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Stock Picks: Where to Invest — and What to Avoid Now

Barry James, president of the James Advantage Funds and Hugh Johnson, chairman and CIO of Johnson Illington Advisors, discussed their economic outlooks and shared their investment strategies.

“This is not a faux bull market—it just means that the recovery that we have both in the earnings and economy is going to be a little slower,” Johnson told CNBC.

“It’s going to take 12 quarters to reduce the consumer debt to levels that are more manageable—[but] that doesn’t mean that consumers aren’t going to some borrowing and spending.” (See below for his stock recommendations.)

Johnson said he expects the economy and earnings to recover in 2 to 3 quarters.

“You’re not only going to see the economy recover, but you’ll see the top- and bottom-line recover,” he said.

“You’ll eventually see employment conditions improve as profits improve. Fourth quarter of this year and first quarter of 2010, we’ll start to see that process.”

In the meantime, James said consumers are the “future linchpin” to the economy.

“Consumers are going to continue to weigh on the economy, businesses and the stock market eventually,” said James.

As a result, James said he is keeping his portfolio defensive.

“We’re getting more and more defensive. I wouldn’t say we’re in the bunker yet, but we’re heading toward the bunker,” he said. “We’re trying to get into stocks that have higher yields.”

James' Picks:

McDonald’s

Century Tel

SPDR Gold Trust

Sovereign Bonds

TIPS

James' Pans:

RJ CRB Index

S&P Energy

Johnson's Picks:

IBM

Apple

Apache

Johnson's Pans:

Pfizer

Merck

S&P Utilities

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Disclosure:

No immediate information was available for Johnson or James.

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CNBC Slideshows:

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