Low ''Bernanke-Beta'' Investing: Procter & Gamble and Raytheon

After ratcheting the Fed Funds rate down from 5.25% to 2.00% in less
than a year, it seems abrupt to me how quickly the Fed's tone has
changed. Bernanke now wants to fight inflation, and Fed Funds futures
are actually predicting a 30% chance of an increase in rates at the
August 5th meeting. So what does this mean to investors?


1)
The U.S dollar may actually stop declining. Investors who have been
profiting by betting against the U.S. dollar may need to find a new
strategy.


2) Commodity price increases may slow. Many investors
have been benefiting from the combination of a weak US dollar and
growing international demand for commodities (e.g. energy and
agricultural commodities). Taking the weak dollar out of the equation
may curb commodity price increases.


3) The risk profile changes
for certain international exposures. For example, as the dollar has
steadily decreased in value against the Euro over the last several
years, many investors have moved investment dollars to Euro currency
investments. The appeal of these investments may become less attractive
if the dollar strengthens.


4) Since the rate cuts of the last
year were supposed to give a shot in the arm to a struggling U.S. stock
market, it seems only intuitive that a rate increase could make short
term growth an even bigger challenge. From a long term standpoint, I
think fighting inflation is the best thing for the economy, however,
it's the short term impact that I'm worried about.


So how do you play our current market environment?
I'm sure there are almost as many opinions as there are investors.
Personally, I like global, decent dividend, cheap stocks with some room
to grow. Two stocks that I believe fit this bill are Procter and Gamble
(PG) and Raytheon (RTN).


Both PG and RTN
are global companies which I feel reduces the impact of the Fed's
dollar policy (i.e. if the dollar appreciates then input costs become
cheaper for both companies, and if the dollar continues to slide then
both companies benefit from stronger international sales), both stocks
have decent dividend yields (dividends are nice in a sideways market; PG is around 2.4% and RTN
around 1.9%), both stocks are cheap (both stock prices have dipped over
the last several months, and P/E ratios are attractive), and both
stocks have room to grow (top line revenues are increasing for both
companies, earnings estimates continue to rise, and PEG ratios are low
for both companies which indicates the prices are cheap based on
expected earnings growth rates).


Certainly there is a lot more research that goes into investing in either of these companies (more on PG, more on RTN),
and with out question the Fed's dollar policy will have some impact on
the stocks (likely less so than on most other stocks in my opinion). To
be completely honest, I believe Bernanke may be bluffing on his dollar
policy (I'll believe the rate hikes when I see them). Regardless, I
like both companies right now.

Disclosure: Long Procter & Gamble and Raytheon.