I was settling in to write a quick article early Friday night, first martini of the weekend next to me and CNBC on playing in the background. I was having some challenges in choosing a topic, and then it happened. At first I couldn’t believe it, but the little man on the TV said it again. Now I was transfixed. It was Cramer and the great one was saying he was getting negative on the market due to rapidly rising oil prices and that he was using strength to raise cash. Cramer going negative on equities on his tout show is like Lindsay Lohan stating in a news conference she has decided to enter the convent. They say they do not ring the bell at the top, but this is probably as close as you can get.
As stated in a few articles recently, I have detailed a myriad of reasons why I think the summer months are going to be very challenging. As much as it chagrins me, I find myself in alignment with Cramer in urging caution here and using any market strength from earnings season to raise cash and await better opportunities after a significant selloff. I would definitely take profits in high beta momentum trades in overvalued cult stocks like Netflix (NFLX), Salesforce.com (CRM), lululemon (LULU) and Baidu (BIDU). Money in the market should be allocated to large blue chip companies with a significant portion of their revenues from faster growing overseas market and/or a good dividend yield. Microsoft (MSFT), ExxonMobil (XOM) and Abbott Labs (ABT) are solid choices as detailed in this previous article. I would also look seriously at employing a buy/write strategy to lower the volatility of your portfolio and collect premium income.
Three other stocks that meet these criteria are those below:
Pfizer (PFE) is reaping some good synergies, cost savings, and product diversification from its merger with Wyeth. It has consistently beat earnings estimates over the past several quarters and consensus earnings estimates for both this year and next have risen over the last ninety days. It is in a good position to weather the patent expiration of Lipitor and sells at nine times earnings and yields almost 4%.
Telefonica (TEF) has been unfairly punished due to the fact that its headquarters is in Spain and the unfolding European debt contagion. The company gets two thirds of its revenue from outside of the country, mainly in fast growing Latin America. I would take advantage of this misconception and pick up a stock that yields nearly 6% and is selling at roughly ten times earnings.
Aflac (AFL) has taken a hit recently due to the tragedy in Japan, where the company gets roughly three quarters of its revenues. The Gilbert Gottfried fiasco did not help matters. However, both events are unlikely to have long term impacts on the company or the stock. AFL yields 2.2% and is selling at a low nine times this year’s earnings and only eight times next year’s projecting earnings.
It is going to be a very interesting next six months in the markets. Be careful out there. Now back to that martini.