Picks to fix an ailing portfolio

Picks to fix an ailing portfolio

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday.

Investors looking for stability in wayward markets often think about taking medicine. Or medical equipment. Or even whole hospitals.

They look at healthcare stocks, some of which are undervalued and offer the potential of steady growth. The demographic case for the sector is strong, what with baby boomers facing their mortality. But what do you do if you don’t want to pick your own stocks?

Zacks Investment Research stated it has five top-rated mutual funds in health care. The top rating means Zacks anticipates them to outperform peers.

They are: Fidelity Select Medical Equipment & Systems (FSMEX), with a 10-year annualized return of 9.55 percent; Franklin Biotechnology Discovery A (FBDIX); Eaton Vance Worldwide Health Sciences A (ETHSX); Vanguard Health Care Index (VHCIX); and Putnam Global Health Care A (PHSTX). The Eaton Vance and Putnam funds seek long-term capital growth.

Similarly, Morningstar analyst David Kathman issued a report on diversified mutual funds that have made outsized bets on pharmaceutical companies. The shares in this sector have generally lagged the bull market’s performance on worries about whether the firms can replace wildly popular drugs that will go off patent in a few years.

Kathman reports that funds with huge pharma holdings include SunAmerica Focused Dividend Strategy (FDSAX) and Federated Strategic Value Dividend (SVAAX). Both have loaded up on stocks its managers deem cheap, and Kathman stated the funds held up well in the 2008 crash.

Other funds with massive pharma holdings include GMO Quality III (GQETX) and GMO International Growth Equity (GMIGX), which are run by the shop founded by well-known market bear Jeremy Grantham.

Finally, here’s a suggestion if you’re looking for an individual stock: Cubist Pharmaceuticals (CBST), maker of Cubicin, which is used to treat infections in the skin and bloodstream. Three analysts upgraded the stock this month on a patent settlement that they interpreted as favorable to the company.

The shares responded accordingly, going from $25 in early April to Thursday’s close of $33.86. But stocks such as Cubist have a history of falling back when the euphoria ebbs, so buyers should wait for dips. Analysts at Robert W. Baird & Co. have a $35 target price on the shares. When they raised their rating on CBST to “outperform” April 5, they stated it has products in the research pipeline that provide “multiple shots-on-goal.”

REVIVAL’: That’s what an article posted by Investment Underground stated is happening, and who is this ink-stained wretch to argue? The piece by Lead Editor Nico Gayle stated New York Times (NYT), News Corp. (NWS), Gannett Co. (GCI) and Lee Enterprises (LEE) are among the companies that will benefit from more on-line revenue, including fees for content.

THE HUMBLE DIVIDEND: I’ve nagged about dividends here before, but I’m revisiting the matter because of a report by State Street Global Advisors that underscores their role in total returns.

It stated that since 1926, 32 percent of the S&P 500’s monthly returns have been from dividends. Also, State Street calculated that a $1 investment in the S&P 500 on Jan. 1, 1920, would have grown to $55 by the end of 2010. But with dividends reinvested, that dollar would have become $1,148.

HECK OF A JOB: On CNBC, Raymond James Financial analyst Anthony Polini stated he would “buy the heck out of ” Citigroup (C), predicting that the bank will be one of the top-performing stocks through yearend. Polini likes it because its earnings growth is coming from retail loans, especially in Asia and Latin America, whereas JPMorgan Chase (JPM) and Bank of America (BAC) are more active in commercial loans. Citigroup closed Thursday at $4.55.

CME BLOTTER: For traders in the Chicago futures markets, there’s a sin nearly as grave as losing money. It’s trading against customer orders, using your access to the markets to cut ahead of executable business from non-members.

Last week, disciplinarians at CME Group (CME), owner of the Chicago Mercantile Exchange and the Chicago Board of Trade, handed down punishment for two members accused of the violation. John Ryan Finn got a $40,000 fine and a year’s suspension of his membership. John Zawaski got a $20,000 fine, an order to pay $20,000 to a customer, and an 18-month suspension of his membership.

CLOSING QUOTE: “It’s surprising that anyone takes seriously what Standard & Poor’s states about anything, let alone the credit-ratings agency’s views on the political process. It was S&P, Moody’s and Fitch’s, after all, who enabled the investment banks to peddle billions of ABS, CDOs and other flawed securities to hapless investors around the globe, granting these flimsy constructions the coveted triple-A rating that S&P now thinks the United States — the most powerful economy in the world — might not be worthy of bearing.” — Darrell Delamaide, Marketwatch.com