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Taking Stock

Tony Crowell

What Now?

The presidential election is finally behind us, removing an overhanging major uncertainty. As this column goes to press, Florida has still not managed to declare who won there. A shift of only a relatively few votes in other states could have left us at this point in the same limbo as in 2000 when Florida’s election procedures had to be reviewed by the Supreme Court.

That fiasco delayed determining who would be President until mid-December and the resulting uncertainty contributed to a sour year-end performance of the 2000 stock market. We were spared this time although what to do about Florida remains a nagging concern. Giving some of its electoral votes to a more competent state comes to mind. It is no coincidence that my recommendations do not include any companies based in Florida.

This election seemed to stir more bitter emotional conflicts than most. I believe much of this stems from the enormously increased bombardment of information, commercials and opinions that continuously flood our media. A voter initially leaning one way is likely to view this stream of impressions through a prism reflecting the initial bias. The result is an increasing reinforcement of the original position together with continuing denials of any reasons for any opposing views.

I see this in the stock market where there is an endless stream of allegedly fast breaking new developments and exaggerated overreactions. Investors interested in a particular stock often seem to obsess on particular news items even though short-term Wall Street traders have probably already anticipated any news of real significance.

Short-term trading on breaking news is tempting, the problem being that it seldom works. Investors can do much better by maintaining a longer-term perspective while turning off their TV’s and computers, leaving the financial “news” behind them.

Apple (AAPL-$545) is a prime example. I recommended it recently over $600 but I have also consistently recommended it when it was below $100. As the world’s most valuable company with many innovative products, it is a natural subject for anyone seeking attention in the media. Its last quarterly earnings were up substantially but fell short of analysts’ “expectations,” triggering waves of negative reports.

One proven approach to investment timing is to go against any such unanimous chorus of “experts.” A few weeks ago, they were competing to pick the timeframe for Apple to break $1,000. Now, their sell recommendations are popping up like pimples. Assuming a modest 15% growth rate for the company’s earnings, Apple is currently selling for less than ten times 2014 earnings, a remarkable value.

The overall market remains in a nervous “correction,” thus new buys of any stock should be disciplined, using market dips as opportunities to build positions. With the holiday shopping season imminent, we will soon get the first solid indications of consumer strength. My existing buys include Costco (COST-$95) and TJX (TJX-$40) at the lower end as well as shopping mall owner Simon Property (SPG-$155).

Should early indications be encouraging, adding upper end retailers will work. Best of breed is Nordstrom (JWN-$55). Its respected management and reputation for customer service reflect its long-term perspective. Earnings growth is accelerating from 9% over the last five years to an estimated 12%-15% over the next five. Yield is 1.8% with dividend increases in a recovering economy for two years.

Economic growth will benefit domestic transportation and I am adding Union Pacific (UNP-$120). This Omaha-based company founded in 1862 offers freight service in the western USA with increasing sales from agriculture, chemicals and the auto industry. Coal, a less favored fuel, is less significant than for my hometown favorite Norfolk Southern.

UNP sales are $21 billion, growing steadily at 5%-7% with earnings at a slightly higher pace. Yield is 2% with a five-year streak of increases, indicating a clear track ahead.

The infamous “fiscal cliff” is likely to overhang market progress for the next few weeks. Congress, which created this problem, seems barely more competent than Florida election officials but is likely to fashion some means to shove the problem down the road to the next Congress.

That’s hardly ideal but buying time without killing the current recovery beats total surrender. Now that election rhetoric is behind us, it is time for the proven remedy of economic stimulus. Recovery efforts from the tragic storms in the Northeast will provide a local boost. Increasing jobs in the labor-intensive housing sector will also help. Obstacles are apparent but the way ahead is now clearer.

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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