Michael Cuggino // Portfolio Manager // Permanent Portfolio

Comments & Outlook

Since US voters upheld the status quo, we’ve seen investors repositioning and doing some tax selling to get ahead of the possible expiration of the Bush tax cuts. While there are positive noises from both parties in terms of addressing the fiscal cliff, the markets don’t seem to think a compromise will be reached. Stock-specific news has also been a big negative, as both Apple (NSDQ: APPL) and McDonald’s (NYSE: MCD) have reported disappointing results and outlooks.

European growth also continues to slow, especially in Germany, which bears watching since it has been able to backstop other eurozone nations. Given these conditions, a selloff after the run we’ve had wouldn’t be that surprising.

Recommended Strategies

Given the headwinds, I don’t think a recession next year is out of the question. But if Congress can navigate the fiscal cliff and make meaningful structural reforms, there’s a lot of pent-up economic activity that’s waiting to be unleashed, which could alleviate the strains on the global economy.

So I would take a balanced approach, including precious metals and Treasuries, even though they’re still being subsidized by the Fed. If you’re a longer-term investor and can wait out a potential correction, equities are attractive, with the S&P 500 trading at about 13 times earnings while dividend yields are healthy and sustainable.

What to Buy Now

HollyFrontier Corp (NYSE: HFC) is a land-based refiner that’s trading for 5 times earnings and pays a dividend currently yielding about 2 percent. It doesn’t really have the transportation, legal or regulatory issues that you typically find outside of the US and should continue to benefit from growth in the US energy industry.

I also like Illinois Tool Works (NYSE: ITW). It trades at 15 times earnings and yields about 2.5 percent. Some industrial names have been pushed down, but in the long term, the US economy will begin to grow again, and ITW will be well positioned.

Digital Realty Trust (NYSE: DLR) is a real estate investment trust (REIT) that specializes in data centers. It’s a play on the growth in cloud computing and the infrastructure required to run it. It’s a great growth story and yields 4.7 percent.

Randall Coleman // Portfolio Manager // Forward Focus (FLFRX)

Comments & Outlook

Uncertainty over the fiscal cliff has given the market a lot of pause. But now that the election is past, we hope for a resolution before year-end.

The European debt crisis is still far from over, with rates on bonds issued recently by Spain and Italy higher than what they were anticipating. However, the eurozone does seem to be in the process of muddling through.

Recommended Strategies

The small- and mid-cap space is perfect for stock pickers; its relative lack of analyst coverage means there are numerous names trading at compelling valuations. With our concentrated portfolio and risk-averse approach, we hope to achieve consistent singles and doubles.

We like companies that have just one business segment, because this limits management’s opportunity for distraction. Our portfolio companies operate in promising niches and have sustainable competitive advantages. In other words, they do one thing and do it well.

We’re agnostic about style categories and market cap. We continue to hold successful companies even as they increase in capitalization and shift back and forth across the style spectrum.

What to Buy Now

Broadridge Financial Solutions (NYSE: BR) has over 75 percent of the market for shareholder and proxy-vote communications. That gives it a substantial economic moat, though its near-term fortune is tied to the proxy cycle, which tends to be unpredictable. So it’s subject to the whims of such activity, as well as to regulatory-driven changes.

First of Long Island Corp (NSDQ: FLIC) is an extremely well run community bank, with a solid balance sheet, strong brand and a sizable footprint on Long Island. Its president and CEO has managed the bank conservatively, so it weathered the financial crisis far better than its peers. It’s diligent about lending and makes very few bad loans.