The investment chief at $1.5 trillion Prudential Financial told us which sectors she's targeting to beat a stock market that looks 'overbought'
- Prudential Financial chief market strategist Quincy Krosby says investors should still be willing to take some risks even though stocks look expensive and trade war fears persist.
- Krosby told Business Insider the sectors she's still investing in despite those liabilities, and explained the factors that make each so promising.
- Her top calls include some portions of the stock market that have been left behind during the rally in equities in 2019.
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Even in a market with clear weakness, there are major opportunities if you know where to look.
That's the perspective of Quincy Krosby, chief market strategist for Prudential Financial. The firm has $1.5 trillion in assets under management, so her recommendations carry substantial weight. And Krosby says she's taking a careful approach to a market that is torn between two forces.
Stocks continue to rise because investors don't want to be left out, and the market tends to soar on any piece of good news, she says. But at the same time, it will struggle to overcome some lingering threats.
"We still have a market that is vulnerable to headline risks regarding tariffs," she said. "Everything seems to work its way back to the trade war."
For that reason, even though she calls the market "overbought," she still recommends taking on risk and not getting overly defensive. In an exclusive interview with Business Insider, Krosby called the following sectors and niches especially attractive:
Krosby said there are noteworthy opportunities in two parts of the industrial sector. Defense contractors stand to benefit from their hefty contracts, the growing US defense budget, and rising spending on next-generation military research.
Meanwhile shares of big exporters have struggled so badly that there are a lot of opportunities for improvement.
"Industrials have really been damaged by the trade war and the stronger US dollar, and add to that slower global economic growth," Krosby said. Good developments on any of those fronts would lift those companies, and would also help small and mid cap stocks and emerging markets indexes rally.
Investors who want broad exposure to the sector could get it through the SPDR Industrial Select Sector ETF.
The situation is similar for the financial sector in her opinion. She said she finds regional bank stocks attractive, while asset managers have gotten a boost thanks to some recent acquisitions and that trend could continue.
But signs of an improved economy would also provide a lift to the whole sector.
"If economic data continues to turn, confidence comes back, the 10-year yield should move accordingly. That would be good for banks and insurance companies," she said.
One way to gain exposure to financials is through the SPDR Financial Select Sector ETF.
While a lot of companies are piling into the streaming entertainment business and spending is high, Krosby said she has a positive view of media companies because there's that much demand for new media in the US and around the world. She also said fast food companies remain attractive as long as gas prices are stable and hiring is solid.
In general she said it's a good idea to take advantage of pullbacks in consumer discretionary stocks.
Those looking for exposure to the consumer discretionary sector itself could gain it with the SPDR Consumer Discretionary Select Sector ETF.
While the energy sector has had a relatively rough year, Krosby says large, integrated companies look relatively appealing and offer strong cash flows and dividends compared to their peers.
Investors can get into energy stocks broadly through the SPDR Energy Select Sector ETF.
While concerns about the potential implementation of a Medicare for All program and new drug price regulations have affected health care companies, she said life sciences and medical equipment both remain attractive and are less affected by those risks.
One way to get involved in the sector is through the SPDR Health Care Select Sector ETF.
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