Facebook, Apple, Intel: Analyst Says Today's 'Darling' Stocks Will Be Dead Money
Keith Fitz-Gerald of Money Morning shares his favorites and not-so-favorite plays to watch this year, and explains why small innovators are the names to watch in tech and media.
Keith Fitz-Gerald: It's interesting to me, because any time the market achieves an inflection point, this is another area that changes tremendously.
And the reason it changes is not so much that the market doesn't want to do stocks anymore, but it's the psychology of the investors that change. People feel like they're getting left at the station, so they start to look for those things that are media darlings.
Now that's a very controversial view, so let me explain what I mean by that. I don't mean that the companies are bad; I don't necessarily mean that they're going to fail; but what I do see happening are better alternatives.
Microsoft, for example, has become the very IBM (NYSE:IBM) that it set out to dethrone, when it was created. Intel is no longer a small, innovative company. Facebook is a behemoth that I think is worth $7.50. Social media is totally overrated in my book. I don't touch those things.
I'm looking at small innovative companies, particularly in cyber security space. One of my favorites is called Commtouch Software (NASDAQ:CTCH). It's out of Israel, growing 30% a year, a cloud-based security solution.
Nancy Zambell: Okay, but what about bonds? Interest rates have done nothing at all this year. You're practically better off in a CD than anything else, unless you're buying stock with income. So what do you think about bonds?
Keith Fitz-Gerald: That's an interesting question. I've thought a lot about bonds here. I think we're near the end of that game. I'm leery of much more upside.
I don't think we can be without them as investors. We have to have them in our portfolios. So to that end, I think that the best thing investors can be doing right now is shortening up duration.
They want to get their maturities in a duration under three to five years, if they can, because that allows them to do two things. If rates really start to rise, they can build a bond ladder at higher rates as they're issued. And they're mitigating most of the risk that's associated with five-, ten-, and even 30-year bonds, which are going to get hammered when rates start to rise.
Nancy Zambell: So even though you really do need to have a little bit of your portfolio in fixed income, would you suggest a bond fund for the average investor?
Keith Fitz-Gerald: I've always been a fan of bond funds or ETFs, and the reason is that individual bonds can be problematic for the individual investor. They're easy to buy, but they're tough to trade.
And they're a very sophisticated market, thanks to all of the derivative trading that's going on. They have really taken on a life of their own, and I think better to leave that part to the professionals. Go with the bond fund.
Nancy Zambell: That sounds good. Now do you have a favorite trade for 2013?
Keith Fitz-Gerald: Oh, you bet I do, and it's one that's near and dear to my heart.
As you know, I've spent more than 20 years of my life closely involved with the Japanese markets. I live in Japan part of the year, so I'm intimately connected with that society. I think shorting the Japanese yen is the trade of the year. It's certainly the trade of the next few years.
Japan's got the worst demographics on the planet. It's GDP to debt relationship makes the Greeks look conservative, and that makes it actually look like Bernanke knows what he's doing with his printing presses.
I think the yen is going to fail, and is going to fail spectacularly, once the Japanese government can't hold on any longer. One of my favorite ways to play this is actually the ProShares Ultrashort Yen Fund (NYSEARCA:YCS). I don't have any ownership in that one personally but am short the yen using currency.Editor's Note: This article was written by Nancy Zambell of MoneyShow.
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