What: Discussion of current market conditions and hot/cold sectors.
Where: Bloomberg Live
When: January, 2007
Who: Bllomberg Live host Luke Napoli, Darin Richards (AKT Wealth Advisors)

Luke Napoli: Joining us now is Darin Richards, Chief Investment Officer at AKT Wealth Advisors where he overseas about $400 M in assets. Darin thanks for being with us. So let’s start off with this technology showing the most strength today—and that strength is in large part thanks to the gains in Cisco Systems shares after saying sales this quarter may exceed analysts’ estimates. What’s your view here on Cisco and then the wider technology group?

Darin Richards: Well I’m glad to see Cisco come out with some good earnings guides, I think that’s really going to help that sector and we’ve kind of been monitoring technology and there’s been a lagger for the last several years. And kind of feeling that it was poised for a rebound and several months ago identified that as one of the two sectors including healthcare that we thought had some potential to outperform the market in 2007. You saw pretty much no spending on technology-related from the business standpoint from the first 2000-2005 and I there’s a lot of back demand for that so we think that if the economy looks like its going to continue to grow at a pretty good clip, that technology spending could definitely pick up this year.

Luke Napoli: That’s a very diversified group though; you’ve got things like semiconductors, you’ve got computers, you’ve got various peripherals. Which particular part of technology offers the best prospects for you?

Darin Richards: Anything that improves productivity. When you look at the unemployment situation that we have extremely low unemployment right now, productivity is a huge issue for companies because its hard to find good people. So anything that is productivity-related from a software stand point, from a networking standpoint—anything like that, when you think of a larger company would need is the types of things I think are going to do the best in 2007.

Luke Napoli: The weakest industry group today is energy, falling along with the price of crude oil. There were those gains for energy stocks and then a pullback here recently as crude oil prices move lower before rebounding a bit in the last couple of weeks. What’s your view on this energy group?

Darin Richards: You’re going to see a trade up and down with the price of oil. You got the cold snap right now that definitely changed people’s sentiment from where it was maybe two weeks ago so our hope is that the energy sector does not lead the market in 2007. I don’t think that would be good for the overall market and hopefully we can see oil prices kind of stabilize somewhere in the low 50s which I think you know allow energy companies to do fine but really would maybe be a good impetus for the rest of the economy to pursue forward.

Luke Napoli: Ok, we’ll talk more in a moment but first… [intermission].

Luke Napoli: For many of us Darin, you’ve indicated its not whether there will be gains, but where there will be gains. And you told us the technology group may offer some gains ahead. What other groups do you think offer good prospects?

Darin Richards: I think healthcare is also a good area to market. Its kind of been underappreciated for several years and it tends to do well regardless of the economic situation so we do see a slowdown—maybe GDP comes down at the first/second quarter of this year. Its one of those that has the ability to withstand that and to continue to grow earnings. I think that’s a nice area to look at. If you look at the overall market, 2006 was the year where kind of a rising tied lifted all boats, and I think what we’re seeing is that the quality companies—the companies that have been able to grow earnings and have a good balance sheet are probably the ones that are going to do the best this year. And some of the companies, even though they might have performed well in 2006 had either not very high quality earnings or no earnings at all, highly leveraged balance sheets are the ones most poised to actually suffer a little bit. So if you look across the indexes, you may not see phenomenal performance but I think with some managers are able to pick, good quality companies, you’re going to be able to differentiate yourself from the indexes which was really difficult last year.

Luke Napoli: Many of the indexes that have shown significant advances have been those outside the U.S. and funding flows have notably increased to some overseas markets. So what’s your view here international versus U.S. markets in 2007?

Darin Richards: We’ll still pretty bullish on the international markets. We have a slight overweight to both developed markets as well as emerging markets. If you look overseas, you see growth still kind of moving in the right direction going upward as opposed to what we’re talking about earnings coming down from double digit. From a valuation standpoint, Europe, they don’t look very stretched compared to the U.S. I think that the business sentiment overseas is very solid. There’s the chance the dollar could weaken a little bit again this year which I think would not bode well for domestic investors overseas. And you look at the emerging markets and they’re really the drivers of the global economy right now; the India, the China, several of these countries that really are showing GDP growth close to double digit what we’re talking about 2.5% something like that here in the states. So obviously there’s some risk in emerging markets, but I think the fact that the last five years didn’t really stabilize that they’re no longer borrowers, they’re creditors. They’ve really worked on improving their stewardship of assets and the return on equity looks extremely good, so we definitely like the international markets and we have an overweight in that direction.

Luke Napoli: What about the interest rate differential?

Darin Richards: Well lets see what happens with that because the U.S. still has a yield premium typically like over Europe and Japan for instance, but if those rates tend to come up, and that goes away then I think you’ll see the dollar weaken a little bit more.

Luke Napoli: And the dollar weakness: any particular industry groups that that would benefit?--industrials perhaps?

Darin Richards: Yeah. I think if you look at it overall, no matter what you invest in, if you’re getting 10% in local currency terms, in the Euro, and that goes up by 5%, you’re going to end up getting a 15% rate of return here. And another way to play that too is the large cap U.S. domestic stocks, which tend to get basically half of the revenues from overseas, so there’s also a way to play it from that standpoint as well. So some of the companies that tend to have large international operations.

Luke Napoli: Darin Richards, Chief Investment Officer at AKT Wealth Advisors, appreciate you sharing some of your strategy with us.

---

Need Help Downloading?

If you're having difficulty downloading or viewing one of our video or audio files, try right-clicking on the link and selecting "Save Link As...". Choose a destination on your hard drive to manually download the video or audio file, then once your download is complete, open the video or sound clip in your favorite media player.