Taking Stock

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Tony Crowell
Tony Crowell

Flying Around Clouds

The overcast is lifting over the markets. It’s hardly ceiling and visibility unlimited but stocks are beginning to shed their negative bias toward news of earnings reports and other developments. Investors still need patience, bearing in mind the advice of Jesse Livermore, a legendary trader on Wall Street a century ago. “Money is made by sitting, not trading.”

In his time, stockbroker offices whipped up trading activity by ringing bells, scurrying Western Union messengers and the ticking sounds of the famous ticker tape machines. Today, slick advertising, instant news and low commission rates agitate investors into buying and selling, often for few real advantages other than generating “YTB” (“Yield-to-broker”).

Investment media encourage these activities, often converting fears of losses into panicked selling, never a successful investment strategy. One way to avoid succumbing to mob fever is to maintain core stock positions in essential blue chips like General Electric (GE-$29) and Intel (INTC-$29). Both stocks were above $30 a few weeks ago, a level probably to be regained in another few weeks. Meanwhile, each pays dividends yielding over 3% now with increases lying ahead.

Stock price performance among the financial sector has been insipid, deservedly so, as they triggered the financial crisis of 2008 by competing to make big bad loans. Insurance companies have inherent cash flow advantages. Aflac (AFL-$59), the company with the duck, offers health and life insurance. Earnings growth slowed, hampered by its business in Japan, but its recent earnings report beat estimates while its stock valuation of ten times earnings is most reasonable. It yields 2.8% with 33 years of increases.

Chubb Limited (CB-$116) is now the world’s largest provider of property and casualty insurance and reinsurance products. It was formerly known as ACE Limited, changing its name last month following the merger of ACE and Chubb.

The merged companies are on track for $30 billon sales in 2016 with earnings close to ten dollars per share. Each company had raised their dividends for more than twenty consecutive years and this growth should continue for many years. Current dividend yield is 2.3%.

The name change is similar to that following the recent acquisition of Irvine-based Broadcom (AVGO-$128) by Avago Technologies, based in Singapore, which adopted the name of the company it acquired earlier this month.

The combined company produces a broad line of semiconductors with $13 billion sales forecast for fiscal 2016, growing over 20% into the following year. Similar growth is expected for earnings, with current estimates of over $10 expected this year. Unusually for a leading edge tech stock, there is a respectable dividend yielding 1.4% with further increases expected.

Blue chip U.S. stocks have outdistanced those in other markets, a gap that will eventually narrow. UBS Group AG (UBS-$15), the leading Swiss bank, is trading well below last summer’s high of $23 and yielding 3.5%. Its debt load is the lowest in its group and the downside risk seems limited.

The state of China’s economy comes into focus next week when some of its big Internet companies report earnings. Ali Baba (BABA-$66) already reported good results and may get a boost as clarity returns to this sector.

Overall, the current inability in the market to reignite a sustained uptrend is trying investor patience. Recent reports in housing starts, industrial demand and consumer confidence are mildly favorable, suggesting continuing slow market improvement. This is not a time for speculation, in fact, it never is, but sticking with substantial growing companies remains a historically proven strategy. As aviators like to say, “There are old pilots and bold pilots but there are no old, bold pilots.”

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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