Financials and the defensives- buy them cheap!

2/10/2008 Sunday 12:09 pm CT

By Dave Harris

In the coming week, Wall Street will get January sales results from the retailers. Expectations are pretty low considering the slower economic environment, and I think that's going to continue for a while. It's going to take a few months to determine if we're in a recession. The housing problems won't simmer down this year, either. Despite the street's low outlook for consumer spending, sales figures will potentially hurt stocks this week should they be worse than the already lowered expectations. Also this week initial jobless claims, last month's trade balance, and consumer sentiment will be released. I suggest putting your money into some defensives. And a bank like Citigroup (C) is looking mighty attractive.

The financials are slowly turning around. Successful investing is about buying quality stocks where they're cheap and out of favor. That's the case for Citigroup (C). Yes the write-downs have been painful, and they cut their dividend. But these are especially hard times that you can take advantage of. The stock is down to 26.03, still pretty close to a 52-week low. When banks make their comeback, you'll be glad you bought Citigroup so cheap!  

Cigarette maker Reynolds-American (RAI) had a 65 percent increase in 4^th quarter profit. EPS was 1.15 and matched views. I'm especially impressed with the performance of Camel and last year's new Signature brand. Japan and Europe sales were especially strong for the company. RAI expected continued growth in 2008, and mid-single digit growth over the next few years. I would buy the stock here at $66.05. It's going higher in my opinion. You get a nice 5.2 percent yield on the dividend. And again, it's a good defensive buy.

For the dividends, drug maker Pfizer (PFE) could be a good play. It yields a whopping 5.6 percent. It's in the right sector for the current economic conditions.

I don't like telecom company Alcatel-Lucent (ALU) here. The company is eliminating the dividend their first quarter looks weak. Unless they can demonstrate profitability as a combined company with Lucent, I would stay away from it.

I would start considering Wal-Mart (WMT) and Target (TGT). My suggestion is to pick up shares in small amounts to take advantage of the volatility. When the consumer spending improves, you'll want to be in them.

No major market moving companies report this week, but a few notables include dairy company Dean Foods (DF) and Rio Tinto (RTP) the steel producer Wednesday. Comcast (CMCSA) and Marriott (MAR) will report Thursday. Abercrombie & Fitch (ANF) and jelly maker J.M. Smucker (SJM) have earnings on Friday.