MARKETWATCH VIEW: 2010 Investment Ideas That -2-

12th Jul 2010 13:30

What to do: Ed Yardeni, chief investment strategist at Yardeni Research Inc., told clients recently that industrials companies should see improving profit margins as the year unfolds, yet the sector's valuation is attractive. Ridgeworth's Wordell favors industrial companies that he said stand to benefit from a buildout of pipelines, refineries and other staples of the energy-sector infrastructure. His recommendations include Flowserve Corp. (FLS), ITT Corp. (ITT), Fluor Corp. (FLR), Ingersoll-Rand PLC (IR), Lennox International Inc. (LII) and A.O. Smith Corp. (AOS). 7. M&A trends Global merger and acquisition activity rose almost 8% in the first half of 2010 versus the same period a year earlier, though the pace slowed in the second quarter, according to deal-tracker Mergermarket Group, with the most transactions above $500 million since 2007. The lone exception was the U.S., where year-over-year volume slumped 15.5%--the quietest first half period since 2003. What to do: Acquisitions will continue to be an ongoing global trend. Companies with cash are increasingly looking across the globe for opportunities. Cross-border M&A transactions recorded the busiest half-year since 2008, reflecting 26% of all M&A deal value, Mergermarket reported. "M&A is going to be a theme over the next couple of years," Wordell said. His exposure comes from an investment in Lazard Ltd. (LAZ), the investment bank and asset manager. "It's ridiculously cheap, and without the regulatory and balance sheet risk of the other banks," the fund manager added. 8. U.S. dollar The strong-dollar theme continues to play out, with the benchmark PowerShares DB US Dollar Index Bullish (UUP) gaining almost 6% so far this year. The dollar benefited from the flight to quality that enveloped global markets in the second quarter. What to do: As long as there is risk aversion among investors, "we'll continue to see the dollar strengthen," said Rubin, the Neuberger and Berman strategist. "The dollar is the winner," added Scott Mather, head of global bonds at fund giant Pimco, whose bullishness on the greenback hinges on his view that global economic growth will be slower than expected. "The dollar has advantages that European currencies don't," he said. "We have, relative to other developed-world countries, a much more dynamic economy. When a lot of change is called for in the global economy, the U.S. will come out on top because of its ability to change." 9. Avoid long-term government bonds This was simply a bad call. Treasurys with 15-year or longer maturities have been the year's best performers so far, up about 13%. Long government bond funds have gained 14.2% on average. What to do: "It's not too late to own Treasurys," said Rich Bernstein, an independent investment strategist. Treasurys have the benefit of being the only major asset class that offers true diversification from stocks, he said. "With the growth and inflation outlook we have, we don't think they're in overvalued territory," added Pimco's Mather about long-term Treasurys. "In fact, it could be the cheapest thing out there." 10. Emerging markets consumers Optimism about emerging markets is clearly more restrained than it was at the beginning of the year. Emerging markets funds, on average, have lost almost 3% through July 8. "This is going to be a back-and-forth, dragged-out process," said Lancz, the Ohio investment adviser, about investing in emerging markets. Consumer-services companies in emerging markets, in contrast, present a more compelling and relatively more predictable investment picture. "The best place to invest is in those groups that are in the emerging middle class," said Mike Avery, chief investment officer at investment manager Waddell & Reed. What to do: Avery favors Chinese providers of consumer services including China Life Insurance Company Ltd. (LFC), along with multinationals Taiwan Semiconductor Manufacturing (TSM), Nike Inc. (NKE) and Mead Johnson Nutrition Company (MJN) as ways to take advantage of rising incomes in China. Consumer-staples companies are a major theme for Keith Walter, co-manager with Rudolph-Riad Younes of Artio Global Equity Fund (JGEIX). He's also focused on China and foreign companies selling into that market. "China is slowing down but there's no doubt that the command economy is going to maintain an 8% or better growth rate, which is far better than what we see in the West," Walter said. "That growth differential is going to be enough to make it an attractive place to invest." (Jonathan Burton is MarketWatch's investments editor, based in San Francisco. He can be reached at 415-439-6400 or by email at [email protected]) (END) Dow Jones Newswires July 12, 2010 08:30 ET (12:30 GMT)