What To Do Now?
Stock market “corrections” remind me of coming down with the flu. I feel awful, nothing will help and it seems it will never end until one day when I realize it’s over and I feel fine. It wouldn’t feel any better if my doctor had described the flu as a “correction” of my health.
Dips in the stock market bring on media avalanches of conflicting predictions. More headlines seem to be given to those predicting the end of the world, overpowering those who comment that unsettling market drops will always happen and that they will pass. Despite all these outcries, no one really knows how long the current dip will last. What I believe we do know is the time-tested actions to take.
In conversations with other investment advisors, we often agree that it sometimes seems as if our first responsibility is to keep our clients from panicked selling. That may be an understandable reaction but, like most attempts at market timing, it rarely works. Even if an investor is lucky enough to raise cash before a market dip, it is very hard to reverse course in time to catch the initial surge that buoys stocks on the incoming tide,
The first step is to pause and calmly try to regain perspective. Every stock market plunge brings out old stories of ruined bankers leaping out of windows, probably enhanced by their working in high buildings and reduced through the advent of air conditioning and inoperable windows. One suicide following the 1929 crash was later found to have left a $1 million probate estate, a fortune at that time.
The recent slide erased several months of gains but a look back to overall gains over the past five or six years should help steady nerves. The action now is to focus on upgrading stock portfolios through adding to or initiating buys of high quality stocks at marked down prices.
I reiterate last week’s new buy recommendations of Google (GOOGL-$639) and Restoration Hardware (RH-$93). BlackRock (BLK-$300), Boeing (BA-$131), Disney (DIS-$102) and FedEx (FDX-$152) are all attractive buys. Apple (AAPL-$110) is today’s popular bellwether for the overall market as well as a compelling value.
The following new buy recommendations all share rising earnings, reasonable valuations, and modest but growing dividends, which make them particularly suitable for retirement accounts. Dividends are, of course, useful in taxable accounts but they add an extra edge in non-taxable accounts where they may be reinvested without extra bookkeeping.
Gilead Sciences (GILD-$102) recently initiated its first cash dividend. This substantial company ($31 billion annual sales) is well known for its biopharmaceutical products that fight HIV, liver diseases, certain cancers and many other diseases. Estimates for 2015 earnings currently exceed $11 a share, a P/E of less than 10. Growth may slow in 2016 but Gilead is now the best value in bio pharmacy. Its stock goes ex-dividend on Sept. 14.
CDW (CDW-$39) provides various integrated IT services to a broad base of clients. Sales are over $12 billion and earnings are increasing over 20% annually with $2.90 currently estimated for 2015. That’s a very reasonable P/E of 13 and there’s a modest .7% yield.
Newell Rubbermaid (NWL-$41) is a consumer goods conglomerate with increasing earnings and dividends. Lines include Writing (Sharpe, Paper Mate, Parker), Home (Rubbermaid, Calphalon, Levelor), Tools (Dymo), Commercial and Parenting (Graco, Baby Jogger).
Market volatility is likely to continue for sometime. At times, well-known leaders like Apple will dominate the news, then the batons will be passed to the less well-known as buyers emerge from the shadows. Investors should keep calm, exercise patience and tune for market recovery.
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