Wednesday, August 6, 2008

Portfolio Strategy...More of the Same

From what I've read, heard, and seen, there is plenty more ahead for financial stocks, particularly Fannie and Freddie. Don't overlook the headline from late yesterday about the treasury hiring Morgan Stanley to assess these companies. The treasury's rescue plan for Fannie and Freddie shouldn't be misinterpreted. True, its a backstop. The treasury has authority to buy and unlimited equity stake in the companies, which should prevent them from going under, but it can't prevent them from preforming poorly. So, now that Bernanke and Paulson have bailed out these banks and brokerages, they're going to use them at their disposal. My point here is that these stocks have been bid up too high in my opinion. I couldn't help but take a small stake in the ultrashort financial etf (SKF) yesterday.

I've been looking at the candidates' energy plans, and how to plan an portfolio. They differ somewhat in that McCain favors nuclear energy and some more drilling. Obama is in favor of clean coal, and creating initiatives to really push clean energy. Obama's plan is a little more idealistic, but that is okay for now. The key here is electricity, now matter how its produced, is going to see a rise in output as we move away from oil-based solutions. So we're going to need to increase and upgrade our power grid, and electrical efficiency will be critical, no matter who is president.

I've said it before, but I think Swiss electrical giant ABB(ABB) will be at the center of this theme. I'd also look at a company like Quanta Services (PWR), although the story with that stock is no secret at 25x 2009 estimated earnings. But ABB is a buy, right here, right now.

On oil...I like the opportunities in natural gas more than anything. Natural gas fits into a domestic, clean, energy policy, and I think either candidate will see this. Chesapeake(CHK),XTO Energy(XTO), or Sandridge Energy(SD) are the plays here.

I'm skeptical about integrated oil companies because of a few reasons. 1)the refining business will be tough with gasoline demand slipping, 2)Obama is going after big oil with a windfall profits tax. I totally disagreed with this method, but it may happen just the same.

So my portfolio strategy isn't changing much. I'm still skeptical about financial stocks. I see energy efficiency as a need more than anything, and we'll find the money to supply these changes. Other than that, the market has found a way to give almost any stock troubles.

Disclosure: Long ABB

No comments: