Yoshikami: Three Sectors to Consider After You Vote
It's election day; make sure you vote.
Then, after you cast your ballot, stop for a moment and think about what your next investment move should be for post-election and 2011. Here are a few sector ideas to consider.
The world is rapidly moving towards smart phones and tablets. Mobility will be the key and you can expect this trend to have legs. Think for a moment about people in your life who have smart phones today that five years ago didn't have cell phones. The trend will continue. Verizon will continue to be a leader especially when they begin carrying Apple’s iPhones next year.
Additionally broadband will be a major theme as cell phone providers (and consumers) migrate from 3G to 4G spectrums. WiMAX and LTE will become household names in the next couple years. Position yourself to take advantage of this transition.
Cloud computing is headed our way. We are just now beginning to see the migration from a local storage model to remote servers. Companies like Amazon and Microsoft are at the center of this revolution and are focused on capturing market share as the transition involves.
Other technology company positives include high cash balances and and increasing tendency towards share repurchase strategies (such as the one announced by IBM last week). This clearly is a sector with tailwinds and we believe will continue to do well post-election and into 2011.
I know what you're thinking; healthcare has been a dead investment for years. But the tide may be shifting on this lagging sector. Post-election we believe a more divided House and Senate will likely mean less revolutionary change for the healthcare industry. For that reason, investors will have more certainty about what the future holds for healthcare companies. Uncertainty has been a major overhang on this sector; some fog will likely be lifted after the election.
Healthcare assets are attractively priced versus the overall market as measured by the S&P 500. Price to book, price to sales, and price earnings ratios all are trading at a relative historic discount. These 3 measure are the foundation of valuation analysis and we believe should not be ignored.
And with yields so low on treasury assets and money market funds, dividends matter more than ever. Healthcare names pay more than the S&P 500 on average as measured by the S&P 500 Healthcare index. The spread is higher than its historic average and the yield is very enticing.
Yes, banks still have huge problems to be sure. But capital levels haven't been this strong in years and even under Basil 3 capital requirements, major US banks look to be solidly in the black.
With some certainty returning for banks, we expect to see increased share repurchase activity as well as a reinstatement of dividends cut during the great recession. Cash flow to investors is a good thing and beats the paltry yields on many alternative assets.
Should you also dive in past sectors, investigate, and be selective? Yes, for sure. Still, tailwind investing and focusing on themes with cyclical advantages is a good place to start and a way for you to narrow down your investment ideas.
Of course, be aware that these assets (and sectors) are subject to fluctuation as are all stocks and caution is warranted. Still, the selection provides a line in the sand for investors. Uncertainty and residue from the last three years still impacts companies and their results, but this election reduces one anxiety provoking variable.........uncertainty.
We will know after today (assuming predictions of Republican gains hold true) with more clarity what the legislative agenda will look like for the next two years. You can expect more moderation and more certainty as to the rules that companies will need to follow to be successful. And more certainty will help companies and profits.
It's still scary world out there so tread with paranoia at all times. A large dose of skepticism is always your friend when investing your net worth. But look at the other side of the coin as well and balance fear with a perspective of curiosity. Be curious and investigate themes with tailwinds. Look for sector themes that increase your odds of success.
Programming Note: Mr. Yoshikami will be a guest on CNBC's Squawk on the Street Tuesday starting at 10am/et.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at email@example.com.