Thursday, June 16, 2011

Marc Faber's Defensive Stock Picks

Barrons released its Summer Roundtable with luminaries such as Marc Faber and Felix Zuluaf.

Marc Faber gave some stock picks for the second half of 2011.

First, Faber reiterated his bullishness for gold, particularly physical gold.

"Not to own gold is to trust the value of paper money and the government's integrity. No one in his right mind could trust the U.S. government any more. The government's economic statistics are distorted and there is no consensus on how to solve the budget crisis. So, yes, people should own some gold. It can correct by $100 or $200 an ounce, but you own it as an insurance policy. The world is grossly underweight gold. It is flooded with U.S. dollars. Investors might be bearish about the U.S. dollar, but international dollar reserves exceed $9 trillion. Compared to that, there is very little gold."

Faber has been a long term gold bull for at least nine years.

In addition, Faber is bullish on defensive stocks that will likely outperform in a market correction.

"Defensive stocks such as Procter & Gamble, Johnson & Johnson [JNJ], Roche Holdings [RHHBY.Switzerland], Nestlé [NESN.Switzerland] and H.J. Heinz [HNZ] are likely to outperform. Believing the whole Middle East and Pakistan will blow up, I recommend having exposure to defense companies. Therefore, I would buy Raytheon [RTN] on weakness."

Faber has usually recommended commodity or cyclical stocks. This means that his current recommendations are due to the expectation of an economic slowdown in 2011.

The sectors that Faber did not recommend are almost more instructive than his stock picks. For instance, Faber was previously bullish on oil, natural gas and Japan. However, he made no recommendations for these sectors during the mid-summer Barron's Roundtable.

As for the broad stock market Faber expects a rather significant correction.

"Stock and commodities markets, including precious metals, will head lower for the next three to six months. Therefore, defer any new buying for now. You can buy again after the S&P 500 has corrected by 15% from its late-April high."

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