Taking Stock

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Tony Crowell
Tony Crowell

Sell In May Or Wish You’d Stayed?

Wall Street has many sayings that remain popular since they promise success without thinking. Typically, they also encourage generating commissions by prompting buying or selling stock as in “Sell in May and go away.” There are some historical data showing stronger performance in the six-month periods beginning in May, however, the differences have narrowed in recent years. Last year, the Dow Jones Industrial Average was up 5% from May to November.

The financial media jangle our nerves with threats of doom but impulsive selling has never been a successful investment strategy. An historical market breakdown like the spring of 2008 demands an orderly withdrawal to raise cash but almost all indicators point now to continuation of the bull market of the last five years.

A third of the S&P 500 companies have reported first quarter earnings. The blended growth rate was 10.6% with technology and healthcare strong and consumer discretionary disappointing. Finance remains troubled by bad mortgage loans with Bank of America belatedly taking a startling $4 billion write-down for an accounting overstatement carried on its books since 2009.

Apple (AAPL-$594) led the earnings parade. Typically, it was different in choosing a unique seven to one ratio for its stock split. Its all-time high was around $700 in 2012, thus the split stock would face the $100 barrier for a new record. The late Steve Jobs liked the simplicity of round numbers.

Johnson & Johnson (JNJ-$100) reported a dividend increase for its fifty-first straight year together with good earnings growth. The news carried its stock through the $100 round number psychological barrier. It now trades at 18 times earnings, about the same as the overall market.

The absence of round numbers probably contributed to the lack of acclaim when the Dow Jones Industrial Average set an all-time closing high record of 16,580. This followed the new record set by the S&P 500 on April 2 of 1890. Neither figure is particularly memorable but they pave the way for fanfares when the Dow closes above 17,000 and the S&P over 1900.

Those fanfares will foretell full orchestras ever the S&P makes it through 2000, probably within a year, and the Dow above 20,000. New highs, particularly all-time highs, are usually bullish bur recent advances have not yet shown surging volume, thus the market still remains technically in a “correction,” a paradox that needs increased strong buying by institutions to resolve.

Stock investors should proceed thoughtfully at this time, or anytime, for that matter, using dips to add stocks with growing earnings. Larger companies can provide excellent returns without any need to fiddle with stocks in companies with dubious earnings prospects like Twitter, which has lost half its value since Christmas.

Some of my recommendations checking in with good grades on their earnings include Cummins (CMI-$152, Conoco Phillips (COP-$74), Ecolab (ECL-$104), Northrop Grumman (NOC-$121), Qualcomm (QCOM-$79), Union Pacific (UNP-$189) and Visa (V-$206).

Nestlé (NSRGY-$77) and Roche (RHHBY-$36) continue their steady, stable growth. Their dividends are attractive as are those from Exxon Mobil (XOM-$101). Its sales were off but margins rose and the company increased its dividend for the 32nd consecutive year. All three of these solid stocks yield 2.7% or more. That’s the same as a 10-year Treasury Bond; investors who prefer the apparent safety of the bond should invest in curing their insecurities through therapy.

The recent record close on the Dow Jones Industrials was its 884th record high since the Depression. These come in clumps during bull markets and vanish in bear markets. After 1929, it took 25 years for a new record. Massive industrial growth picked up the pace but there were still rough patches recently from 2001 to 2005 and 2008 to 2012.

These pauses are inevitable as are recoveries. The Industrials chalked up 52 record closes in 2013 and will undoubtedly reward more patient investors. Those who sell in May may wish they’d stayed.

 

 

 

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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