I want to make some changes in the model portfolio to take advantage of the sector rotation taking place in the overall market. I am selling Bristol Myers (BMY) for a slight gain, and replacing it with Hershey Foods (HSY Buy Limit $65). Secondly, I am selling Cisco Systems (CSCO), and replacing it with Monsanto (MON Buy Limit $59). Lastly, I am selling Applied Materials (AMAT), and replacing it with Schlumberger (SLB Buy Limit $79).
As the market continues its rotation to a more defensive posture, Energy, Consumer Non-Cyclicals will continue to outperform. Hershey Foods is performing nicely as the low carb craze is beginning to lose its appeal with consumers. The CEO for Monsanto said Wednesday the company expects earnings-per-share growth of 17% in 2006 and 20% or more in 2007. Schlumberger said that fourth-quarter profits rose 86 percent due to rising prices in North America and increased activity in oilfield services around the world.
As much as we hate to sell great companies like BMY, CSCO, and AMAT, when sectors go out of favor they ususally remain out of favor for a year or more. I do anticipate revisiting the tech sector down the road, but not until the economy heads to downside and begins bottoming out.
