Don’t Short America
After an improving but still bumpy run, stocks are pausing for a three-day weekend. They are nearing the end of a March quarter that began with a continuing dive before reversing and resuming its current uptrend. All this has left the Dow Jones Industrial Average at the same level with which it greeted the New Year while the S&P 500 is down one percent.
Narrow trading ranges like this tend to persist until some catalyst propels stocks one way or the other. Currently, the market faces wildly fluctuating energy prices, a hawkish Federal Reserve that threatens a rate hike in the next few months and political campaigners who shout that the U.S. economy is on the brink of collapse. It’s not but it could use more positive energy.
Earnings in all of 2015 for the S&P 500 contracted for the first time since the financial crisis. Earnings were down 1.1% and sales 3.6% after rising 5.1% and 3.4% in 2014. The energy sector saw the biggest hits to both top and bottom lines; excluding energy, earnings and sales were actually up 5.8% and 1.1%.
The good news is that earnings and sales growth are projected to return. The bad news is that this will probably not be until the second half of this with slumping energy prices continuing to be a drag on many (but not all) sectors.
With market averages still range bound, it continues to be critical to develop positions in stocks of companies with superior histories and prospects for superior performance. Technology is always an inviting field and Nvidia (NDVA-$34) is my newest buy recommendation. The company operates worldwide providing visual computing processing products and related services.
Sales are over $5 billion and forecasts call for $1.44 earnings per share this fiscal year, up from $1.08. There is even a moderate dividend, currently yielding 1.4%, after increases for three straight years. It began a standard PC graphics chip company in 1993 and is now the global leader in visual computing.
Markets for its platforms include gaming, professional visualization, data centers and automotive manufacturing. Consequential mega-trends in technology include virtual reality, artificial intelligence and self-driving cars. Its next earnings report is due the first week of May and I suggest establishing half positions before then.
Some favorites are renewed buys. Nike (NKE-$61), discussed last week, dropped 4% as its quarterly results disappointed some impatient “investors.” It earned 55 cents a share for its latest quarter, nicely ahead of a consensus 48 cents estimate, but its $8 billion revenue fell slightly short of the $8.2 Wall Street estimate. Margins and future orders exceeded estimates.
It’s selling for 25 times forward earnings, justified by its proven and projected growth in the mid-teens. So-called rivals Under Armor and Lululemon sell at higher valuations with less attractive growth prospects. Nike yields 1% with boosts for two straight years.
Starbucks (SBUX-$58) continues to open new areas of future growth. It is bringing out a Chase Visa rewards cards that earns Starbucks awards on every purchase while minting money from coffee pods and plunging coffee bean prices. It’s expanding its consumer product supermarket sales, including cold-brewed coffee that goes on sale this summer. Next earnings date is April 21 with 39 cents a share anticipated, up from 33 cents.
Intel (INTC-$31), which reports on April 19, also dipped on analysts grumbles, and remains a strong buy. Its heady growth during the company’s adolescence is behind it but its growing data center business is now a third of its sales, offsetting slowing growth in its traditional PC business. The 3.2% dividend payout dwarfs 10-year Treasuries, which are still below 2%. Intel has more than doubled its payout since 2008.
The stock market has also more than doubled since then, a period corresponding to the Obama Administration. Warren Buffett lambasted political candidates who whine about the nation’s economic future as “dead wrong.” He wrote, “For 240 years, its been a terrible mistake to bet against America, and now is no time to start.”
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 1995. [email protected]/949.494.1376/800.697.2622/www.crowellroberts.com
