Plus Ça Change
“The more things change, the more they stay the same.” A French novelist originated this proverb (Plus ça change, plus c’est la même chose.) later adopted by George Bernard Shaw and Bon Jovi. Stock market moods and moves continually echo its wisdom. A few months ago, financial babblers brayed about changing markets when the Federal Reserve would raise interest rates. A few weeks ago, the financial talking heads spouted about interest rates. Now, the topics have changed to earnings.
It’s about time, too. Corporate earnings are the lifeblood of stock performance, yet their quarterly reappearances always seem to take Wall Street analysts by surprise. Apple (AAPL-$117) has grown to be the world’s biggest publicly owned company. Its market capitalization is currently almost $700 billion; continued growth will make Apple in a few years the world’s first trillion-dollar company.
This dominance drew analysts to its December quarter earnings announcement like sportswriters forecasting the forthcoming Super Bowl. (I recommend betting on Seattle.) Apple’s results were a blowout. It earned $3.06 for the quarter, 46 cents above consensus forecasts. Apple’s quarterly profit was the largest ever for a publicly traded company.
Two thirds of Apple’s sales were tied to the iPhone. Only 15% of buyers of its new phones upgraded from other iPhones with the majority switching from Google’s Android system. Sales in China should provide a boost as new models lost a few weeks in going on sale in China. Also, it started providing phones only a year ago on China Mobile, China’s largest wireless carrier with over 700 million subscribers.
Apple’s growth must inevitably slow, however, its dividend prospects alone make it a reasonable value. It raised its quarterly dividend to $.47 in April of 2014 as it split its stock 7:1. That’s a 1.6% yield, about the same as the fixed rate yield on the 10-year Treasury note and Apple’s dividend will probably be increased this spring.
My newest buy recommendation, Boeing (BA-$145) also flew through analyst estimates. Those grumbling groundlings had fretted that falling oil prices would pressure sales of Boeing’s fuel-efficient airliners. The company pointed out the rather obvious point that cheaper fuel will enhance profits of its airline customers while also benefitting their passengers. Boeing reported a 19% increase in quarterly profit and raised revenue guidance to $96 billion, also above analyst estimates.
Its stock yields 2.7% after three straight years of dividend increases. Boeing expects to deliver over 750 jetliners in 2015, which would be another industry record as well as the fourth straight year of beating rival Airbus. Sales of its Dreamliner 787 now exceed 1,000 and are expected to increase later this year, as Boeing gets closer to delivery dates. This has been a stubbornly expensive plane but the company expects it to become profitable in 2016. Besides, it’s based in Seattle.
Amgen (AMGN-$154), my third largest portfolio holding (after Apple and Novo-Nordisk), reported fourth-quarter earnings up 27% on a 6% revenue increase, both crushing analyst estimates. Its stock sold off slightly, apparently on fretting that generic drugs will provide increased competition to its sales. Generics have been competing for years and Amgen will continue its growth with its pipeline of new drugs. Amgen forecasts earnings growth this year around 12%, about the same as the last five years. It yields 2% with dividend increases for the last three years.
Novo-Nordisk (NVO-$45) seldom makes the news here, as do Apple, Boeing and Amgen, even though it has bumped its dividend for 18 straight years. Earnings were flat in 2014 but this Danish company will resume its double-digit growth this year on its new diabetes treatments as well as recently approved drugs for addressing obesity.
Overall stock market progress has been hampered by disappointments from overly familiar stocks like Coca-Cola, GM, McDonald’s and Microsoft. Complacency is usually damaging and many investors weaken returns by clinging to familiar names like these. Calculated selection of stocks in superior, growing companies continues to work out nicely. This is not easy as the surface chop from the frothing financial media often makes it hard to see that important influences on stock prices have not really changed. Plus ça change, plus c’est la même chose.
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
