Stock Lists For Santa
Wall Street liked its Christmas present from the Federal Reserve. After years of unending debates and predictions, the Fed ended a seven-year experiment with the fed funds rate almost at zero rates with a raise to a range of 0.25% to 0.50%. The Fed’s action recognized a moderate step upward in a slow business recovery. Its action came as no surprise and investors stepped up buying, emphasizing large-caps.
These, like the overall market, have zigzagged this year, responding to fears of slowdowns in their sectors or earnings reports that led to nervous overreactions. Despite indications of a strong yearend rally gathering strength, the market averages are still slightly down for the year. Several stocks among our largest positions are hovering at very attractive price points.
Nike (NKE-$131), twentieth largest position among my clients’ portfolios, is having a good year with another in sight. It is up 33% this year and the forthcoming summer Olympic games in Rio will give it another boost. (Its stock price outperformed the S&P 500 in four of the last five Olympics.) Earnings for its fiscal year ending next May look to be in the $4.30-$4.40 range, up from $3.70. Product recognition and loyalty will keep its price running.
General Electric (GE-$30), #24 and moving up in my portfolios, finally has momentum as it reworks its entire business plan. This week, it guided operating earnings to $1.45-$1.55 for 2016. GE is building capital from asset sales with $26 billion earmarked for shareholders in dividends and buybacks. Present yield is 3.0% with more increases ahead.
FedEx (FDX-$153) is off 17% this year along with other shippers and industrial stocks. Its Ground business, which provides over half its profits, is already up sharply and the company reports that shipments are at record levels, exceeding its own forecasts. The stock sold off last quarter on soft estimates from its conservative management, resulting in undervaluation. Its new earnings report beat estimates, lifting its price but still leaving room on the upside. It reaffirmed fiscal 2016 earnings of $10.40-$10.90, up from $8.95. Up, up and away.
Boeing (BA-$147, #10, is up 10% this year on moderate but steady earnings increases. Commercial aircraft demand remains strong while defense is softer. It ended the quarter with a $485 billion backlog and 5,700 commercial aircraft orders. It just raised its dividend by 20% and now yields 3.0%. Earnings beat estimates last quarter, up 18% on a 9% increase in sales. The collapse in oil prices adds a tailwind.
Visa (V-$79), #5, is up 17% so far this year. Its position is expanding in China and Europe and it is gaining market share in the U.S., aided by new partnerships with Costco and USAA. Earnings estimates call for at least 17% continuing growth, which would seem to justify its P/E ratio of 23. Yield is a modest 0.7%, buttressed by increases for the past seven years.
Celgene (CELG-$113), #6, is up only 3% this year despite excellent results. Its third quarter earnings were $1.23, a penny ahead of estimates, and sales were up 18% to $2.3 billion but analysts kicked the stock down 15% as it lowered slightly guidance for the full year. It projects robust growth well over 20% annually for the next 3-5 years. The FDA has expanded indications for its blockbuster blood cancer drug, Revlimid; other drugs in its pipeline are nearing approval.
Our other big biomedical stocks have excellent results but varying price movement. Novo-Nordisk (NVO), #2, is up 33% while Amgen (AMGN-$162), #3, is flat. Both are buys as are Walt Disney (DIS-$112), a rising #4 and Apple (APPL-$109), my perennial Number One.
This continues to be a perplexing market year with stocks unable to sustain trends for any extended period. The accompanying uncertainties combined with the never ending supply of world tensions have combined to offer a menu of successful large companies with their stocks at attractive prices. Good girls and boys should put them on their lists for Santa Claus.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERYTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622
