Grim economic news continues to send shivers through the stock market. News last week of a significant slump in the services sector sent the Dow Jones industrial average down 370 points in a single day.
Is any sector safe -- or any stock? After a steep drop in stock prices since October, some investors are starting to put money back into the market. But with uncertainty still looming over the economy and the market, investors need to be very selective in the stocks they choose.
Marcus Winbush of Breneman Winbush & Associates has started to add to his holdings after cutting stocks to about 25 percent of his portfolio last year. He plans to increase his stock holdings to 35 to 40 percent of the portfolio in the near future, but he is unlikely to go beyond that level until he sees some signs of a turnaround.
"I think stock valuations are attractive now, but I would anticipate a sideways stock market until the third or fourth quarter of this year," he said.
Much of his portfolio remains in cash and fixed-income investments, although he also likes the commodities market -- particularly agricultural futures, precious metals and energy. Although oil prices have declined sharply in the past two weeks, he expects oil to bounce back to more than $100 a barrel once the peak driving season returns.
In the stock market, Winbush says he still likes the medical services sector. His favorite Minnesota stock in that sector is UnitedHealth Group Inc. (UNH).
"Even in a recession, people still need health care. I think the outlook for this sector remains very strong," Winbush said. "We see UnitedHealth stock as a good opportunity right now. The stock took a hit because of some bad publicity [when CEO William McGuire resigned after an options backdating scandal]. But I think they have good management, good fundamentals and an attractive price earnings ratio."
UnitedHealth has a PE of about 14. Its stock was recently trading at about $48 a share, down about 15 percent from its 52-week high. The company has had strong revenue and profit growth the past few years. On the downside, Fitch Ratings recently downgraded the firm's long-term bonds from "A+" to "A," citing a higher than anticipated debt-to-capital ratio and concerns about the possibility of $1.3 billion in fines the company could face in California for allegedly handling insurance claims unfairly.