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Taking Stock

Tony Crowell

Tony Crowell

A Good Beginning

The World Bank’s new Global Economic Prospects report predicts growth picking up around the world. There are risks, particularly the slow progress in solving Europe’s debt crisis and this country’s persisting fiscal uncertainties, but the report concludes that the probabilities of major downside risks have diminished and the probabilities have increased of recoveries exceeding expectations.

This is encouraging although I am reminded that economics is the only field in which two people can win Nobel Prizes for maintaining exactly opposing views. Continuing global growth, even with slow momentum, is a promising playing field for stocks. Market conditions now are enhanced by almost record low interest rates combined with quite moderate valuations of stocks, when viewed with realistic earnings prospects.

Large cap companies with growing earnings trading at less than 15 times forecast earnings include Aflac (AFL-$51), Amgen (AMGN-$83), BlackRock (BLK-$232), DuPont (DD-$46), Int’l Business Machines (IBM-$193), National Oilwell Varco (NOV-$71), Novo-Nordisk (NVO-$177), Novartis (NVS-$66), Qualcomm (QCOM-$65), TJX (TJX-$44), Union Pacific (UNP-$131), U.S. Bank (USB-$32) and Exxon Mobil (XOM-$90).

Each of these pays cash dividends and a majority will increase their dividends later this year. With such strong alternative stocks available, I see no marked advantage in high P/E stocks and sold 3D Systems and Stratasys, my two recommendations in the growing field of 3-D printing and copying.

Not only are their valuations very high, but this technology has been around for a generation and stronger competition could develop. Besides, I won’t have to worry that one of them will develop a 3-D copier that reproduces itself.

Technology stocks should win greater recognition with faster growing earnings. SolarWinds (SWI-$55) has built an exceptional earnings record with its focus on providing products that make IT professionals’ jobs easier. Sales are $251 million, growing at 30% with earnings even faster. Quarterly earnings will be announced February 4 with forecasts of $1.18 for the full year, up from $.92. SolarWinds has frequently exceeded analyst forecasts, adding to probabilities of further stock price advances.

In providing enterprise software, the company has three objectives: (1) eliminating traditional software complexity, (2) interacting with its user community and (3) constantly evolving its products. That sounds a great deal like principles that Steve Jobs used to make Apple one of the world’s great companies.

Most of the media attention on Apple (AAPL-$502) focuses on its current stock price, which is among the least of the factors relevant to its sustained growth. It announces earnings on January 23 that I expect will clear away most of the present clouds of pessimism. It presently trades at about nine times 2013 earnings with a 2% dividend yield. Such modest valuations are unlikely to persist for this remarkable company.

The prevailing anxieties from the fiscal problems here and in Europe burdened investors in 2012, yet the overall market made a nice 13% advance as measured by the S&P 500.  My portfolio returns averaged somewhat higher. I did not use short-term trading, options, ETF’s or anything else other than stock  selection, with core positions grounded in steadily performing larger companies.

I continue to overweight the global agriculture sector. Worldwide growth in both populations and economies will provide demand. The impacts of climate change bring other markets for new seeds, equipment and chemicals. These are building sales for Syngenta (SYT-$85), Deere (DE-$90), American Vanguard (AVD-$31) and Rentech Nitrogen Partners (RNF-$44).

Stocks have developed good momentum with the S&P 500 trading at its highest level in five years, up 2.5% so far in 2013. With a little help from earnings, this could be the beginning of another very good 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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