The Dow Jones industrial average and the S&P 500 continued their run up the mountain, hitting record highs last week. The Dow closed at 15,354 Friday, with several analysts predicting it could reach 17,000 by year’s end.
The risk of a correction remains high, however, and the percentage of New York Stock Exchange stocks trading above their 200-day moving average is up to 78 percent, a level that signals a higher-than-normal risk of a pullback.
Sentiment among investment newsletters and institutional investors is optimistic, with few at this time forecasting a setback.
A Barron’s contributor bullish on tech stocks recommended in the May 13 issue that investors consider purchasing three Town Crier “50” stocks: Microsoft Corp. (MFST), Intel Corp. (INTC) and IBM (IBM). All three companies boast a lower price-earnings ratio than the Dow average and show room for dividend growth.
Two companies on the Town Crier “50” made headlines last week.
• Cisco Systems Inc. (CSCO; $23.84) reported that its earnings per share increased 6 percent to 51 cents, excluding special items in the April quarter. The company’s third-quarter numbers beat Wall Street expectations, with profits up 15 percent and sales up 5 percent over last year.
CEO John Chambers said in a statement that the company was encouraged by the “slow but steady” economic environment.
“We are starting to see some good signs in the U.S. and other parts of the world,” he added.
Revenue climbed 5 percent to $12.22 billion on 5 percent growth for products and 7 percent growth for services. The results were in line with expectations and appear solid in the wake of rivals’ statements about challenging economic conditions.
Cisco shares rose to $22.27 after the quarterly-results release. Several analysts jumped on the bandwagon, upgrading the stock to “market perform.” Others deemed it a hold. The high target price for Cisco stock is $27.
• Safeway Inc. (SWY; $24.42), a Town Crier “50” stock because several of its executives live in the area, deserves a look. With a new store in Mountain View and a rebuilt market pending in Los Altos, the company’s local presence remains strong.
Safeway announced last week that it will increase its quarterly dividend by 14 percent and in July pay a dividend of 20 cents per share – up from 17.5 cents – to shareholders of record June 20. The stock boasts a 2.8 percent yield.
Safeway, which operates 1,641 grocery stores across North America, reported annual sales of $44.2 billion in 2012.
Despite the positive numbers, Goldman Sachs analysts recently rated Safeway a sell. According to one analyst, “We see a combination of secular and cyclical headwinds pressuring results vs. consensus estimates.”
Most analysts give Safeway an “underperform” rating, with a suggestion to hold or sell. The high target price is $30, and the low $14.