Most companies reported better-than-expected first-quarter earnings, but that isn’t likely to continue in the second quarter, four-star fund manager Charlie Smith told CNBC Tuesday.
“Profit margins don’t have a lot higher to go,” he told CNBC’s “Street Signs.” Companies have “had a good year already this year.”
So he recommends investing in industrial cyclical stocks, particularly those doing very well in aerospace including Boeing and Honeywell International.
“Worldwide air traffic continued to grow at very nice rates throughout the recession , so we think some of the cyclicals in energy and aerospace have some room to run,” he said.
In the same interview, Don Schreiber, president of WBI Investments, said he likes stocks with “really good earnings momentum, that are showing good value relative to the price.”
But “dividends are key,” Schreiber added, and that’s why he likes RPC, a services company with a dividend of 3.1 percent, and railroad CSX, which is benefiting from the boom in transportation. He also likes generic pharmaceutical company Teva Pharmaceutical Industries, with its “great earnings momentum” and 2 percent dividend.
“We think that we’re in the golden age of dividend investing,” Schreiber said. “Companies are going to drive dividends higher. Companies are cash-rich right now. They have to give money back to shareholders long term.”
So “we like stocks that are good values with dividends,” he said. But like a gambler, you have to know when to buy and when to sell.
“It is important not to just fall asleep holding any stock,” he advised. “Ever.”
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Don Schreiber, his family, and his company own shares of the companies mentioned. Charlie Smith and his family own shares, but his company does not.