Keep It Simple, Keep It Safe

Stocks dropped yet again yesterday, which seems to be an appropriate way to end August. The month was the worst one for stocks in three years as all 10 S&P sectors saw declines for the month and the major indices fell some 6% on the month. It was the worst August for equities in 17 years. Today is the first day of September and it looks like we will begin the new month the same way we ended August. Pre-market futures are pointing to a 300-point decline on the Dow Jones Industrial Average at the open as I pen this article. The trigger for today's opening volatility is the same as it has been for weeks -- China. Manufacturing in the Middle Kingdom just came in with its weakest reading in three years. The country's recent decision to devalue the yuan and its recent economic weakness are having ripple effects across Asia. Korea just reported exports fell almost 15% last month, dragged down by a heavy slowdown in China and a sharp decline in exports to Europe and Japan. Most Asian markets fell hard overnight. As I have been saying for some time, until we see some stability in China, our market will be hard-pressed to sustain any kind of bounce-back rally. Investors also need confirmation from the Federal Reserve that rate hikes are off the table for September at a minimum. The market will need to navigate any warnings about third-quarter earnings in the new month as well. All in all, the start of September is set up to start off as another rocky month for investors. I continue to hold 25% cash levels in my overall portfolio and I am not in any rush to deploy the bulk of it until China calms down and the Federal Reserve bows to the inevitable regarding interest rate hikes in September. That is not to say I am being completely inactive in the market, especially when we have substantial dips in the equity markets. I am mainly focused on adding a few shares in some of the large-cap growth at reasonable prices stocks that currently dominate my portfolio holdings. I continue to like health care and biotech sectors within this category, as these firms should be able to grow revenues and earnings at a solid clip despite a troubling global environment. One of these is Amgen (AMGN). I plan to pick up a few more shares today if they fall below $150.00 in any early-morning sell-off. The stock is already a bargain after dropping more than $25 a share from recent highs despite reporting results that beat top- and bottom-line expectations late in July. The Food and Drug Administration just approved its new cholesterol drug Repatha last week. This compound should see at least $2 billion in annual revenues by 2020. The biotech pioneer also should be a major player in the biosimilar market, which is projected to see more than $30 billion in annual sales a decade from now. Amgen is churning out 10% to 15% annual earnings growth on mid-digit revenue increases. The stock is not expensive at 15 times this year's profits and yields nearly 2% in dividend payouts. Other than this purchase, I don't plan to do much around the market today. Until we get some clarity around the major drivers of the recent action in equities, it is best to keep it simple and keep it safe.

Keep It Simple, Keep It Safe

That's the strategy to follow until there's clarity around the drivers of the recent action in equities.

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