Friday, March 30, 2007

2007 Portfolio Objectives

2007 Portfolio Objectives


Entering 2007, I’m anticipating consistent growth in many sectors, but others will continue to struggle. The fourth quarter of 2006 saw a nice run that was driven by solid earnings and lots of activity in mergers and acquisitions. The Dow Jones has traded at all-time highs, while the Nasdaq has seen moderate gains. I see 2007 as the year where investors become a little more defensive, while still seeking solid growth. Therefore, I am looking to allocate the portfolio into a fairly diverse range of sectors, while still putting more emphasis on areas where I see potential for stronger growth. The decline in the housing market has moved a lot of money back into the market. People are putting lots of idle cash into money market accounts, and are becoming more confident in the markets again. One important factor in 2007 will be what the fed does with interest rates. If they are cut, then the market should perform well.

My overall portfolio approach is value investing, with a twist of looking for mid-cap, strong growth type names. The core of value investing is buying consistent, best-of-sector stocks that consistently produce lots of cash, consistent earnings pattern, and a strong dividend. These companies can weather a weaker economy, and can boom in a strong economy. The key to value investing is patience and discipline. These types of large cap stocks rarely put themselves on sale, so it is important to be patient and buy when the stock makes a move lower. Typical buying points for these types of stocks would be 1 to 3 percent below the 50 day moving average.

The growth portion of the portfolio is still held to strict standards. When screening for a growth stock, it has to be what I term a “game changer.” It has to be a company that can create a lot of buzz, but also is built upon a strong base of consistent earnings and generation of cash. These are companies where I see large growth in a particular sector, and the company is best positioned to take advantage of it. These stocks can typically be bought more frequently, as they tend to be more volatile, and can trade on news alone. Certain occurrences, such as earnings guidance, a somewhat weaker quarter, news in the overall sector, can cause these stocks to move 5 to 10 percent, and sometimes for no good reason. This provides some excellent buying opportunities if you can discern the reason for the drop, and determine that is won’t hurt the company long term.

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