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Taking Stock

Tony Crowell

Tony Crowell

There Ought To Be Clowns

Congress confronts another budget crisis of its own creation, yet the major stock market averages are flirting with five-year highs. It may be that previous partisan political games of fiscal “chicken” have hardened investors against overreacting to the latest dysfunctional actions by Congress. After all, panics over prior publicized fiscal crises were not rewarded.

Investors sold into the 2011 panic over the debt ceiling and accompanying downgrade of the credit rating of the United States. That deadline deal preceded a strong market rally that continued well into 2012. The next panicked selling came late last year with the infamous “debt ceiling.”  That ended with a patchwork agreement on January 2 that preceded the market’s rise toward new highs.

We now face the infamous “sequester, a package of forced spending cuts. It was spawned by the debt ceiling stalemate of 2011 and was designed by both parties to be so distasteful overall that it would never be allowed to take effect. These repeated blunders by Congress led me to paraphrase Stephen Sondheim:

Isn’t it rich?

Aren’t they a pair?

The House and the Senate so full of hot air.

Quick, send in the clowns.

Don’t bother-they’re here.

Unlike the debt ceiling, failure by the Congress to fashion a remedy would not have immediate effect. Stocks seem to have already adjusted to a slow growth economy and should be able to hold their ranks for a while despite the risks to our recovery brought on in Washington. In addition to Federal Reserve boosting, the economy should be aided by scattered improvement in housing and farming.

The outlook from all this is not clear although the immediate action is quite clear. That demands continuing the strategy of carefully selected positions in stocks of high quality companies with sensible bases for improving future sales and earnings. One of the worse tactics would be to chase higher current income by holding longer term bonds and CD’s in blind disregard of the impact on their values that will be caused by interest rates moving up from their present historic lows.

Medical sector stocks with advanced technologies have excellent growth potentials. Recent recommendations Allergan (AGN-$108) and Celgene CELG-$103) are developing nicely. So is Amgen (AMGN-$91), a larger company than these two combined. Diabetes continues to grow worldwide as developing areas shift toward Western foods. Novo-Nordisk (NVO-$175) is the world’s leading provider of products for diabetes. It is also the second largest position among my clients.’

Apple (AAPL-$441) is the largest. It could use some newer products, new spirit and a new advertising campaign. It’s come through with these in the past and its current valuation is remarkably low.

Agriculture is becoming a growth sector. Despite record-breaking droughts, increasing commodity prices and crop insurance, farm profits are running at record rates and agricultural land prices have jumped for three straight years. Land values in Iowa, for example, increased 20% last year.

These trends are encouraging but I recall the comment from that unlikely farmer, John F. Kennedy while campaigning in 1960, “The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays freight both ways.

Sustained earnings growth can be unearthed in sound stocks. Swiss-based Syngenta (SYT-$85) and DuPont (DD-$48), both among my top ten positions, bring advanced technology to the development of seeds and related chemicals to enhance crop yields. Deere (DE-$88) is another good play in this sector. Global demand is increasing for healthcare and nutritious foods and fearful investors are helping provide good values in this sector.

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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