Wed10222014

Business & Real Estate

Sell in May and go away? Not today

The market slumped Friday after the disappointing earnings of many bellwether stocks, so the “Sell in May and Go Away” adage repeats itself.

May offers stockbrokers time to prepare for their summer vacations while the markets plunge. The volatility in the market this year has caused many investors to consider getting out of the market, but I advise not to do it.

Between 80 and 90 percent of the returns realized on stocks occur in less than 10 percent of trading days, so if you’re out of the market when stocks escalate again, your long-term returns will suffer.

Things looked a bit bad in the first quarter, but the Dow Jones transportation average has reached an all-time high on the strength of airlines and railroads. The Dow Jones industrial average has moved within 1 percent of new highs, and a close above 16,576.66 is needed to reconfirm that the trend is still bullish.

Reasons for optimism include the strength of the broad market and the continued strength of bullishness shown by smaller companies during the earnings season.

Two Town Crier “50” stocks recently reported their quarterly earnings.

• Apple Inc. (AAPL; $587.14) made investors happy last week with a stock split and the news that iPhone sales pushed up profits in the January-March quarter. In addition, CEO Tim Cook hinted that new products are on the way.

The company reported that it earned $10.2 billion, or $11.62 per share, in the period that ended March 29. That was up from $9.5 billion, or $10.09 a share, in the same quarter a year ago. The company sold 43.7 million iPhones, a 17 percent jump from the same period last year.

The 7-for-1 stock split, the first split since February 2006, will take effect June 9. Splitting the stock into the high 70s should make it more attractive to regular investors and boost the quarterly dividend to $3.29 a share, up approximately 8 percent.

Apple will spend an additional $30 billion to buy back shares of the company’s stock, taking to $130 billion the amount it plans to spend on repurchases and dividends by the end of next year.

Wall Street rumors regarding the new products Apple will introduce include an Internet-linked smartwatch and a revamped Apple TV home entertainment box and service.

There is room for growth in the smartphone market, as Apple reported iPhone sales in China climbing to an all-time quarterly high with first-time buyers.

Analysts at J.P. Morgan last week lifted Apple’s stock-price target from $585 to $623, while continuing with its overweight investment opinion. Deutsche Bank initiated a buy recommendation.

• Northern Trust Corp. (NTRS; $58.88) stock has fluctuated since the company announced its first-quarter earnings. The company recorded net income of 75 cents per share and revenue of $1.04 billion. Analysts had anticipated a net income of 78 cents and revenue of $1.07 billion.

Through its subsidiaries, Northern Trust provides investment management, asset and fund administration, and fiduciary services for corporations and affluent individuals worldwide. Originally based in downtown Los Altos, the local Northern Trust branch recently relocated to 2500 Sand Hill Road in Menlo Park.

After the earnings report, UBS reduced Northern Trust’s stock-price target to $57 and deemed the stock a sell. The revision comes as annual maintenance-fee pressure is likely to persist and with the expectation that expense flexibility is limited.

The stock price has risen over the past years as investors have rewarded the stock for its earnings growth. The price is now at a level that makes it expensive compared to the rest of the banking industry.

Two analysts currently rate Northern Trust a buy, five a sell and eight a hold. The high target price is $74, with a median of $64. The stock yields a 2 percent dividend.

Clyde Noel is a Los Altos Hills resident and longtime investor in stocks. Disclosure: He owns shares in Northern Trust Corp.

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