As we continue to experience an up-and-down stock market, we begin to look for reasons for the decline. We should be paying more attention to Congress, because it could cause a recession overnight, like in 2010 with the banking industry.
There is widespread expectation that Republicans and Democrats will have to strike a deal to avert the huge spending cuts and tax hikes scheduled to take effect at the start of 2013. A deal to get the nation’s finances back on track will require compromise from both parties.
It’s hard to stay positive when Alan Albertson of Baron’s says: “Investors have gone from joyous to jittery as the spate of dour news has flushed out a new wave of negativism among the Street’s kibitzers.”
Jim McDonald, chief investment strategist for Northern Trust, concluded that the next six months are shaping up to be unusually eventful in the United States as the country contemplates navigating the “fiscal cliff.”
Investors should expect some increased volatility in markets as the U.S. works through the election, the fiscal cliff, the European debt crisis and the current global economic soft patch.
Despite the bad news, we are still looking at several buys on the Town Crier 50.
• Cisco Systems (CSCO; $18.52) is by far the biggest player in the networking-equipment field. According to researcher Infonetics, Cisco controls nearly three-fourths of the global market for routers for large businesses and two-thirds of the market for ethernet switches. In addition, Cisco is the world’s largest provider of networking services, a market projected to generate $25 billion in revenue by 2016.
Cisco has rebounded 26 percent from its July lows and remains attractively valued. Over the past year, the company’s per-share profits rose 19 percent, while operating cash flow increased 14 percent.
Sales growth, however, has been weak. The 5 percent growth projected for the October and January quarters would represent the strongest in more than two years. Cisco, yielding 3 percent after a 75 percent dividend hike in August, is a current Buy and a long-term Hold.
Although showing much volatility, investors should not be afraid to invest in Google and Apple, which combine to control approximately 85 percent of the global smartphone market. Both companies do more than provide operating systems for smartphones, but these devices are the key to their long-term plans.
• Apple (AAPL; $629.07) shares have slipped nearly 10 percent since hitting an all-time high Sept. 21, when the iPhone 5 went on sale. Despite problems with a mapping application, the iPhone 5 has received favorable reviews and a robust demand. New customers flock to the device – by one estimate, 70 percent of iPhone 5 buyers have never owned an iPhone before.
Consensus says that should the stock’s price-earnings ratio hold at 15 and a consensus profit estimate at $53.71 for fiscal 2013, ending in September, then the stock should rise 27 percent to $806 in the next 12 months. Apple is a current Buy and a long-term Hold.
• Google Inc. (GOOG; $735.93) warned that costs related to restructuring Motorola Mobility business would reach more than $300 million in the September quarter. Google shares still surged to an all-time high in late September, when the company announced it would overtake Facebook in online display advertisements.
Research firm eMarketer projected that Google sales from display ads – graphic banners that feature pictures, video and animation – would soar to 67 percent, or $2.31 billion, this year. Up 18 percent since July, Google is a current Buy and long-term Hold.
Disclosure: The author of this article maintains a small exposure in Northern Trust.