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Thursday, July 20, 2006

What to Buy?

What to buy on this rally? Given that we believe this will be a relief rally up until after the August 8 Fed meeting, we believe cyclicals like consumer discretionary, materials and industrials will lead the way. Another sector that we like is the financials, as a pause by the Fed will certainly reduce the pressure on their margins, and M&A in this sector is also helping profits. But remember this is only a relief rally, and once the reality of slowing economic growth becomes a reality, these sectors will fade. Our long-term picks are still in consumer staples, utilities and healthcare. Still stay away from technology except for the secular stories. Internet is a good secular play that we believe is still intact, and valuations have come down quite a bit. Stocks we would buy on this rally include TRLG, CAT, BUCY, JOYG, PCP, BA, BAC, STI, GOOG and AKAM. Bonds are an excellent pick. We still like EWJ, and in emerging markets we like EWZ and FXI as long-term stories.

TERENCE

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