Taking Stock

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Tony Crowell
Tony Crowell

New High Ground

 The stock market continues to generate more activity in the media than in price movements of stocks. For the recent quarter ending March 31, the Dow Jones Industrial Average closed at 17,775 and the S&P 500 at 2068, just where they were on New Year’s Day. Stocks are now up slightly over one percent since April Fools Day and their uptrend continues despite pressures from several directions. The NASDAQ Composite is currently trading a few points higher than its record close set fifteen years ago at the peak of the dot.com boomlet.

Closing above the record 5048 will spark sounding brass and tinkling cymbals, firming up the market’s current uptrend. Meanwhile, despite the usual suspects like the Federal Reserve, Greece, China, oil prices and other uncertainties, stocks are reacting to the current deluge of quarterly earnings reports.

Results are generally favorable, often with companies beating estimates of earnings while trimming their sales projections. Their careful forecasts seem to reflect three factors: the impact of a strong dollar on export sales, a decline in capital investment in new equipment, and restrained consumer spending.

Our selected stocks are on target. Boeing (BA-$150) reported $1.87 a share, up from $1.28 last year. Costs for its 787 Dreamliner program are up but the program is profitable. The company delivered 184 jetliners in the first quarter, up 14% from 2014 with revenues up 21%.

Amgen (AMGN-$169), number three in my portfolios after Apple and Novo-Nordisk, reported first quarter earnings of $2.48 a share, soaring above estimates of $2.07 and last year’s $1.86. It raised its earnings forecast for 2015 to a range of $9.35-$9.65. A 1% yield with three years of increases and FDA approval of a new breast cancer drug offer further promise to this stock.

Visa (V-$67) moved to a new high on news of China opening its bankcard market to foreign competitors. The company reports earnings on April 30. Estimates for the full year are around $2.60, up 15%. Yield is 2.8% with six years of increases, an ideal stock for retirement accounts.

ARMH Holdings (ARMH-$54) bounced up after the company reported results that were well above analyst expectations. This English company designs a broad line of microprocessors found in the products of most mobile and computing devices. Like many UK-based companies, it pays dividends, which it has raised for six years.

Avago Technologies (AVGO-$124), a new buy recommendation, pays a 1% yield, but its strength lies in its impressive growth in developing and supplying advanced semiconductor products. The Singapore-based company has rung up earnings growth over 20% and is projected to continue this pace over the next few years. It will announce earnings for its fiscal (April) quarter around May 27 with forecasts looking for $2.00, more than double last year’s results. Estimates for its October fiscal year are around $8.45, up from $4.90, both excellent growth and a reasonable value.

Energy prices may bring an unexpected boost to the market. Oil prices are up more than ten dollars a barrel since mid-March. Should this rally develop momentum, energy prices could provide a spark to reverse inertia in energy providers and related stocks. Oil and gas stocks are projected to subtract over 7% from first-quarter earnings, thus any signs of stabilizing would shore up overall quarterly earnings.

Visiting Southeast Asia recently, I was particularly impressed with the bustling energy of Saigon. Vietnam has fought off the damage from generations of war to become the world’s fastest growing developing economy, on track to more than double per capita income by 2020. Outside its new stock exchange building on the once sleepy riverfront is a new statue of a water buffalo defeating a bear in combat. I feel this optimism is also appropriate for our markets. In Bob Dylan’s words, “the times they are a-changing,” but the odds are that the bulls will prevail over the bears.

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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