Taking Stock

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Tony Crowell

The Challenge From 1984


The month of October may bring early Halloween chills from its role in stock market history. This month saw the big Crash of 1929, the lesser Crash of 1987 and the beginning of the financial Crash in 2008. This October is reading from a different script as stocks have put on a nifty 11% rally since the beginning of the month, almost erasing their losses earlier this year.

The S&P 500 stock index started the year at 1257. As we begin the second half of the month, it’s around 1225, needing only another 2.5% to pull ahead. If the market manages a gain by yearend, it will be the first time it has shaken off a 10% loss during the year since 1984. That’s quite a while; in fact that was the year Apple introduced the Macintosh computer.

The latest earnings announcement by Apple (AAPL-$404) shows its momentum continuing. Both Apple and IBM (IBM-$178) met forecasts and increased their earnings projections but their stocks sold off as investors expected more spectacular results. Both stocks are buys. With a decent market, Apple stock should see $500 and IBM $200, if not this year, then in 2012.

Even with its recent comeback, most stocks remain reasonably valued compared to corporate earnings. The economy continues to show weak but positive growth with companies outside the troubled financial and housing sectors posting good numbers. Nonetheless, anxieties dominate, exacerbated through political campaigners using traditional tactics of exaggerating perils in order to appeal to voters’ fears.

With worries having pushed the market down, hints of possible solutions spark market rallies. We saw thus recently with headlines of Eurozone leaders agreeing on a Greek rescue plan. Actually, there isn’t a plan yet and it seems to me as if the seconds for 17 Euro dueling countries had only agreed on a time and place where they could all shoot at each other.

The Euro experiment seems fundamentally flawed and I doubt if we will see any dramatic resolution in the near future. There are already 10 other countries that are members of the Eurozone although they keep their own currency and I expect the whole bloc will move toward a similar looser arrangement without currency controls or attempts to regulate internal fiscal policies.

Such compromises are probably a year away, at least, and will present sporadic impacts on our stock market. Closer to home, the U.S. recovery is handcuffed by a still deteriorating housing sector. Massive restructuring of mortgage debts would help but the current political climate seems to make any such sensible steps improbable until after the 2012 election.

The outlook is for continued slow growth with low interest rates. That’s a decent environment for stock investing, not too hot and not too cold. Prevailing anxieties, undoubtedly augmented by new ones, will keep a lid on the market while rewarding growing larger companies, especially those with rising dividends.

Corning (GLW-$13) is an ideal candidate. This classy glassy company, founded in 1851, has made an exemplary adaptation to the demands of today’s global economy. Amid vigorous competition, it holds a 50% share in the market for glass LCD displays for TV’s and computers. The LCD market is down with the global slump but rebounding. Corning also invented “Gorilla Glass,” used in smart phones and tablets, including the market leaders from Apple. Other sales come from optical fiber and other telecommunications components and from its environmental technologies unit.

Earnings will be around $1.80 this year, down from $2.07, increasing to close to $2.00 in 2012, making its valuation quite a bargain. Its Board just increased the dividend 50% to 30 cents a year, a nice vote of confidence and a resulting 2.6% yield for shareholders. High quality stocks with rising dividends like Corning and IBM will do well for investors in these days of anxiety.



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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