Readers Share Top Picks for an Uninspiring Market

How does one invest in a market in which bonds look fairly unattractive and stocks aren't a screaming buy either?

That's the question I posed to Morningstar.com users in the HandsOn forum of our Discuss boards. Readers, with few exceptions, concurred that there's not a lot to get excited about at the moment. There were few enthusiastic posts about bonds in the whole thread, but some posters believe that selected blue chips have decent upside potential at this juncture. Others are simply staying the course, putting money to work in accordance with their long-range asset-allocation plans.

To read the complete discussion or chime in with your own views on what to do in this market environment, click here.

'It's Hard for Me to Get Excited About Much of Anything'
In my original post, I described the current market as "meh"--meaning indifferent, neither good nor bad.

Uncleharley, however, took issue with that description. "I guess I didn't know it was a 'meh' market," this poster wrote. 

Audreyh1 seconded that sentiment, writing, "The markets haven't been 'meh' to me. Maybe that's because I'm fully invested already. It's felt more like riding a bullet!"

But other posters generally concurred with my ho-hum assessment of the stock and bond markets at current levels. Matthew9 said, "It's hard for me to get excited about much of anything in the market right now." 

Texasboy was on the same page, opining, "I'm not sure about any 'investment excitement' in any asset classes.

Bnorthrop agreed that it's not necessarily a great time to put new money to work. "I'm not in much of a buying mode because the market has been rising for the past four years and is fairly valued--certainly not shouting 'bargain,'" this poster wrote. "Downside risk has increased as upside has played out (though not necessarily exhausted)."

'A Safer Bet in Case of a Huge Correction'
U.S. bonds had few backers in the discussion, with several posters reporting that they had recently scaled back their positions in the asset class. A few posters mentioned international bonds as an area of interest. OceanMinded put forth the thesis as follows: "I think there are still opportunities in global bonds. A lot of countries are in much better fiscal shape then the United States and are seeing a lot more growth, particularly in Asia and South America. While this area represents a small portion of my overall portfolio (around 5%) I have been adding to Matthews Asia Strategic Income and  Templeton Global Bond (TPINX)."

Among the posters who said they were enthusiastic about anything, stocks received many more mentions. Continuing on a theme that has prevailed for the past several years on Morningstar.com's Discuss boards, several posters noted that they're feeling most optimistic about blue-chip dividend payers.

Manan728 wrote, "Given the already rich market valuations, the only stocks to consider per my opinion are the ones that have historic high dividend yields even at current prices--4% and higher. Such stocks would be a safer bet in case of a huge correction." This investor's pick?  Royal Dutch Shell (RDS.A).

DelOjoZafado sees opportunity in an another major energy player, albeit one that has had more of a cloud over it. "I have been buying  BP (BP) as of late," this poster wrote, citing as attractions the firm's yield as well as the fact that BP may be able to stave off payment on civil suits related to the Gulf oil spill for some time to come.

BadgerState is also favoring energy names, including  Transocean (RIG),
 National Oilwell Varco (NOV), and  Chesapeake Energy . "Oil wells aren't going away, and natural gas can't stay cheap forever," this investor surmised.

For other posters, stable-growth sectors like health-care and consumer staples look the most attractive at the moment. Darwinian set up the thesis for those sorts of names in the current market environment, writing, "In the past 18 months, my investment strategy has shifted from 'making hay while the sun shines' to 'battening down the hatches.' Since I don't know when the next downturn will hit, I have been shifting out of small-cap stocks into less volatile consumer staples. I may start moving into pharma also. Both of these sectors have histories of outperforming the broad market, while being more resistant to recessions."

Flakey's favorites in those two sectors are  Nestle (NSRGY) and  Novo Nordisk (NVO). This investor is attracted to those two firm's moats as well as their product portfolios.

Among the few names receiving repeat mentions was another health-care firm,
 Express Scripts . Cgajowski likes it because "it is in a good position in a growing mail-order prescription market--growing in part because consumers--aging consumers who tend to use more drugs--are often not given a choice other than to use mail-order service for ongoing prescriptions. And although there is concern in the analysis that pressure to reduce fees may affect profits, I think most of the costs are 'through-costs' by which I mean Express Scripts is more of a middleman or broker handling the transaction. So the pressure falls more upon either the pharmaceutical maker or consumer."

Nancy H has also added to Express Scripts as well as a passel of tech names including  Apple (AAPL),  Baidu (BIDU),  Intel (INTC), and  Qualcomm (QCOM).

