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Taking Stock

Tony Crowell

Tony Crowell

It Was a Good Year

Heading toward 2013, stocks can look back to a decent performance in 2012. Despite still unresolved issues on how to rein in scheduled tax increases and spending cuts, the stock market is ahead 13% this year on the S&P 500 index. The market was flat for 2011 although it accelerated to a 10% increase in the final quarter, creating momentum that carried over to this year.

This year is finishing with its prior momentum brought to a halt by Congressional factions blaming each other for their inability to ease some of the uncertainties resulting from their prior legislative stumbles. I still think they will cobble together some sort of stopgap, call it a victory and go home, leaving the next steps to the new Congress.

Short-term, the stock market seems resigned to an imperfect resolution and market action will probably not be dramatic. Going into next year, the U.S. economic recovery is likely to continue its steady slow pace, provided the new Congress does not strangle it with thoughtless spending cuts and tax increases.

Trying to anticipate political developments as an indicator for timing the stock market is a losing game. It’s hard enough to pick stocks that outpace others without also trying to guess how future events will warp investor moods. I think it more useful to be alert to catalysts that may change the pace of a stock or a sector.

One successful catalyst came to me from a physician client several years ago. He commented that he had been told in medical school that the adoption of a Western diet by any country would accelerate its incidence of diabetes. As China and other emerging economies began to sprout American fast food chains, their diabetes incidence rates began to climb.

This led me to Novo-Nordisk (NVO-$162), the Danish-based global leader in diabetes care. Its sales and earnings have continued to increase and it is now one of my ten largest positions. It began this year at $115 and is now up 40%. Sales are $13 billion, growing at 20% with earnings increasing even faster. It remains a buy.

More recently, I became concerned that early reports of holiday retail sales did not seem to be keeping up with expectations nor with the reports of crowds of shoppers. A related strong catalyst is a shift of sales away from crowded malls to the convenience of online shopping. This led me to sell Simon Property Group, until this week one of my top ten positions. Simon is the largest mall operator in the world, however, earnings growth recently has not been reassuring.

Global population growth coupled with economic growth, builds inexorable demand for more efficient agriculture, particularly in developing economies. This provides excellent opportunities for Syngenta (SYT-$81), the Swiss-based global provider of agricultural chemicals.

Not well known to American investors, it was created in 1999 through merger of the agribusinesses of Novartis and Astra Zeneca. Sales are $14 billion, growing at 14%, the same rate recently as its earnings. It is trading at only 16 times earnings and I am adding to my positions, moving it into my top ten holdings. It is up 37% so far this year.

Notwithstanding our embarrassing Congress, there is still a demand for luxury goods, especially among wealthy Chinese and other regions showing strong growth. Compagnie Richemont (CFRUY-$8), also Swiss-based, is well placed to meet this demand. Its lines include Cartier, Van Cleef & Arpels, Piaget, Baume & Mercier, Montblanc, Alfred Dunhill and several others. Also not well known here, Richemont is the world’s second largest luxury goods company.

It is indicative of my confidence for the New Year that I close with a recommendation of a luxury goods company. Luxury is nice but happiness is better and I wish my readers a very Happy New Year.

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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