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Taking Stock

By Tony Crowell

By Tony Crowell

Watching for Market Indicators

One “indicator” of future stock market performance is the “Super Bowl Indicator.” A New York Times sportswriter created this “indicator” in 1978. It holds that an up market lies ahead for 2014 if the NFC team wins the Super Bowl. There is no correlation between football and the stock market so this is really a superstition but the results have been correct 37 of the last 47 years and four of the past five. That’s an 80% success rate although it missed badly in 2008 when the NFC New York Giants defeated the AFC New England Patriots and stocks went on to lose 38% in the financial crisis.

Reversing the “indicator,” I expect another up year in stocks, which would correlate with a win by the NFC Seattle Seahawks.  The “January Barometer,” another “indicator,” holds that as January goes, so goes the market for the full year, has an even better success rate of 89%. The S&P 500 is down one percent for the New Year, thus both these “indicators” are currently pending.

After two years of solid gains, it is not surprising that investors are jittery as we round the turn into another year. Fortunately, the economy continues to improve while interest rates and inflation both remain at low levels. Earnings reports, particularly for the forthcoming March quarter will be a stronger indicator of market direction.

The market’s uptrend continues but some price fragility is appearing. I thus sold our positions in Eastman Chemical following news of the chemical spill in West Virginia. Eastman makes the chemical, which was sold for coal processing, not for dumping in the water supplies. The real culprit, a sloppily run outfit called “Freedom Industries” immediately filed bankruptcy, exposing Eastman to potentially costly litigation.

Eastman is since down five points, encouraging a sale of Dow Chemical, in this case, on more promising news. An activist investor bought a sizable stake in Dow and is demanding the company spinoff its petrochemical division and consider a share buyback. These may not be bad ideas, although I feel share buybacks are overrated, but I decided to take advantage of Dow’s five-point jump on this news.

eBay (EBAY-$54) also brought the attention of another activist, the ubiquitous Carl Icahn, and rose a couple of points. That made the headlines but I think it more significant that its very strong new earnings report confirmed its continuing growth at double-digit percentage rates. I continue to recommend its stock.

The medical and technology stock sectors are strong. Amgen (AMGN-$123), Celgene (CELG-$168) and Vascular Solutions (VASC-$24) are strong recommendations. Vascular recently obtained an injunction against much larger Boston Scientific for patent infringement. It reports earnings on February 7.

I am adding Cognizant Technology Solutions (CTSH-$98), a leading software and services company. This global information technology and business outsourcer operates primarily from India but has its headquarters in New Jersey, a product of its roots in the Dun & Bradstreet Corp. Cognizant is continuing growth in both sales and earnings at rates around 20%. With a forward P/E of 17 times earnings and a company forecast growth rate of more than 20% in 2014, Cognizant is very attractive.

First Solar (FSLR-$50) merits consideration. Its valuation is reasonable for a leading company in the alternative energy sector but purchases should probably be deferred until the overall market settles down. I am still buying NRG Yield (NYLD-$38), which continues to increase its portfolio of solar and wind generation facilities. This new company yields 2.4% presently and expected dividend increases should boost that to 3% later this year.

Regardless of the Super Bowl outcome, it looks like another promising year for stocks. Enjoy the parties.

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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