Amid the Turbulence, Infrastructure and Basic Materials Provide Long-Term Growth

Last week was not pretty,with the Dow Industrials closing under 12,000, down 464 points or 3.8% for the week. The financials had another tumble, setting a week-long negative tone with a decline of 4.7%. Oil, another wet blanket for equity bulls, had a wild week (to include hitting an all-time high) before settling almost unchanged above $134. Are the markets going lower?

I have long been bearish on the financial and the consumer discretionary sectors, though I am no longer significantly short. (In retrospect, I probably should have waited longer before covering some of those positions!) As the financials continue to get abused, is now the time to buy? From my perspective, the answer remains no -- there remain too many unknowns, leaving significant downside risk. There may be a "pop," but betting on that is more of a gamble than an investment. Financials will no doubt continue to be volatile; there is certainly money to be made on a good "guess," but there is also much money to be lost on a bad one.

Of course, with this attitude, I will likely miss the first part of this sector's recovery; I am fine with that, as the current risk/reward ratio is just not attractive for most financial firms. However, I am interested in a few, primarily in niche markets that stand to profit from the current turbulence -- one of those is Assurant (AIZ), in which I recently established a long position (through options).

The energy markets are even more volatile and could easily go either way after the meeting of government officials and oil executives in Jeddah, Saudi Arabia. At this point, with sharp drops or pops in oil prices equally likely, futures are a very risky place to be. However, for the longer term in the equity markets, oil services and natural gas issues stand to benefit from continuing increases in global demand for energy. At this point, I am not willing to go either long or short on the oil majors or the refiners.

Despite last week's pullbacks (with the sharpest coming on Friday, when everything seemed to go down), I continue to like basic materials and infrastructure plays. China, India, and other countries outside of the United States, Western Europe, and Japan are long-term growth stories; though this growth will have its peaks and valleys, the overall trend will be up. However, many companies in these sectors have had a very good run already; investors have to look carefully for those that still offer good growth at reasonable price-earnings ratios.

Finally, with the current tone of the market, there is no need to hurry. Mr. Market is in one of his depressed moods and is selling everything... This may continue for a while, but then that would make the good deals out there even better.