Defense And Energy Holdings May Help In New Climate

The U.S. bombing of Iranian nuclear sites, with the possibility of retaliation by Iran, poses new risks for U.S. stock investors.

With four defense stocks and two energy stocks in my standard portfolio, I feel reasonably well positioned.

Once a year in this column, I give a snapshot of my holdings in a typical medium-risk account. My biggest concentration at present is in industrial stocks, most of which are defense stocks. U.S. relations are tense with China, Russia, South Korea and of course Iran.

I own Dassault Aviation SA (DUAVF) in France; BAE Systems Plc (BAESY) in Great Britain; and General Dynamics Corp. (GD) in the United States. A quasi-defense holding is Babcock International Group Plc (BCKIY) of Great Britain. Babcock services reactors in nuclear subs, and does other nuclear work.

Sterling Infrastructure Inc. (STRL) does engineering and construction, with a specialty in data centers. Its stock is up more than 800% in the past three years. My final industrial holding is Mueller Industries Inc. (MLI), which makes refrigerator coils and other plastic and metal parts.

Health Holdings

I expect the U.S. stock market to run into some trouble in the next few months, partly because of international strife and rocky federal budget negotiations. Therefore, my second-biggest concentration is in health-care stocks, because the health sector usually holds up pretty well in rough markets.

I own Chemed, the largest U.S. hospice operator, and UnitedHealth Group Inc. (UNH), a large insurer and operator of medical practices. In pharmaceuticals, I own Pfizer Inc. (PFE), Sanofi SA (SNY) in France, and Novo Nordisk AS (NVO) in Denmark.

Technology

I’m fairly light in technology stocks – lighter than I want to be, in fact. Most clients have about 5% of their money in Taiwan Semiconductor Manufacturing Co. (TSM), which makes chips for most major semiconductor companies, including Nvidia, Apple, Qualcomm and Broadcom.

Also weighing in around 5% is Jabil Inc. (JBL), best known for circuit-board assembly.

Alphabet Inc. (GOOGL) is classified as a communications services stock, not a tech stock, but it has an undeniable tech flavor. It is the parent of Google, YouTube, Waymo, and DeepMind.

Financial

I’ve long been a fan of Jamie Dimon, the CEO of JPMorgan Chase & Co. (JPM), so it’s not surprising that JP Morgan is in my portfolio. I also hold Mitsubishi UFG Financial Group Inc. (MUFG), the largest bank in Japan (which holds a 23% stake in Morgan Stanley).

A small holding is First Trust Nasdaq ABA Community Bank Index Fund (QABA), an exchange-traded fund that holds shares in about 100 small and medium-sized banks.

I also own Berkshire Hathaway, which is a conglomerate but is classified as a financial stock because of its extensive insurance holdings. This is the domain of Warren Buffett, considered by many the dean of U.S. stock pickers. Buffett has said he will step down as CEO at the end of this year.

This and That

Among consumer stocks, my biggest holding is Cal-Maine Foods Inc. (CALM), the largest U.S. egg producer. I also own Meritage Homes Corp. (MTH), a mid-sized homebuilder in a fragmented industry. Meritage concentrates on the sunbelt, where growth is faster than in the Northeast.

Given my concerns about the market, the federal budget deficit, and the fraught international scene, I think it’s prudent to own some gold now. Most of my clients have about 6% of their money in SPDR Gold Share ETF (GLD), which represents a share in a large pool of physical gold.

An old favorite sector of mine is energy. Diamondback Energy Inc. (FANG) is a pure play on the Permian Basin in Texas and New Mexico. TotalEnergies SE (TTE) is the largest oil company in France, and also has significant operations in solar and wind.

When I buy a stock, my desired holding period is usually three years or more. But in practice, my average holding period is about two years. Some of the stocks I recommend today will doubtless be out of my portfolio a year hence.

In most columns, I include a disclaimer: Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

Since today’s column is about the stocks I actually own, I will give my firm’s actual performance (on a composite of individual accounts). In the 25 ¼ years through March 31, we have achieved a cumulative return of 764%, compared to 511% for the Standard & Poor’s 500 Total Return Index.

In the 12 months through March 31, however, we trailed the index, 5.35% to 8.25%.

Disclosure: I own all 23 stocks recommended in today’s column, both personally and for clients.