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Traders: here's how to be positioned for the second half

Key Points
  • The "Halftime Report" traders give their strategies for how to maximize value in the second half of the year.
  • Jim Lebenthal, partner at HPM Partners, "sees value" in financials going forward, and is also watching Starbucks and Dick's Sporting Goods in retail.
  • Health care names are "safe places to bet," argues Short Hills Capital's Steve Weiss.
  • Ritholtz Wealth Management CEO Josh Brown favors international exposure, while Virtus Investment Partners' Joe Terranova thinks investors should be "U.S.-centric."

The Dow and S&P just surged higher for their 10th positive quarter in 11 as the Nasdaq posted its 8th straight positive quarter.

But the market landscape ahead could be rockier. While the “Halftime Report” traders believe the momentum will continue, they cautioned that investors should be sector and stock-specific heading into the second half of the year.

Trader: Here's how I'm positioned for the second half of the year

Bank stocks have lagged the broader market this year, but HPM Partners’ Jim Lebenthal and Short Hills Capital’s Steve Weiss think that soon might change.

On Monday’s “Halftime Report” Lebenthal said he “sees value” in the sector but that the yield curve needs to steepen before the sector can move higher, which he sees happening once trade issues are resolved. Weiss added that he owns a number of bank stocks since he believes “rates are going to go up” and the sector traditionally performs well in a rising-rate environment.

Bank stocks soared following President Trump’s election on the hope that they would benefit from easing regulation and pro-business policies. But year-to-date the sector has floundered, falling more than four percent through Monday’s close. Bank earnings have been solid, but investors have instead been piling into high-growth names, typically found in the technology sector.

Over the past year the tech sector has more than doubled the S&P-- rising 31% compared to the S&P’s 12% gain -- and Virtus Investment Partners’ Joe Terranova doesn’t see that trade slowing down any time soon. He believes the sector will continue to show market leadership and that it’s a “strong place to be.”

Terranova also likes energy for the coming quarter, saying that “pricing is going to remain strong.” The sector finished 2017 in the red, as the worst-performing S&P group behind only telecom. But so far 2018 has been a very different story—the sector has outperformed the broader market over the past three months, and 2Q2018 was its best quarter since 2011 as oil broke above $73 for the first time since 2014.

Like Terranova, Jim Lebenthal thinks there’s upside ahead for energy stocks. He’s a value investor, which means that he owns stocks that he believes have fundamental strength. So when a sector sells off broadly--like energy did in 2017 -- he takes a stock-specific approach and looks for names that may have been unfairly brought down along with the sector as a whole.

Lebenthal also believes there are attractive names to be found within retail, although he emphasizes that investors need to be picky when it comes to the space. Specifically, he likes Starbucks and Dick’s Sporting Goods for the second half. He believes Starbucks is a turnaround story -- the stock sold off last month after the company announced store closures and lighter-than-expected Q3 sales -- while Dick’s Sporting Goods, up more than twenty percent this year, has momentum behind it that Lebenthal foresees continuing.

With the bull market now in its ninth year, Weiss is watching secular sectors --or sectors that perform well even in an economic downturn. He’s looking at health care in particular. Within the space he likes McKesson, AmerisourceBergen, and Allergan. On Monday’s “Halftime Report” he noted that these names are “safe places to bet” since consumers will continue to spend money on health care, no matter the state of the broader economy. He’s also watching Celgene, which he thinks might finally be turning around after falling more than twenty four percent this year.

Regeneron, McKesson, AmerisourceBergen, FedEx & Hilton

One area where the traders disagree is where it’s geographically most attractive to be for the second half. Terranova believes that investors should have a “US-centric focus,” while Ritholtz Wealth Management CEO Josh Brown believes there’s better value to be found abroad.

“We remain overweight internationally,” Brown said on Monday’s “Halftime Report.” “International equities are doing worse this year than US [equities]. They did better than the US last year, and that push/pull will always exist...We just think there’s better value to be found elsewhere in high-quality dividend-paying international stocks than just chasing the same five S&P tech giants up.”

As the bull market continues to run its course and investors face increased uncertainty ahead, Joe Terranova did offer a word of caution: “Don’t predict where the market is going. Prepare for it to go to the worst possible place for your portfolio.”

- CNBC's Vincent Caruso contributed to this article.