Experience, Investigation And Action
Predicting the future is a popular activity. Less favorable results come from the overly confident. Several years ago the CEO of Microsoft dismissed the iPhone for its high cost and lack of a keyboard. He said, “There’s no chance that the iPhone is going to get any significant market share.”
Microsoft just announced laying off 7,800 workers and taking a $7.6 billion write-off on its $9.4 billion buy of Nokia’s handset business. This, while Apple (AAPL-$123) is accelerating iPhone production, asking suppliers to gear up for initial production runs of 90 million new iPhone models, up from 75 million last year.
The media bombard us with data, usually biased toward the dramatic and lurid. The trick is to keep perspective despite these Sirens of excessive repetitious information. “Too much information” was noted by T. S. Eliot, who wrote that we lose knowledge in information and wisdom in knowledge.
Computer malfunctions at the NYSE this week jangled investor nerves. Despite the intense minute-by-minute “crisis” coverage by the media, such outages can be expected. The Wall Street Journal and United Airlines also encountered glitches. Each of these three failures came from different computer problems. What was common was that all three are large business operations that rely on massive computer systems. Automated software is complex, sometimes needing millions of lines of computer code that can come to a halt on a single error. Such failures are inevitable and investors should keep perspective when they occur.
There are more substantive reasons for watchfulness, some of which may have become familiar enough to lure investors into complacency. Middle East crises have come and gone, relations with Russia erode and interest rate increases keep getting postponed. China’s stock market has dived for a month as leveraged speculators were forced to sell after P/E ratios soared higher than those at the 2000 dot.com stock crash here.
Despite all these pressures, the upward trend of U.S. stocks is still in place. The consensus is that the second half of the year will see returning strength in the global economy and corporate earnings. Fears abroad will send nervous money into the stronger U.S. market, which will need improving earnings to sustain its uptrend.
Leaving out traditional energy stocks, analysts look for a 2.2% increase in actual earnings for the just completed second quarter. (With the energy sector included, that drops to a negative 4.5%!) Alcoa and Pepsi have already reported and their results were favorable. Earnings reports lack the televised drama caused by computer glitches shutting down big businesses but they provide genuine buttresses for stock price growth.
Will Rogers said the key to stock market success was “Buy stocks that go up; if they don’t go up, don’t buy them.” That’s tricky but investors should try to buy stocks with earnings that go up and avoid those that don’t. That leads to buying Apple and not buying energy stocks. It also points to the medical sectors where increased revenues in the wake of ObamaCare will continue.
The bigger biotechs like Celgene (CELG-$116) will star, as will solid players like Bristol-Myers (BMY-$67). Aetna (AET-$113) is attempting will enhance its growth through proposed purchase of Humana (HUM-$186). This buyout will take a year if it can withstand antitrust issues. The offer of cash and stock is valued now around $230, a very tempting arbitrage spread. The benefits management group is consolidating so a failure of this acquisition would put Humana in play for other suitors.
AMN Healthcare Services (AHS-$30) is a growing company providing staffing services for nurses and for doctors on both permanent and “locum tenens” (short-term) needs. It has 30 years of successful experience and an outstanding growth record. Earnings estimates for this year look to $1.02, up 13% from last year. The P/E is high but so is its growth and an initial buy before its earnings report on August 4 looks attractive.
I had the good fortune this week to attend a panel on wisdom at UCI featuring the Dalai Lama. He defined wisdom as first using experience and then investigating the situation. After that, he said, “Act with passion!” It was his 80th birthday and the audience was charged to do something for the Tibetan people, even if just creating greater awareness.
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
