Money And Holidays
Stocks continue their pattern of meandering without sustained trends. An uptrend developed after the summer slump and then came under pressure in the absence of any compelling news events. Anxieties stemming from violence here and abroad plague us all, leaving quite reasonable valuations among quality stocks. Fears produce buying opportunities but demand that investors recognize the values of patience as underlying strengths build profitable businesses.
Retail sales reports will appear after publication of this column. Early indications are that online sales exceeded expectations while other sales were mixed. Amazon (AMZN-$663), off slightly from its recent highs, is a buy for aggressive investors. Simon Property Group (SPG-$185), Costco (COST-$162) and TJX (TJX-$71) should all be higher by yearend.
Simon, the largest operator of retail real estate, generates over $5 billion revenues from a carefully tended portfolio of quality regional malls, factory outlets and other channels. It raised its dividend every quarter during 2015 and now yields 3.2%. It beat earnings estimates by over 4% in three of the last four quarters. Next earnings report is due Jan 28 with 12% steady growth forecast.
Costco’s stock overreacted to its recent earnings report with its sales up 1.3% but net income slipped 3.2% with comparable sales down 1%. If foreign exchange and gas price deflation are excluded, comps were up 6%. Membership renewals are at record rates and online sales were up 30%, even if only 3% of overall sales. The headwinds of exchange rates and low gas prices will continue into 2016 but its strong management and unique position keep it as a strong buy. Yield is 1.0% with increases for the last eight years with more to come.
Walt Disney (DIS-$111) slipped for no apparent reason as pre-sale tickets are breaking records for the first Star Wars film since it acquired Lucasfilm in 2012. This is the first of a Star Wars annual series and fans have been camping out for two weeks for the new one that opens in a week. Disney is planning Star Wars theme park additions, video games and highly lucrative licensing deals with Mattel, Hasbro, Under Armour, Electronic Arts and others. The Force will be with shareholders.
AMC Entertainment (AMC-$23) operates 22 of the highest-grossing theaters in the country and has either # 1 or #2 market share in each of its 15 largest media markets. It opened the nation’s first multi-screen theater in Kansas City, innovated the armchair cup holder and was acquired by Beijing-based Wanda Group in 2012. The public shares are trading at 25 times earnings with over a 50% increase forecast and a recently initiated dividend offers a 3.5% yield. It plans Star Wars marathon showings. “There’s no business like show business.”
Technology, medicine and biomedicine are businesses with lasting demand. Broadcom (BRCM-$58) and Avago Tech. (AVGO-$147) have obtained all their regulatory approvals and are on target for a February 1 closing. As a merger arbitrage, Broadcom has a cash downside of $54.50 but a solid upside with its price pegged at a $.32 rise with each dollar of Avago.
In biomed, Amgen (AMGN-$159) and Gilead Sciences (GILD-$102) slid with weakness across their entire sector and now have room to run as well as rising earnings. These two are current favorites with their substantial capital, new drugs in development and decent dividend yields.
With the Federal Reserve destined to send us slightly higher interest rates, dividends will receive greater attention. These are particularly attractive in retirement accounts as dividends can be reinvested without burdensome record keeping.
Our own record keeping will always benefit with thoughts for others. One businesslike way is through www.kiva.org , a non-profit that enables micro loans for small business efforts in less fortunate areas of our world. Their website allows selection from 83 countries for loans beginning at $25. The 98% repayment rate makes this a continuing effective use of money.
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
