Cabot’s Coffey: Worst is behind us

In this issue of Investment Expert Advice I interview Brendan Coffey, a member of the Cabot investment team and editor of Cabot Green Investor.  A veteran financial journalist, Coffey has spent more than a decade writing about investing for publications including Barron’s, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.

Brendan, what advice are you giving subscribers/clients to weather the storm?

Gauging both sentiment and trading patterns, it does look like the worst is behind us in the overall market. A full-fledged bull market still isn’t a given any time soon, but with markets calmer, there are now opportunities for good buys on solid companies that offer excellent growth potential. One positive we’re focusing on is that the new U.S. administration promises to bring both stimulus spending and targeted tax cuts that we believe is the correct approach. We also continue to be encouraged by burgeoning interest in alternative energy and environmentally friendly products that will drive a wave of growth companies whether or not the broader market takes off.

Is your focus on safety or profits or both, and why?

We focus on both, although making profits is the primary objective. We advise readers to treat our portfolio as only a portion of their overall portfolio, and for that reason we look to take on more risk than if we were presenting a total portfolio to readers. However, we are quick to move to cash when our indicators tell us to, which is why we avoided much of the damage of late 2008.

The market dictates the type of stock we focus on. In this environment, we’re focusing on companies with positive earnings, low net debt and unique product offerings and positioning that give them a competitive advantage in their markets.

What do you think it will take to inject confidence into the markets?

It will take a feeling that the regulators and government understand the situation, have it in hand and that steps are being taken to keep derivative instruments from being such an integral part of hedge funds and investment banking as they were for the past five years.

Would you have voted for or against the auto bailout?

Yes, I would have voted for it for two reasons. The auto industry is still one that, if run well, can be profitable and a growth sector in the U.S. economy. The other is simply that with so many jobs dependent on the sector, punishing workers for managerial incompetence does no one good at this stage since having wholesale business failures has the potential to cost taxpayers more anyway.

What would be your fix for the financial sector, and is a fix in this sector necessary to boost the markets?

I’d say that greater oversight and regulation of derivatives trading and greater oversight of hedge funds, something managers such as George Soros, John Paulson and James Simons endorsed before Congress late last year would help. Greater oversight can restore confidence in major banks in each other, which in turn makes them more willing to provide credit. Ultimately this makes it easier for capital-intensive industries, such as solar, wind and biofuels, to make the long-term investments needed.

What 3 stocks would you buy today?

AeroVironment, Inc. (Nasdaq:AVAV) is a cutting edge company that translates its unique alternative energy experiments into high-profit commercial ventures.

Itron, Inc. (Nasdaq:ITRI) operates in the stodgy world of utilities, where it is finding a huge growth market in the next generation of metering.

Tetra Tech, Inc. (Nasdaq:TTEK) is an environmental consulting company that does everything from figuring out how to clean up the Port of Los Angeles to where best to site wind turbines in upstate New York. Essentially, Tetra Tech is the environmental expert people turn to the figure out the nitty-gritty of getting eco-projects done.