Taking Stock

Tony Crowell

Is The Crisis Over?

Our political system stretched but did not snap. The consequences of the recent debt ceiling legislation are probably not as disastrous as some predict; predictions made in the heat of the moment” usually exceed consequences. The real damage is to public confidence. With economic recovery still fragile, shoppers seem reluctant to shop, companies to hire and investors to exercise patience.

The interchange of politics with the free flowing American economy seldom works well. As Will Rogers said, “The country has come to feel the same when Congress is in session as when the baby gets hold of a hammer.” Fortunately, Congress is beginning its summer recess, as is the stock market, a good time for investors to assess their prospects.

These might seem gloomy after the market came close to dropping for ten straight days, however, such slumps always end unless they are forerunners of an economic collapse. Despite the anxieties brought on by Congress’s belated attempts to pay the bills for two wars, more objective indicators show the economy continuing to make progress. Auto sales, business investment and exports are all up and lower oil prices will help consumers. There are even some signs of improvement in multi-family housing although the single-family sector continues to drag.

In the stock market, recent selling took the market down 10%, eliminating its 2011 gains. It’s still up 80% from its 2009 lows, probably a reason while high-end retailers like Tiffany (TIF-$68), a stock buy, are doing quite well. While Europe struggles with the inherent conflicts of the Euro, China fiddles with its numbers and Japan recovers from natural disasters, the U.S. economy and its stock market do not look so bad.

Corporate earnings were overlooked in the recent self-inflicted debt crisis. Reports have been generally favorable with most surprises to the upside. The result is an even more favorably priced menu of attractive stocks in growing companies. The Federal Reserve is patiently continuing its boosting of economic recovery through amazingly low interest rates.

This is an environment that will be rewarding for stock investors, particularly for those in companies with rising earnings and increasing dividends. Accenture (ACN-$58), a new recommendation, qualifies nicely. This is a substantial ($26 billion sales) business consulting, information technology and outsourcing company. Sales and earnings are growing at rates over 20% but its stock price is a moderate valuation of 17 times 2011 forecast earnings.

Accenture offers a 1.6% yield from dividends, which it has raised for five straight years. This gives it a slight edge over Cognizant Technology, an IT consulting firm, that just reported strong new orders but pays no dividend. IBM (IBM-$171) is growing at about half Accenture’s pace, has an even better dividend record and its size ($105 billion sales) makes it a more stable selection. (It is among our ten largest holdings along with Apple (AAPL-$377), DuPont (DD-$47) and Novo-Nordisk (NVO-$111), all continuing buys.)

ING Emerging Market High Dividend (ING-$17) is a new closed end fund and a new recommendation. The indicated initial yield is around 9% from non-US stocks. Buys should be made under $17, at an attractive discount from net asset value.

In energy, perpetually both in demand and volatile in price, Chevron (CVX-$97) is a remarkable value. One of the world’s largest companies ($217 billion sales), it is selling at a P/E of eight with a 3% yield and almost 20 years of increasing dividends.

A New York judge once said that no one’s property is safe while Congress is in session. Investors can now take a deep breath and begin carefully shopping for stocks.


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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