Defensively Playing the Forgotten Asset Class

Defensively Playing the Forgotten Asset Class

Brian_LazorishakMid-cap stocks are often referred to as the "forgotten asset class," with large-caps and small-caps getting all the attention. And now with the dramatic market swing, it's even more difficult for advisors to choose mid-cap stocks. Correlations between stocks of all kinds have gone way up, said Brian Lazorishak, senior portfolio manager with Chase Investment Counsel. I sat down with Lazorishak today in Jackson Square Park in New York to get a handle on what's going on with this forgotten asset class.

Lazorishak didn't sugar-coat it: Mid-caps do not have the same defensive qualities as large-cap stocks, he said. And in this type of environment (the Dow was down about 3.5 percent at the time of this writing), stock picking doesn't do much good. That said, corporate earnings are still pretty good and outlooks are fairly positive, he said. So he's shifting toward the defensive side of consumer discretionary and a heavier weighting to the healthcare sector. Here are a few of his stock picks in mid-caps:

  1. Consumer sector: Dollar Tree (NASDAQ: DLTR) and Ross Stores (NASDAQ: ROST). The underlying drivers of growth of these securities haven't changed; people still tend to shop at these stores in bad market conditions.
  2. Healthcare: Perrigo (NASDAQ: PRGO), which sells store brand, generic over-the-counter drugs. For the most part, it has been insulated from the economic activity and may even benefit from it, Lazorishak said.
  3. Healthcare: Same goes for Watson Pharmaceuticals (NYSE: WPI), which also sells generic brands. The company might also be able to take advantage of the fact that Lipitor, a cholesterol-lowering medicine, comes off patent later this year.
  4. Consumer: PetSmart (NASDAQ: PETM). While consumer spending and consumer confidence is down, people are still spending in the right places, such as on their pets, he said. Cars and homes? Less so.

Many advisors are seeing the market situation as more of a buying opportunity, rather than a time to panic and pull out of the markets. Lazorishak doesn't believe investors should be all-in on stocks right now, but rather he recommends sticking to the asset allocation plan, because investors could end up missing the upside. A Fidelity report released today found that investors who got out of the markets in 2008 and 2009 only experienced 2 percent growth, while those who stuck with their investment strategy were up 50 percent. Something for reps to consider if we head into another market downturn...

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