Waiting for the government to take action

The Baltimore Sun

The talk about shrewd investment maneuvers to be well-positioned for a new U.S. president has largely vanished.

From the economy to international terrorism, many of President-elect Barack Obama's priorities will be handed to him as he takes the oath of office, making many of his own initiatives secondary.

The entire U.S. government will play a significant role in the future of our investments.

Expect dramatic events, successes, failures and continuing volatility. The shape in which the government leaves the troubled companies it touches, their shareholders and bondholders remains to be seen.

The call for investment in solar, wind and geothermal energy will be affected by the financial crisis, experts said.

"Moving away from dirty coal and toward green was considered to be important in an Obama administration, but where is the money going to come from?" asked Steven Goldman, chief market strategist with Weeden & Co. "Some government policy may not be on the front burner due to what's happening in the U.S. economy."

But even if postponed, basic goals will remain. With an Obama administration in mind, Suntech Power Holdings Co. has gained attention in solar energy, as has Energy Conversion Devices Inc. in hybrid-vehicle storage technology and Geron Corp. in stem cell research.

As bailout is piled upon bailout, and economic stimulus is tossed into the mix, some experts consider inflation and a gradually weakening U.S. dollar inevitable.

"The key stocks are the hard assets, because the government's policy will create inflation long term, so gold, natural gas and so on should do well," said Tom Jacobs, co-founder and portfolio manager of Complete Growth Investor in Marfa, Texas. "But of course, it all depends on the specific company's management, financials and valuations."

Other experts are looking elsewhere.

"The financial sector will be the one most influenced by what the government does, as it attempts to shore up solvency of the U.S. financial sector," said Heywood Kelly, chief of securities analysis for Morningstar Inc. in Chicago. "Decisions made by Treasury, the Federal Reserve and administration will be crucial in terms of who the winners and losers will be."

If the administration must commit a big chunk of time, effort and resources to the financial sector, other segments, such as alternative energy, might suffer, Kelly said.

For mutual fund investing, Jacobs recommends that investors disregard this year's returns. Instead, "find the very best manager who is bombing this year and buy heavily."

Jacobs points to Ken Heebner, the respected portfolio manager of CGM Focus Fund, which is down sharply this year after last year's 80 percent gain.

Three-fourths of CGM Focus is in the agribusinesses, energy companies and raw material producers that Jacobs considers likely winners during the next four years. The portfolio includes Schlumberger Ltd., Peabody Energy Corp. and Petroleo Brasileiro, a Brazilian oil company. Meanwhile, Heebner shorted some financials because of worrisome mortgage portfolios.

"I wouldn't touch any financials because they aren't within my circle of competence and truly not within most people's," Jacobs said.

Experts are looking to other sectors for potential gains as well.

"The talk is also that health care will be more encompassing, and sectors such as generic drugs could benefit," Goldman said. "Infrastructure plays such as the power grid could also benefit on a relative basis." Infrastructure includes the nation's highways and bridges to be rebuilt using government funds, something that likely will be encouraged with rising unemployment.

Among companies that stand to benefit from a government revitalization of highway system are Caterpillar Inc., Cemex SAB, Chicago Bridge and Iron Co., Fluor Corp., Granite Construction Inc., Jacobs Engineering Group Inc. and NCI Building Systems Inc.

E-mail Andrew Leckey at yourmoney@tribune.com.

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