Taking Stock

Tony Crowell
Tony Crowell

Double Or Bubble?

Four years ago in March 2009, the Dow Jones Industrial Average bottomed out at 6,547 and the S&P 500 at 677. They are now around 14,850 and 1,592, more than double. There are always reasons not to buy stocks and investors were fearful then of U.S. debt levels and their accompanying political polarization, the continuing European financial crises, high levels of unemployment and a fragile economic recovery.

Four years later, these same issues are still with us and many investors remain fearful, scarred by memories of the 2008 financial crisis and spooked by today’s headlines of new highs for the market averages. Real concerns do persist from the uneven nature of the economic recovery with persisting high unemployment and from a weak housing recovery but all these are showing slow improvement.

As Gerald Loeb, one of Wall Street’s legends, commented, “The market does a better job predicting the news than the news does predicting the market.” Smart investors should keep the course using portfolios trimmed with big cap stocks. They should consider cracking on more sail as market history favors a continuing bull market. There will certainly be dips along the way but bull markets die from an economy that begins to overheat, breeding overconfidence and risky behavior among company managers, consumers and investors.

Since World War II, bull markets have peaked on average when the U.S. economy was growing at over 4%, unemployment was below 5%, the S&P 500 was trading above 18 times earnings and surveys reported that 60% of investors identified themselves as “bullish.” Today, GDP growth is around 2-3%, unemployment has eased but is still an uncomfortable 7.7%, the P/E ratio is below 16 and only 38% of investors call themselves “bullish.”

That’s a setting favorable to further advances. Aftershocks in European markets from the Cyprus scare followed prior tremblers in Greece, Italy and Spain. These events will induce overseas investors to look for steadier markets. That should add very substantial buying support for American blue chips like Pfizer (PFE-$30) and General Electric (GE-$23), both yielding over 3%. Even Apple (AAPL-$434) now yields 2.5%, probably the world’s safest dividend ever with its $137 billion cash on hand. (Apple announces earnings on April 23 and additional buys now seem timely.

New healthcare legislation means increasing business for Cigna (CI-$65). It is a global health service provider of varied insurance and related products. The company, through predecessors, has been around since 1792. Its present form results from a 1982 merger of INA with Connecticut General. Sales are $29 billion; recent growth is in double figures and it is reasonably priced at less than 10 times estimated 2013 earnings.

The market rally has embraced most stock sectors although energy stocks have lagged. Chevron (CVX-$121) continues to be attractive. Its interim earnings update showed production slightly below the previous quarter but it is expanding its global reserves and I expect it to outpace Exxon Mobil over the next few years. I have switched most of my Exxon positions to Chevron.

Closed-end funds like CBRE Global Real Estate (IGR-$9) and Franklin Trust (FT-$7) have provided rewarding additions to our portfolios of larger stocks. These two have doubled since 2009 while continuing to provide monthly dividends. Each is still attractive although their success has narrowed their trading discounts from their asset values.

Among newer funds, I recommended Tortoise Power & Energy (TPZ-$26) last week and am now adding Nuveen Real Estate & Growth (JRI-$20). Both offer yields over 5% from assets that will benefit from a growing global economy.

There are no guarantees in this business other than an almost certain supply of discouraging news. Many investors overreact to such news, causing them to be late to the game. Investors who keep their heads and maintain a disciplined longer-term perspective do much better. This is harder but more rewarding.



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 1993. [email protected] 949.494.1376/

800.697.2622 www.crowellroberts.com

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