Taking Stock

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Tony Crowell
Tony Crowell

Power Stocks

Stocks finished the June quarter with a whimper. As the simmering Euro crisis with Greece finally boiled over, markets dipped everywhere and then began coming back when investors realized that most other economies would easily survive the possible failure of the Greek economy. It is about equal to that of the metropolitan area of Dallas.

What may not survive in the longer term is the Eurozone itself, at least in its present form. It is quite possible that it may retreat to being a very large free trade and travel union without the present interlocking financial controls required to maintain a common currency.

All the sound and fury from the financial media during the quarter signified nothing as the Dow Jones Industrial Average ended down one percent and the S&P 500 was unchanged. These were the same results for the full six months of the year-to-date.

I continue to maintain that selective investing in higher quality stocks can develop returns above these general averages. One group that usually does this comes from Barron’s annual survey of the most respected large companies. The publication surveys institutional investors, asking them to rate the world’s 100 largest companies on ethics, strategy, management, competitive edge and, of course, on growth in sales and earnings.

Apple (AAPL-$126) holds the top spot as it also does in my portfolios. Other of my core recommendations in Barron’s top 20 were Disney (DIS-), Visa (V-), Nike (NKE-), Boeing (BA-), Amgen (AMGN-), CVS Health (CVS-) and Bristol-Myers (BMY-)

Some stocks that are popular with many investors from their name recognition slumped. McDonald’s dropped from No. 42 last year to No. 72. General Electric, consistently among the top five a decade ago, is now No. 44, down from No. 35. The bottom of the barrel held Altria, BP, Philip Morris, Bank of America, Citigroup, British American Tobacco and some Chinese stocks with murky accounting principles.

Such stocks are tainted with practices from the last century and investor should always try to look forward without leaning too far. “Be not the first by whom the new are tried, Nor yet the last to lay the old aside.” (Alexander Pope)

With oil prices losing their formerly persistent strength while demand increases for alternative energy, the old blue chip energy stocks are losing their attraction. “Power to the People,” an article in the New Yorker, reveals, “a sudden new truth-that innovative, energy-saving and energy-producing technology is now cheap enough for everyday use.”

The example was a fifteen-hundred-square foot old house in Rutland, Vermont, that received an energy makeover from Green Mountain Power. Teams added new insulation, a heat pump for hot water, and two air-source heat pumps to heat the house, switched the light bulbs to LED’s and put a small solar array on the roof of the garage.

The homeowners paid for everything but the utility financed the charges on their electric bill, which decreased on the very first month. The total carbon footprint of the house was decreased by eighty-eight percent at no net cost to its owners.

Entrenched management in most utilities presents the greatest obstacle to change. They resemble the managers of the traditional telephone companies who were swept under when cellular technology emerged. Utility stocks face as uncertain a future now, as also do stocks of the traditional energy exploration and production companies.

Brookfield Renewable Energy Partners, L.P. (BEP-$29) owns a portfolio of renewable power generating facilities and offers a 5.5% yield. Solar City (SCTY-$51) leads in solar panels but has lagged in producing profits. Its CEO is the cousin of Tesla pioneer Elon Musk, who is chairman of Solar City’s board. Tesla is currently sold out of its new home batteries, which Solar City will package next year with its solar panels.

I recommended Acuity Brands (AYI-$187) two weeks ago, as sales of its LED lighting products will benefit from the improving housing market and shifts to green energy. It moved up on excellent earnings news.

As we watch fireworks this weekend, it’s reassuring to reflect that the USA is almost 250 years Its markets have survived many trials and have rewarded its citizens. Happy Fourth of July!

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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