Taking Stock

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Tony Crowell
Tony Crowell

The Final Stretch

Unless stocks can revive their spirits by Halloween, they will have lost ground for three straight months. This has been a difficult market for investors with the S&P 500 average eking out a measly one percent gain over the period of the past fifteen months. Without persisting trends among stock sectors, investors whose stocks are up at all over the past twelve months are ahead of most big hedge funds.

Stock market performance has been stifled by three overhanging factors: the Presidential election, the lagging economic recovery and the prospect of the Federal Reserve bringing another interest rate bump. These shall all pass, however, the intervening weeks will pressure the market’s current mild uptrend and the nerves of investors.

Anxieties exacerbated by media exaggerations are an ever-present threat to investor returns. Under the continuing media barrage of news developments, it is often difficult to wait out the inevitable storm flurries rather than trying to sell one thing in order to buy another, usually an unsuccessful idea. Anticipating these tests of will by anchoring investments with solid growth stocks is a tested strategy.

Barring untoward developments, the election will be over in less than three weeks. This contest is unusually emotional, bringing heightened anxieties. Stocks react poorly to uncertainties and have shown more stability when the incumbent party’s candidate prevails.

I wrote here last summer that we could expect the media to keep us tuned by picturing the race as closer than reality. The probabilities currently favor Mrs. Clinton by a substantial margin but nothing is certain in either politics or stocks and concerned investors can act more coolly after the results.

The June vote in England to leave the European Union lagged the “Remain” vote by five points with three weeks to go but prevailed with 51.9% voting to leave. This brought little cheer to investors there as the pound has slumped over 15% to its lowest level ever.

More rationally, economic growth should lead stock market performance. Second quarter GDP edged up to 1.4% with mild increases foreseen for the rest of the year. Earnings are finally picking up. Of the 81 companies in the S&P 500 that have so far reported earnings, 80% have beaten analyst estimates. If continued, this would snap a streak of four straight quarters with declining earnings.

U.S. financial stocks have risen 1.4% so far this month, the strongest sector in the S&P and a traditional leading indicator. Technology stocks led in the second           quarter with strong earnings favoring further advances. Intel (INTC-$35) beat estimates on both sales and earnings but slipped two points as analysts had somehow expected more. Its stock remains a buy with price targets above $40 and a 2.8% yield helping with patience.

Broadcom (AVGO-$173) and NVDIA (NVDA-$67) are both running ahead of the market. Broadcom’s chips are used in Apple’s iPhone and NVDIA popped up on disclosures that its chipsets will be used in Tesla cars for self-driving.

Among smaller tech companies, MaxLinear (MXL-$19) is showing torrid growth in its chips for cable boxes and other broadband communication devices. Arris Int’l (ARRS-$29), a new buy, provides media entertainment and data communications through modems, terminals and other advanced devices. Analysts look for $2.82 earnings this year, up from $2.16. MaxLinear is similar with $1.74 expected, up from $1.27.

Manufacturing is picking up. Danaher (DHR-$80) topped earnings estimates and is trading near its all-time high. Snap-on (SNA-$160) also beat earnings and bounced up a dozen points.

Hilton Worldwide (HLT-$23) is splitting into three units whose sum is likely to exceed today’s price. More next week.

Probabilities are sometimes misleading. It would have been improbable after the Chicago Cubs won back-to-back World Series in 1907 and 1908 that they would go a 108 years without another Series title. Well, this may be the year they break that streak but I suggest quality stocks offer better odds as time goes by.

 

 

 

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

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