their comfort zone, and it has been ages since you had to. I am talking about the comfort zone of low-growth, dividend-related choices exemplified by thoughts such as:
- Do I own Bristol-Myers Squibb (BMY) or should I swap to Merck (MRK)?
- Or Colgate-Palmolive (CL) has more upside than Procter & Gamble (PG), but Procter has that nice dividend and could restructure.
- Or, most of all, Dominion (D) vs. Con Ed (ED) -- which is it going to be?
When you have an employment number such as last Thursday's, it causes you to have to dust off the playbook for a more aggressive moment. It's been so long since this has occurred that I took heat advocating it on air from critics who no doubt have only lived through the Great Recession and its aftermath.
The job is much harder when you go down the risk curve to companies with real leverage to economic growth. You might have owned one transport, and it has been terrific. If you come in now to buy a second, it will be much more expensive than the last one you might have owned, and the earnings aren't necessarily coming through yet. You want to buy FedEx (FDX) up here after that terrific quarter? Probably better to buy UPS (UPS), betting that next quarter will be much better.
Plus, given the prolonged decline in the industrial economy, there aren't a lot of choices left to choose from. I cheered last week when Timken (TKR) gave you Timken Steel (TMST), a better-than-GDP pure steel play without any of the hazards of the ancient and troubled U.S. Steel (X) or AK Steel (AKS).
Normally, you would reach for Alcoa (AA), but it has had a huge run. Shares have doubled from the bottom, so it is priced for perfection. I think it is headed higher after any pit stop, but that's because of changes that it has made in its own product portfolio.
Maybe the best thing to do is simply find companies that have done just OK in the U.S. while their foreign businesses have kept them growing. Freeport-McMoRan Copper & Gold (FCX) is our choice for Action Alerts PLUS, as anyone enjoying the free sign-up period now knows.
You might want to consider aggregates companies, cement companies or earth moving companies, and remember that they can put on much better numbers than they have. I think Caterpillar (CAT) and Terex (TEX) work.
Or think diversified conglomerate: Emerson (EMR), Danaher (DHR), Honeywell (HON) or General Electric (GE). Of these, only the middle two have done much of anything.
Oh, and of course, there isn't a regional bank in the world that doesn't do better in this environment. It's a deservedly hated cohort, but it is worth it.
No matter what, I think standing still is no longer an option. The numbers are too good.
You have to make a move.
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