As the equity markets scream higher, many investors are getting nervous as some very expensive names trading at triple-digit PE Multiples are doing the heavy lifting in taking the broad market averages higher. These investors who remember the pain dished out in 2000 to 2002 want to avoid a repeat. At the same time, they want to stay invested in risk assets so they can participate in this big rally. The tax cut is causing investors to reprice equities even as interest rates move higher. We are not particularly concerned with higher interest rates when it comes to equity valuation, as we think higher rates are a reflection of faster global economic growth. But in the final analysis, we think many investors have one foot out the door and once a selloff starts, the high flyers will get hit, and get hit hard. We think the most prudent tactic investors can make is to stick with value. Focus on companies with dependable earnings that will benefit from the new corporate tax rates. We think a sector investors should focus on are the regional banks. These are not higher flyers that are talked about on TV every day, but we think they have a very high probability of making your portfolio larger.
