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Taking Stock

Tony Crowell

Nix to Bricks

Stocks continue to bounce around in response to new quarterly earnings reports and in reaction to their decent advance over the last few months. Summer is icumen in and May often introduces a market lull until the fall. The Presidential campaign will dominate the news until then and its resolution in November should clear the decks for a year-end rally.

That’s several months away and the intervening clamoring from financial barkers is likely to breed anxieties among investors that they should be doing something. These agitations spawn much broker talk about the presumed need for rebalancing portfolios or for adjusting diversification.

There’s nothing wrong with these concepts although I suspect they sometimes produce more fees for brokers than gains for investors. It is fairly easy to compute the proportions of stock portfolios in various sectors but more difficult and more rewarding to select and augment positions in companies with superior performance.

This mean that stock price gains and new buys may result in overweighted positions among stock portfolios such as our increasing proportions of pharmaceutical stocks. This echoes Mae West’s advice, “Too much of a good thing is wonderful.”

My recommendations often include stocks from companies based outside the U.S. such as Denmark’s Novo-Nordisk (NVO-$150) and Swiss-based Syngenta (SYT-$69). I continue to believe that unsettled world economies encourage investment in larger companies that have the resources both to withstand setbacks and to expand into new markets.

Newly advancing economies such as the “BRIC” countries present great opportunities but a global recovery still in early stages will probably favor larger companies in more developed countries. BRIC is an acronym for Brazil, Russia, India and China. A Goldman Sachs economist developed it in 2001 and I feel almost anything originating from Goldman Sachs should come with a warning label.

The argument is that the combined economies of these four countries will develop more rapidly and will eclipse the combined economies of the richest nations by 2050. Interest developed among these countries into some sort of alliance and, with the addition of South Africa, they formed a political organization.

Its first meeting took place in 2009 in Yekaterinburg, previously noted as the site for of the shooting of the Romanov family in 1918. The financial crisis interrupted BRIC expansion and stocks from these countries will probably not return to favor until further healing of the wounds of this crisis. As this happens, stocks should be considered from other developing economies like Turkey, Mexico, Indonesia and South Korea.

Canada shares the relatively strong financial position of the U.S. Often associated with stocks of mining companies, whose results are usually erratic, its Brookfield Group presents an attractive variety of very well financed opportunities. Based in Toronto, it originally provided utility services in Brazil as “Brascan,” a combination of Brasil and Canada. It now owns and operates over $150 billion in assets, focused on real estate, renewable energy and infrastructure.

Brookfield Asset Management (BAM-$32) is the parent. About half of its assets are in high quality real estate such as the World Financial Center in Manhattan. A publicly traded subsidiary, Brookfield Properties (BPO-$17) is a REIT currently yielding 3.2%, with probable distribution increases in the near future. Brookfield Infrastructure Partners (BIP-$30) yields 4.5% and its holders have enjoyed increased distributions for three straight years.

Developing economies provide great investment potential. The better opportunities now lie in companies that already have the capital resources to successfully expand sales into these emerging areas. That brings up Apple (AAPL-$588). Its products are in great demand everywhere yet it is selling for only 13 times this year’s estimated earnings, less than the 16 times of the Nasdaq Index.

 

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. [email protected] 949.494.1376/

800.697.2622 www.crowellroberts.com

 

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