We Survived, So What Do We Do Next?

Investment Know-How by Kevin Powell

Whew! The good news is that the world did not end as some interpretations of ancient Mayan writings suggested. The bad news is that we have another looming disaster to worry about now. But let’s say the Fiscal Cliff doesn’t cause the world to end either. What should we do to start preparing for our own fiscal responsibility in 2013?

Recently we discussed some areas that we believe look particularly attractive in the New Year. Those sectors were technology, emerging markets (Brazil, Russia, China and India), natural gas producers/suppliers, European financial companies and the healthcare sector. We’ll focus on the last three sectors this week.

Natural Gas is a very compelling area. Natural gas prices are at multi-year lows. The reason is not that companies have performed poorly. It’s that we have found so many new natural gas reserves and have an overabundance of supply. Part of the reason for these new finds is the result of technology that now allows us to reach these valuable deposits.

Environmental issues are a potential roadblock for new drilling as they should be to a degree. But not moving towards making America more energy dependent is a terrible mistake in our opinion. Hopefully the environmentalist and titans of industry can find a clean and economical way to greatly improve our country’s long term financial stability.

The U.S. is the world’s largest producer of natural gas. Russia, China, the U.S. and Argentina have huge natural gas deposits that are untapped. China and Argentina have real obstacles preventing them from getting to their reserves as easily as we can in America.

Some energy experts have even gone as far as predicting that the U.S. will be energy dependent in the next decade thanks to natural gas. We currently don’t export much natural gas but there are many plans to start doing just that.

A long-awaited report from the Energy Department last month was very favorable in regards to the US building natural gas export facilities. If we start to export natural gas, it will drive prices up for domestic users. However, prices are so low today that they need to go back to more historical norms.

Our stock research in this area is on-going but one company we like in this space is Spectra Energy (SE). They are a lower risk way to participate in this area.

Everyone is aware of the mess in Europe and they still have a long way to go before they turn the corner. Europe is officially in recession today. They have spent nearly as much in stimulus efforts as we have in the U.S. but many EU nations remain unstable.

We view this as a great opportunity. The U.S. is a good example of what might occur once the EU nations have their fiscal house in order. Vanguard’s FTSE All-World ex-US ETF (VEU) is an option that may perform well in this area. However, they are not a pure European play as they invest in 46 different countries and the stocks they own account for about 60 percent of the world’s market-cap.

VGK or Vanguard MSCI Europe is an ETF that focuses just on the 16 EU nations.

Another stock to consider is Nucor (NUE). Nucor is one of the largest U.S. steel producers with strong international channels. We also like Vanguard Mega Cap ETF in 2013 as our broad market fund.

Healthcare historically has been a defensive sector and we still view it in that manner. There are many different angles to try and analyze before jumping into this murky pool. Individual names we like are CVS Caremark, Becton Dickinson & Co, WellPoint and Exelixis. Our favorite health care ETF would be Vanguard Health Care (VHT).

When to buy or how much to invest in any one sector or stock is unique to every investor’s particular situation. A final resolution to the Fiscal Cliff will be something we consider as to when we invest. But again, let’s keep a long term perspective while not ignoring impending events.

Please remember that all investments can and will lose money. Consult your advisors before investing in any vehicle.

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