ComStar, meanwhile, is still a Warren Buffett/Charlie Munger believer, even though the price on  Berkshire Hathaway (BRK.A) (BRK.B) shares isn't what it once was. "I began buying Berkshire Hathaway at a split-adjusted price in the low $60 [range] with the idea that I would continue to buy it from time to time up to a price of $100." But with the price over that level today, ComStar is still buying. "I still buy the shares, but am not as enthusiastic with the higher price. I am hopeful to get a bit of a pullback to make it a bit more interesting."

Other posters said they're positioning their portfolios for specific scenarios they expect to play out. Uncleharley, for example, has been adding to cyclical names, including  Johnson Controls (JCI) and  Cisco Systems (CSCO).

The prospect of rising interest rates has also prompted some investors to brainstorm about what might do well in such an environment. For example, Tommyk63 cited
 Federated Investors (FII), whose huge money market business would fare better if yields were to trend up. "They are one of the largest managers of money market funds and currently have to make fee waivers because money market rates are so low."

Other posters noted that nonportfolio maneuvers have beckoned as attractive given the current state of the stock and bond market. Matthew9 wrote, "I plan to refinance my existing mortgage while rates are historically low."

The Scovillj family, meanwhile, has been investing in home and hearth. This poster wrote, "Three years ago we replaced the roof and added a family room and a grade entrance to the basement. Last year we upgraded the windows (energy tax credit). This year we will replace the carpet (18 years old or more) in the master bedroom with hardwood flooring. Next year we will renovate the kitchen. These projects are making our house more enjoyable while we live in and should also serve to increase the resale value of our house. So if the stock market won't be moving, we will be investing in our home."

'I Have Cash on Hand'
A healthy contingent of posters say that they have cash at the ready, poised to put money to work if the markets correct.

Rllucky wrote, "In my personal savings/retirement accounts I am about 25% in cash. I would rather hold onto cash rather than take new positions into fairly and/or overpriced stocks. That's not a really good way of making money. And I just don't want to get in, just for the sake of getting in. I would rather stay the course and be patient, waiting to take positions in undervalued businesses with strong competitive positions and good management teams."

Similarly, Go2975lf is compiling a watchlist and waiting for a few good pitches at which to take a swing. "It is quite difficult to get good stocks at the right price these days. I have cash on hand--after selling munis and bond mutual funds--and have a big 'watch list' of stocks to buy."

W004dal notes that uninspiring market environments give you at least one gift: time to do your homework. "The stable prices of a 'meh' environment give you time to fully research your next move with minimal chance of losing an opportunity to sell or buy," this poster opined.

'Yet the Ship Scuds Along Gently'
Other posters said they're more or less keeping their heads down and sticking with their plans, deploying money into their preferred asset allocations at regular intervals.

That's the strategy employed by Juris2, who wrote, "I'm 'staying the course,' to use a phrase I seldom use: dollar-cost-averaging into equities (which are 49% of my portfolio) and enjoying the continuing mid-small cap outperformance that has helped me so much during the last several years."

FidlStix is also cruising forward with his asset-allocation framework, undeterred by less-than-compelling valuations. "I'm just sitting on 63% equities, 20% bonds, and 17% cash. I'm not even looking hard for things to buy at the moment, though I'm standing on the deck of this market, looking up at the sails. They're hanging limp, hugging the masts. The doldrums. Hardly a breath of breeze. Yet the ship scuds along gently, propelled by an unseen and unexplained current beneath the waves."

Weiwentg agrees that current share prices shouldn't derail a long-term plan. "Stocks are about fairly valued," this poster wrote. "This doesn't mean that the market's expected return is zero. It means that now's not the time to jump right in with a big sum of money, but I do think it's best to keep investing slowly."

Focusing on the really long term, Rllucky sees no reason to be spooked by stocks' valuations. "In my 401(k) plan, I'm going 100% into [Vanguard 500 Index (VFINX)] at my job. By dollar-cost averaging every month, I figure that that the market will be much higher 30 years from now."

Retirement is close at hand for Chief K, who's keeping his head down and tweaking his allocations in anticipation of the big day. Ditto for Juris2, who wrote, "I'm focusing on preretirement planning--and getting set to do some Roth conversions--rather than on the immediate performance of my investments."

In a similar vein, Danahan has decided to tune out the investment- and economic-related news flow and has instead focused on optimizing the investment portfolio for long-term growth. "Although the future will always remain uncertain," this poster wrote, "I am presently a more relaxed and happier investor. "

See More Articles by Christine Benz

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