Given the market downturn, it may appear to investors that there are screaming buys, but investment managers are largely staying defensive, with many favoring the consumer staples category.
"It's not the end of the world, no matter what we read, but it is very dangerous to be too aggressive at this point," said Phil Maisano, chief investment strategist for BNY Mellon Asset Management of New York, a unit of The Bank of New York Mellon Corp. "Stocks are really cheap, but to jump in all the way, that's a flawed strategy."
A better approach is to focus on traditional, defensive stocks, though managers didn't want to mention specific names.
These days, however, not everyone has the same idea about what is defensive.
There is general agreement among investment managers that stocks in the consumer staples category make a lot of sense right now.
"Typically, even in a tough economy, people tend to spend money on food, beverages, both alcoholic and non-alcoholic, and tobacco," said Steven M. Rogé, a portfolio manager with R.W. Rogé & Co. Inc. The Bohemia, N.Y.-based firm has $160 million under management.
The firm also advises the $9 million Rogé Partners Fund (ROGEX).
That people continue to buy consumer staples is why Michael S. Levine, a vice president and portfolio manager with OppenheimerFunds Inc. of New York, is overweight the sector.
TOBACCO FAN
He particularly likes tobacco companies.
"They are always cheap because of the litigation risk," said Mr. Levine, manager of the $1.56 billion Oppenheimer Capital Income Fund (OPPEX). "But the product is relatively stable."
Of course, there are other areas of the market that are traditionally viewed as being defensive.
Health care and energy stocks are two such areas, said James Paulsen, Minneapolis-based chief investment strategist with Wells Capital Management Inc. of San Francisco.
Such companies provide investors with additional protection in the form of healthy cash flow and dividend payments.
And technology stocks, once viewed as an offensive play, are increasingly being seen as defensive because they usually don't have a lot of debt, Mr. Paulsen said.
But there is much less agreement among investment managers about whether it makes sense to invest in some of those sectors right now.
"We don't necessarily believe that the tech sector will be a great place to invest over the next year as companies postpone or cancel discretionary spending," Mr. Rogé said.
And he isn't placing bets on energy because he thinks that oil prices still have room to fall.
"Health care should be a good place to invest over the next year," Mr. Rogé said. "However, only companies that have solid balance sheets are likely to prosper."
That is a different view than the one held by Kim Caughey, a vice president and senior analyst with Fort Pitt
Capital Group Inc., a Pittsburgh-based advisory firm with more than $1 billion under management. The firm is the adviser to the $25 million Fort Pitt Capital Total Return Fund (FPCGX).
Ms. Caughey isn't a fan of health care companies or even consumer staples.
"They are not particularly interesting to us because they have seen a nice run-up," she said. "They're not going to improve vastly."
But Ms. Caughey does like tech stocks.
A lot of tech companies are software firms, and the model for buying software has changed, she said. Businesses no longer buy a perpetual license to software, but instead buy it on a subscription basis.
That means that regardless of whether times are good or bad, businesses that have signed up for subscriptions "have to pay the bill," Ms. Caughey said.
Tech stocks are attractive for another reason, said Matt Hayner, a vice president, equity analyst and portfolio manager with Madison (Wis.) Investment Advisors Inc., the adviser to the Madison Mosaic Funds.
As countries around the world develop a robust middle class, computers and Internet access will "proliferate," he said.
In that sense, Mr. Hayner's belief in technology isn't just a short-term defensive play, but it is also a long-term bet predicated on the belief that markets will turn around eventually.
But a turnaround is still a ways away.
"These are still troubled times, and safety pays," said Jeffrey L. Knight, deputy head of investments and chief investment officer at Putnam Investments in Boston.
Just because a stock is cheap doesn't make it a good buy.
There are plenty of cheap home building and financial stocks, but investors would do well to stay away from those troubled market segments, Mr. Knight said.
Not that investors shouldn't at least start to look beyond defensive stocks.
EMERGING MARKETS
For example, a case can be made for "selective" emerging markets, Mr. Knight said.
The financial systems in those countries weren't as affected by the turmoil that has hit the banking system in more-developed countries, he said.
It is hard to argue with the logic of buying such stocks or other more traditional defensive equities, Mr. Paulsen said.
Owning such stocks makes the most sense in these difficult times, he said.
But investors should also keep in mind that the equity market will eventually recover.
With that in mind, investors should consider non-defensive plays, such as industrial and consumer discretionary stocks, Mr. Paulsen said.
Industrial stocks will do well because there is a "trade renaissance" going on that favors American manufacturing, he said.
And consumer discretionary stocks should do well because once the market rebounds, consumers will begin to spend again, Mr. Paulsen said.
Of course, investing in such market segments necessitates a belief that the markets will soon recover.
Most investment managers, however, aren't yet willing to make that bet.
E-mail David Hoffman at [email protected].
