Taking Stock

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Tony Crowell
Tony Crowell

The Seven-Year Itch

Seven years ago on March 6, 2009, the Dow Jones Industrial Average hit a low of 6,443. Three weeks later, it was up 1,500 points. The bull market continued, clearing 18,000 in 2015, before sagging as it stumbled into 2016, closing at 15,660 on February 11. A month later, it’s now up 1,500 points.

This seven-year period revives memories of The Seven Year Itch, based on the idea that relationships tend to wear out after seven years. Bull markets last longer on average, as do most relationships although neither should be taken for granted. Both develop more value over time, a reminder to stock investors of the benefits of patience and of building investment values with quality stocks.

I’ve been adding to positions in Huntington Ingalls Industries (HII-$131), Simon Property Group (SPG-$197) and Thermo Fisher (TMO-$137). Huntington Ingalls is the world’s largest military shipbuilder with the Gerald R. Ford, the most expensive ($13 billion) and most advanced warship ever built, commissioning this month. The ship is the first of the Ford class, 90,000-ton giants able to exceed 30 knots, with the John F. Kennedy scheduled for launching in 2020.

Analysts currently estimate Huntington Ingalls to exceed $9.50 a share earnings this year, up 60% from $5.93 in 2015. It’s trading at 14 times earnings, yielding 1.5% with dividends increased for the last three years. The contest with China for control of the seas of Southeast Asia together with developing political pressures for increased defense spending promise a solid future for this company.

Simon Property Group, the largest real estate investment trust, operates more than 325 shopping malls. It is building brand recognition and using technology to create interactive directories, personalized offers and digital storefronts. It provides stability to investor portfolios as well as a 3.2% yield, increased for the last five years.

Thermo Fisher is accelerating its growth following acquisition of Life Technologies with increasing emphasis on technologically advanced products to serve global science. In January, it agreed to acquire Affymetrix, a leading cellular and genetic business. Its fourth quarter results exceeded estimates and its next earnings report on April 20 should show continuing strong growth from very advanced technology.

In contrast, Illumina, a smaller competitor in genetic research, is expected to show declining earnings and I sold our remaining positions. I also sold FedEx, a fine company whose earnings remain under pressure and whose future may be clouded by Amazon’s entering the air freight business.

The central banks will be making further headlines in the next few months. The European Central Bank cut interest rates and announced stepping up bond buying. These stimulus measures may require reinforcing as initial market responses were flat but the ECB’s intent to support European markets is clear. Our Fed is more oblique but its policy to support markets in the U.S. is also clear. Its next moves are dependent on developing data, which presently indicate no rate changes for the next couple of open interest rate meetings.

Stocks continue their somewhat illogical linkage to oil prices, which continue to be volatile. The current bloated oil supply will keep a lid on oil prices for sometime, causing more bankruptcies among oil and gas producers. Nordic American Tankers (NAT-$13) continues to prosper from the oil glut as its tankers are under charter for storage.

The seven-year itch was first popularized as an inclination to become unfaithful after seven years of marriage in he play. The movie popularized the phrase, aided by the unforgettable sight of Marilyn Monroe standing over a subway grating. (The grating is at 52nd and Lexington for the curious.) It may be only a superstition but samples show that in 1922 the median duration of marriages ending in divorce was 6.6 years, in 1974 the median was 7.5 and in 1990 it was 7.2. Fortunately, the average bull market has lasted 8.1 years.

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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