Q&A-SBAuer Funds sees strength in technology, biotech
By Edward Krudy
NEW YORK, June 19 (Reuters) - The U.S. stock market is unlikely to see a significant pull-back after rallying up to 40 percent since March, says Robert Auer, senior portfolio manager at SBAuer Funds.
Auer, who helps manage the $127 million Auer Growth Fund, says investors should buy technology and biotech stocks while dumping defensive shares as the economy swings out of recession.
The fund is up 17.4 percent since the start of the year compared with a rise in the S&P 500 of less than 2 percent, according to Morningstar data from mid June.
Below is a question and answer session with Robert Auer.
Q. Do you think we will see a pull-back in stock prices following the S&P 500's 40 percent rally since March?
A. I'm very bullish. And why I'm bullish is that cash is still at a very high historic level. Cash in mutual funds is high, hedge fund cash is high. Just the amount of cash slushing around in the system is high.
The second thing is that there is so much pessimism. There are enough people out there saying, "Ah, we've still got a lot of downside left." And they have a lot of good reasons. I think all of the reasons are very sound but the market will climb a wall of worry as it always does.
Q. Which sectors will lead us out of recession?
A. I think technology is going to be the leader and we do have some tech stocks. Our favorite tech stock is a company called Synaptics Inc (SYNA.O) and they are 80 percent of the market for touch pads for notebooks. They invented the technology and now Research In Motion (RIMM.O) is putting in some of their products and so is Apple Inc (AAPL.O).
Our largest position is a company called Cubist Pharmaceuticals Inc (CBST.O). We bought it because of the earnings.
Q. Which sectors would you steer clear of?
A. It is still too early for consumer discretionary. That would be on my No. 1 hit list of things. That's going to be the last thing to boom. You're seeing a little bit of glimmer, Carnival Corp (CCL.N) had a little bit better report than people thought but it still wasn't that good. We wouldn't be buying Macy's Inc (M.N), we wouldn't be buying Sears Holding SHLD.N. We're too early in the cycle for those.
Also the flight to safety play is going to be over; as the appetite for risk goes up this is going to hurt consumer staples. Wal-Mart Stores Inc (WMT.N) benefited but I wouldn't touch Wal-Mart now. McDonald's Corp (MCD.N) benefited, and as well managed as Wal-Mart and McDonald's are, that play is over. As the appetite for risk increases you're going sell PepsiCo Inc (PEP.N), you're going sell Wal-Mart, you're going to get out of Altria Group (MO.N).
Also, I would stay away from anything that has a compromised balance sheet.
Q. Do you think the Obama administration is on the right track with its proposals to regulate the financial system?
A. I think it is in the wrong direction. All the stuff that the administration is saying, this is what came to mind: We're going to have one czar over everything. That is so ridiculous and it reminds me of the wizard of Oz. There's going to be one guy behind the curtain pulling the levers and what he says is going to go. You can't have one agency regulate FDIC, SEC, the Fed, the Treasury, and the FTC. It's crazy and won't work, it's too big a job. (Additional reporting by Leah Schnurr; Editing by Leslie Adler)
