Taking Stock

Tony Crowell
Tony Crowell


Stocks rarely shine during periods of uncertainty and the pending election presents acutely publicized uncertainties. With ten days to go, polls like Nate Silver’s “Five thirty eight” show Mr. Trump with a probability of winning around 15-16%. While that may not seem like much, nothing is certain in either politics or stocks and that’s the same probability as a losing round in Russian roulette with a six-shot revolver.

Many stock investors suffer from itchy trigger fingers under the impact of financial media and broker adds that tempt us with breaking “news” and low commission rates. Real estate and genuine collectables like fine art are typically held for long periods, often with excellent investment returns. Stock investors would do well to emulate these long-term perspectives rather than reacting to “hot tips” or making buy or sell decisions through pre-election anxieties.

Apple (AAPL-$114), the largest position in my portfolios, is a prime example. Its latest earnings report failed to impress investors even though it beat profit forecasts, as commentators seemed to focus on profit margin forecasts for its next quarter. With the biggest market cap of any stock and an enormous consumer presence, it will always draw exaggerated attention. Its dividend yield is currently a full two percent, more than ten-year government bond. There have already been three straight yearly increases and its modest P/E ratio of 13 provides a comfortable margin of safety against market volatility.

Media focus on the election is obscuring some favorable company news. Some of our positions beating earnings estimates include Amgen (AMGN-$160), Thermo Fisher (TMO-$149, Bristol-Myers (BMY-$52), Celgene (CELG-$105), Doctor Pepper Snapple (DPS-$86) and Danaher (DHR-$78). Their stock prices reacted favorably but follow-throughs were muted amid media inattention and all remain buys.

Simon Property Group (SPG-$183), Arris Int’l (ARRS-$27) and Acuity Brands (AYI-$226) each beat analyst estimates and each sold off slightly as Wall Street apparently expected even more. Their price action probably reflects extended investor pessimism, as reflected in the latest survey of retail investors by the American Association of Individual Investors. The AAII reported less than 25% of retail investors surveyed were bullish, a pessimistic streak below its average for 51 weeks, a record. Many analysts feel bearishness among retail investors is a contrarian buy signal and the AAII’s own studies indicate that such skittish periods have coincided with market bottoms.

If economic growth and corporate earnings begin to brighten, an end to election anxieties could provide a significant push to stock values, well overdue after flat performance over more than a year. Stocks with pending earnings news seem timely, including Novo-Nordisk (NVO-$40) and NVDIA (NVDA-$70).

Hilton Worldwide Holdings (HLT-$22), one of the world’s largest with over 4,700 hotel properties, is on track to complete around year-end a spin-off, dividing itself into three properties. The transactions, which will not require shareholder votes, will be non-taxable distributions of shares in its Park Hotels and its Hilton Grand Vacations. Park Hotels will be a newly created Real Estate Investment Trust (“REIT”), which will be the second largest lodging REIT. Hilton Grand will own and operate its timeshare properties while the parent will continue to focus on managing and franchising. REIT’s generally pay less aggregate taxes, thus aggregate distributions to shareholders will almost certainly increase after the spinoffs.

Some of the election uncertainties may stem from apparent similarities with the unexpected result in the British “Brexit” vote earlier this year. The polls in the UK actually showed a tie vote just before the referendum, thus the result was not really that much of a surprise. With polls showing the “undecided” numbers declining here, it appears probable that Mrs. Clinton will win, removing a major uncertainty overhanging the stock market and probably paving the way for an overdue year-end rally.

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


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