How to Play Fed Tapering: Investment Pro

With the stock market down after Federal Reserve Chairman Ben Bernanke hinted on Wednesday that the Fed may start scaling back its bond-buying program later this year, Wells Capital Management’s Jim Paulsen believes it’s time to go bargain-hunting.

“I think the economy is going to continue to improve to better-than-expected, keeping stocks from falling very much,” he told “Nightly Business Report.” “So I would take advantage of this trade range, if you will.”

Paulsen said Bernanke’s comments should be a “celebrated milestone” instead of a “scary event,” since the Fed is admitting the economy is getting strong enough for it to start backing off its stimulus program.

(Read More: Taper Tipoff? Bernanke Hints Easing End Is Nearing)

“That’s a great thing,” he said. “That means it can stand on its own two feet and that’s great longer term for equities.”

Paulsen suggests perhaps adding a little bit to stocks you want to hold until 2014. He would look for weakness in cyclical names, which are more sensitive to better economic growth.

“I’d look at the technology stocks you’ve been wanting to get into, or maybe some of the beat-up industrials,” Paulsen said. While they may oscillate over the next several months, “a year from now, I’d be happy I bought those.”

(Read More: Economy Will Be Ready for Fed Tapering: Zandi)

He would also use any rallies to lighten up on stocks that perform like bonds, such as utilities or telecoms.

“Both of these pay a high portion of their earnings out in dividends every year and they are a lot like a bond, which pays a constant coupon payment every year,” he said.

So, when interest rates move, it affects the performance of those stocks.

“If bond yields continue to move higher, those stocks are going to underperform other equities,” Paulsen said.

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