Thu08212014

Business & Real Estate

Stocks take a licking & keep on ticking

When the stock market stalls after an exhilarating upward climb, the temptation to look for a correction is understandable.

A long list of potential negatives is on the horizon, which could cause investors and the market to pull back. However, predicting the timing for a correction is guesswork. The Affordable Care Act, scheduled to take effect Oct. 1, and other looming geopolitical events are likely to influence the market in the fall.

There is no shortage of reasons to be bearish – consumer sentiment tanked this month, turmoil rages in the Middle East, the Federal Reserve may call a halt to its bond buying and interest rates could rise rapidly.

Stocks are not cheap these days, and bull markets tend to end when shares become expensive. Investors should do their homework.

For now, solid stocks are still available at reasonable valuations, including the following two blue chips on the Town Crier “50.”

• Microsoft Corp. (MSFT; $31.60) has been on the scene since 1975. But since global personal computer shipments plunged 14 percent in the first quarter, many of the early software pioneers are navigating stormy seas.

The recent quarter marked the end of Microsoft’s 2013 fiscal year. The company earned $2.58 a share, compared with $2 a share in 2012.

Long-term investors should consider the stock-price decline as a second chance to purchase Microsoft shares on sale. The yield is heading back toward 3 percent, and the company’s outlook isn’t as dismal as PC industry sales suggest.

Once the holiday season begins, shoppers will focus on consumer electronics. Microsoft has a great opportunity to become one of the star players with its new Xbox One. Judging by past performance, Microsoft should sell more than 2 million units of the Xbox One, in addition to scores of accessories.

On average, analysts predict that Microsoft will generate $23.02 billion in revenues and 78 cents in net profits in the fourth quarter. With those results, Microsoft could make itself more attractive than the dividend yield of 2.89 percent.

Numerous analysts have downgraded Microsoft stock from a buy to a hold. The target price is $35, with a high of $41 in the future.

• IBM Corp. (IBM; $184.24) is struggling, and the time has come to decide whether its stock is attractive to new money and worthy of investment. Second-quarter sales have dropped two years in a row, with all divisions suffering varying degrees of problems.

Financial analyst and broadcaster Jim Cramer last week ranked IBM as a sell. The 52-week high is $215, and the low $184.78.

“The easy money has been made, and I would sell,” Cramer said.

IBM is not the financial powerhouse it once was. At the end of the second quarter, it had slightly under $7 billion working capital against $26.3 billion in long-term debt.

Nearly two dozen analysts, including those representing UBS and Barclays, have upgraded the stock. Most rate IBM a hold, and none calls for a sell. The mean target price is $217.50, with a high of $250.

I have a long position in both Microsoft and IBM stock, and I don’t plan to buy more of either in the next month.

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