Fri11212014

Business & Real Estate

Don’t let the bulls overwhelm you

Stocks hit a five-year high last Friday when the Dow Jones Industrial Average exceeded 14,000 for the first time since 2007, closing at 14,009. The manufacturing data confirmed that the economy’s volatile recovery is still on track.

With the month over, January results become a reliable indicator that stocks are poised for a strong year. The broader market indexes are at multiyear or all-time highs, and advancing stocks have outnumbered declining stocks by a wide margin since mid-November.

The question is how to play the bull market. Should you use your remaining cash reserves, look for a pullback or take advantage of the opportunity to purchase individual stocks and become fully invested again?

Investment newsletters have become bullish and investments in mutual funds and exchange-traded funds have surged in 2013. According to Investor’s Intelligence, there are now signs of heightened optimism.

We are at the stage of panic buying, so expect some turnbacks with volatility. The time is right to explore opportunities in high-quality stocks with modest valuations. And, of course, a safe dividend is always nice for total rewards.

Two Town Crier “50” stocks made headlines last week.

• KLA-Tencor Corp. (KLAC; $56.02), the manufacturer of machinery used to make semiconductors, experienced a nice price increase when one of its largest customers, Samsung Electronics Co., reported that it would continue placing orders for new equipment.

The Milpitas-based KLA-Tencor makes tools that verify completion of different stages in chip manufacturing that are in demand, and the company benefits from the surging demand for mobile devices.

KLA-Tencor stock advanced 8.4 percent to $56.34 last week to close for its largest gain since June 2009. The stock has risen 10 percent in the past 12 months. It has no net debt, and the dividend yields 2.9 percent.

Numerous analysts have upgraded the stock from underweight to overweight, or from a hold to a buy.

• Facebook Inc. (FB; $28.34) shares fell again last week to under $30 after analysts downgraded the stock from a buy to a hold. Some analysts changed Facebook’s stock to neutral.

It seems that Facebook’s better-than-expected quarterly results of $0.17 per share and $1.59 billion in revenues weren’t enough to excite many analysts.

After solid fourth-quarter results, Facebook reported that expenses would grow much faster than revenue in 2013. That would cause Facebook’s profit margin to drop and earnings to grow at a slower rate this year than analysts expected.

Until Facebook can put together a few quarters of successful product development, investors won’t see the initial public offering price of $38 in the near future.

In the meantime, Facebook unveiled a service that allows users to give cards to other members for purchases at retailers and restaurants. The company is also developing console-style action games similar to Microsoft’s Xbox or Sony’s PlayStation.

In the past two years, Facebook’s growth has decelerated. Analysts’ evaluations are now realistic estimates that are not based on growth projections.

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