Spread Betting by Vince Stanzione

This year has already left many shaken and stirred, with the optimistic start to 2010 quickly fading before a considerable global sell-off in stocks and some massive moves in currencies

Just when everyone had decided that the US dollar was only good for toilet paper, cracks in the euro zone appeared and we then saw a massive spike in the Dollar Index as investors returned to the perceived safety of the greenback. As I have said before, the US dollar is not pretty but it’s the best of an ugly bunch at present, with small but strong currencies like the Norwegian krone not big enough to be considered against the dollar, euro or yen.

As for equities, after the massive turnaround gains of 2009, I think this year could turn out to be flat overall. As a trader, that’s fine, but I think many investors will be disappointed with overall returns this year. Last year saw big gains in emerging markets and we did very well in Brazil, but it would be foolish to expect more than a 5 to 10 per cent return in 2010.

Defensive appeal
Defensive companies operating in the consumer, healthcare and utility sectors seem the most appealing investments, even if these are not the most exciting of areas. I like companies that are throwing off large amounts of free cash flow and that have fairly secure earnings in the West as well as emerging markets exposure. Most pay a decent dividend and have good earnings too.

One stock in the headlines recently is Kraft Foods, which should soon seal a great deal with the takeover of Cadbury, an iconic brand with 40 per cent of its earnings coming from emerging markets, representing a good fit for the company. At $28, Kraft shares offer a yield of 4 per cent and, with the cost savings that will arise from the takeover and the ongoing restructuring, Kraft could surprise many on the upside this year with little risk.

McDonalds is another great bet at $63, paying a 3.4 per cent yield and on a p/e ratio of 15. I look for the share price to beat $70 before the year is out.

Other big free cash flow generators are tobacco companies. Philip Morris has access to growing markets, including a joint venture with China National Tobacco to sell Marlboro in China, and massive market share in high-smoking countries such as Russia and Turkey. At $46, Philip Morris offers a 5 per cent yield and a trades on a p/e of 15, which may seem a bit higher than other tobacco shares, but is the price you pay for a lot more growth potential. Altria Group, a US-focused rival, is a more steady business at $20, with a p/e of 11 and a sizeable 7 per cent yield.

In the UK, United Utilities represents a safe bet for the months ahead. At £5.20 with a yield of 6 per cent and a p/e of nine, this multi-utility has sound earnings and a safe dividend.

Sweet returns
Sugar is still a sweet trade. The past few weeks have seen a sell-off but, after a 110 per cent move in the exchange-traded fund for sugar (LSE: SUGA) over the last year it is normal that we would have a pullback – the uptrend is still firmly in place.

Although the strong dollar acts as a drag on all commodities by making them more expensive for foreign buyers, we still have strong demand in global sugar prices with lagging supply.

Supply will arrive but this could be some months off – you can’t just plant a sugar crop and harvest it overnight. So what we could have here is a massive spike up in the coming months and then a sell-off as the supply/demand becomes more balanced. For now I stay with long trades via the ETF and will use this sell-off to buy more.

Vince Stanzione will be live in London at the Global Financial Trading Day on 19 March 2010 with Jim Rogers and Dr Marc Faber. For more details visit www.traders2010.co.uk