All My Troubles Seem So Far Away
All systems are “go” in the financial markets for now. Stocks, bonds, the dollar and oil prices are up. This unusual synchronization reflects the Volatility Index, also known as the “Fear Index,” dropping for six straight sessions, erasing its massive spike in February. That was a response to rapidly developing concerns over trade wars, increasing tensions with North Korea, inflation and higher interest rates.
Accompanying stock sell-offs sent the market into “correction” territory. Despite recent gains, stock indices are still mired in correction territory with almost 70 trading days without a new high. That’s the longest streak since the Financial Crisis and should be remembered even if, “All my troubles seemed so far away,” with thanks to Paul McCartney.
The market averages have just inched ahead for the year although still 5% below their earlier peak. The earnings season brought spring showers of beating estimates and rising forecasts. These have formed a solder base for the stock market to shake off current pressures and to resume its uptrend.
Investors should pay attention to economic and overall market trends while avoiding the media clamor and emotional attraction of short-term market action. Index funds are convenient but superior individual stock performance will always be key to superior results.
Apple (AAPL-$189), whose recent earnings report crushed the cynics, is making new highs. A 15-point rise will bring it to the world’s first Trillion-dollar market cap. As a stock, Mr. Buffett describes it not as a technology stock but a consumer products company with a 99% customer satisfaction rating. A $1,000 invested in Apple 10 years ago would now be worth over $7,000.
Amazon (AMZN-$1,605) would have been twice that but General Electric would have lost money. GE seemed to lose its way through pushing the profits of GE Credit at the expense of manufacturing margins. I feel that carefully selected stocks should be held until there is a fundamental change in company’s business or, more acutely, in its ethics.
The economy remains strong. The jobless rate is down to 3.9% although the rate of wage increases still lags at 2.6%. Farsighted companies increasing minimum hourly pay to a $11-$12 rate include Starbuck’s (SBUX- $57), Costco (COST-$195) and Target (TGT-$70). All three are on my watch list as potential buys.
Increasing employment will enhance growth of the employment services sector. Korn/Ferry Int’l (KFY-$55) is a respected leader on my watch list. My new buy is Kforce (KFRC-$32), the Tampa-based provider of professional staff. It just reported earnings that beat estimates and revised forecasts to $2.50 earnings for the current year, up from $2.06. Its dividend yield is 1.4%.
The technology sector is regaining momentum, boosted by earnings. Micron Technology (MU-$52) is a remarkable value. With larger competitors in a cyclical sector, this Idaho-based maker of a broad array of semiconductors is trading at a Price/Earning ratio in single digits. It is on my watch list pending its next earnings report in late June.
With gushing oil prices, the entire sector is moving toward its levels of five years ago. Recent buys RoyalDutch Shell (RDSA-$72) and ConocoPhillips (COP-$69) are up around 5% since recommended and remain buys. EOG Resources (EOG-$118), a Houston-based exploration and production company with global reach, is a possible addition. The company is nicknamed the “Apple of Oil” for its use of new technologies. Its P/E is a bit high but it reports in a week and deserves attention.
With a plethora of good news, investors should keep their perspectives on the long-term as today’s instant news environment can bring abrupt reversals:
“Yesterday all my troubles seemed so far away.
Now it looks as though they’re here to stay.
Oh, I believe in yesterday.
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