Because there are two kinds risks in the market, the risk of markets going down and the risk of being too conservative when the markets go up, Keith Goddard, chief executive officer of Capital Advisors Inc. and co-manager of the Capital Advisors Growth Fund, says his fund categorizes stocks into different risk-reward profiles rather than into sectors.
“That way we can stay in the market by tilting the portfolio toward either more conservative types of stocks or more aggressive types of stocks without having to get all the way in or all the way out and make major directional bets like that,” he tells CNBC.
Of the three categories of stocks Goddard likes right now, the most conservative is what he calls the “stable earners,” which are the most predictable kinds of businesses where the risk of surprises is low.
Two stocks from this category he recommends are AT&T and PepsiCo.
“Both of them have very attractive dividend yields, and they have already reported their earnings so you don't have the risk of an earnings miss that's going to smack you around here in the next few weeks,” he notes.
In addition, he says, these are long-term stable places to be without being exposed to too much volatility.
The next category higher in terms of the risk-reward profile he likes is “accelerated growers.”
“These are companies where the uncertainty is a little higher, they’re growing faster. No company can grow at 20 percent forever, but they're great stocks while they’re growing at that rate,” he says, noting that Apple is a great example of this kind of stock.
The third category of stocks Goddard likes is called “emerging franchises.”
“An emerging franchise, by its very nature, is aggressive in the sense that there's a very wide range of possibilities for what can happen,” he tells CNBC. “This is the place you go in your portfolio to have doubles, triples and quadruples, but you can lose a lot too.”
One stock in this category he recommends is Chesapeake Energy.
“We believe the asset value is there,” he notes. “The company has been an extremely aggressive buyer of land. They own 15 million net acres of producing property in the United States, and they are the second largest producer of natural gas behind ExxonMobil.”
Chesapeake’s stock price has been hammered of late, in part on the rapid decline in natural gas prices, as huge new reserves are being found and exploited on U.S. soil. However, much of the damage has been the company’s own doing. A Reuters investigation found that Aubrey McClendon, the firm’s chief executive officer, took out $1.1 billion in loans backed by company wells.
McClendon has been removed as chairman of the board and a company program through which he took the loans will be ended early, Reuters reports.
However, Goddard states, “We believe the asset value is there. The market doesn't. We'll see who's right.”
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