Bob Doll Favors Energy, Tech and Health Services

Bob Doll has been chief investment officer of global equities at BlackRock Inc. since 2006. Before that he served in several portfolio management and executive investment positions with Merrill Lynch. Starting in 1999, he became chief investment officer of equities at Merrill Lynch Investment Management Americas. He later was promoted to co-head of that unit and senior vice president at Merrill Lynch.

During a recent pause in market activity, IndexUniverse.com's Murray Coleman talked to the BlackRock CIO about his take on various sectors and asset classes.

IU.com: Do you think this rally has legs?

Doll: Yes, over time. But it's not going to follow a one-way path heading straight up. There will be some rallies followed by some pullbacks—a lot of volatility still remains in the market. We think we've seen a bottom, however. The S&P 500's level of 666 on March 6 is the intraday low for this cycle. And it's important to remember that we've seen stocks advance 30% in a relatively short amount of time. So stocks are due for another breather.

IU.com: How does the fundamental picture for stocks look?

Doll: Green shoots are popping up here and there. But most of what we're looking at is still brown. The big black hole we've found ourselves in finally does appear to have a bottom, though. We think that while we're not going to see positive growth in the U.S. in the second quarter, it certainly will be less negative.

IU.com: What sectors look particularly attractive at this point?

Doll: We'd stick with a diversified portfolio. You need some cyclical, growth and defensive postures. Our cyclical favorite is energy now. We think the price of oil has probably found a bottom. As the world gets back on its feet at a slower growth rate, oil prices will slowly move higher. And the oil companies are selling fairly cheaply these days.

IU.com: How about your favorite sectors in terms of growth plays?

Doll: Our favorite growth sector is technology. It's the best sector year to date in the S&P 500. And that's pretty unusual in a recession. But these companies learned their lesson in the bursting of the tech bubble in 2000. These companies are managing their resources much more efficiently and that has led to their outperformance so far. It's definitely a leader and we think tech will continue to lead the way.

IU.com: And what about your favorite defensive sectors?

Doll: Health care is less popular and less expensive than the utilities and consumer staples areas. We think there are some growth prospects in health care, particularly in biotech and health care services. Many new products are in the pipeline for biotechs. And we don't believe that prices for biotech stocks are extraordinarily expensive yet. With health care services, we like the fact that they've shown reasonable subscriber growth and operating earnings progress.

The concern about health care as a whole is the unknown of the Obama administration's regulatory policies towards the sector. That has left a bit of a black cloud over those stocks. But our belief is that the market has penalized health care stocks enough to make the group's risk-reward prospects relatively healthy. So we would own the sector at this point.

IU.com: Do you see the U.S. outperforming foreign stocks going forward?

Doll: Yes, we think the U.S. will continue to outperform as it has for the past 15 months. But that's compared to other developed markets across the world. Emerging markets are likely to continue to do well and have fewer problems with credit and financial systems than most developed countries. So we think emerging markets will keep leading the way, even over U.S. stocks.

IU.com: How do you view China given recent revelations about apparent high-tech espionage efforts against U.S. infrastructure and military projects?

Doll: The political relationship among the current and emerging superpower will always be tricky. On the one hand, they need each other. At the same time, each is looking out of the corner of their eyes. The U.S. needs China to buy our Treasuries and China needs the U.S. for its consumption. So it's an unholy alliance.

IU.com: How do you see China as an investment at this point?

Doll: We're reasonably constructive on China as a whole. We think the economy has bottomed there as well. But its stocks have run up a lot in a hurry, so we'd prefer to invest in that market on a pullback. We're weighting China in our models at slightly higher than benchmark levels at the moment.

IU.com: How do you view alternative energy plays?

Doll: They're an interesting concept with interesting stories. And eventually, we believe they'll turn into interesting investment opportunities. But generally, this is an investment theme that has been pretty picked over at this point. So we're not rushing to buy into that part of the market. On the edges in bits and pieces, there are some interesting stories left. But at these prices, we'd prefer to wait for a pullback.

IU.com: How about gold and hard assets in general?

Doll: Investors need gold as a piece of their portfolio. For all that ails us, gold is a good hedge. We have significant positions in gold right now. But if we didn't, we'd be buyers now in that market. Generally, we feel that as the world gets back on its feet, demand for commodities will grow. We think you've got to be careful about your entry points. But for many commodities, we think we've seen the lows.

IU.com: What areas of fixed income do you favor?

Doll: Our long-term view is that Treasury yields will eventually move up. But that's a process that won't happen overnight. In fixed income, we think spreads are wide enough to make corporates worth owning on a risk-return basis. And we also think that the risk profiles of municipals are appealing given their current spreads over Treasuries. The downside risks of municipals seem to be priced into that market. If a depression hits, of course, all bets are off. But that's not something we're seeing as likely in our forecasts.

Original post

Comments

[Jason Rines...:]

See my note from beginning of February but this is just a repeat I stated here over and over since December. I also said to watch Washington since the beginning of 2008 for market guidance. It should not be this way but it is. I am no prophet, I just watch whom is gaming the table.

"This Is Just the Beginning [View article] The U.S. will have it's reinflation attempt, lifing four major sectors (energy, health, higher ed and I.T.), some job creation and then face serious inflation, that is the U.S. preferred method of public debt repayment. The U.S. consumer will continue reverting back to Save and Invest.

The next Bull will be 2013 and be tepid compared to the growth of the 80's and 90's. What you saw this last year was a looting of the Treasury.

You are now seeing those still in power attempting to socialize the crushing pain the middle and lower classes are/will feel so you could say that current political leaderships focused on electability and quieting of the wrath of J6Pack. Out of 3 U.S. depressions, each one is followed by voter revolution after four years. This time will be no different so by 2012 and thereafter, we should make economic progress and the U.S. will pay down it's debt but in doing so growth will range from 1%-2% after that time.

Until then, I expect more volatitlity but not as severe as what we saw Q4 and this quarter. I am not afraid to buy and hold for 5 years beginning in March. A search of comments reveals I have said the same thing for the last three months. And I can check cash flows and management, go company specific to buy equities.
Feb 09 10:28 am |Rating: +4 -1 |Link to Comment"

Apr 27 02:24 PM