Stocks for all seasons
October’s reputation on Wall Street could make anyone there look up nervously. We have lived under the shadow of the Wall Street crash in October 1929, Black Monday on October 19, 1987 and now a whole month in 2008 that was so bad that no single day can be picked. Lest we forget, the fall of 2008 saw a new single-point loss record of 777 points on September 29 when the first bailout bill was rejected. That record stood, barely, as stocks lost over 500 points four different times before October staggered to an end.
Commentators fanned the nerves of panicked investors with scary projections of another Great Depression and the selling didn’t stop until March of 2009. After all this sound and fury, no Depression took place, the recession is ending; 1929 still holds the record extent and duration and 1987 the single-day percentage loss.
Having escaped oblivion, the sturdy stock market rally this year makes it a question of when, not if, the Dow Jones Average will be back above 10,000. That will set off the commentators again but leaves open questions as to probable market action over the next few months.
The broad economic current is beginning to flow again and stocks are moving with it as they move off the lows that followed panicked selling. Their valuations are not the bargains they were this spring and further gains will need help from improving earnings.
The last quarter produced many positive earnings surprises with a majority of companies beating pessimistic forecasts. The one just ended is likely to repeat this performance as cost-cutting steps are improving earnings faster than analysts are regaining their confidence in company earnings. These steps have gone about as far as they can go and further earnings improvement will need a return to gains in sales.
Sales, like jobs, trail economic recoveries and we may not see overall corporate revenues begin to turn up again until the fourth quarter, maybe not until next year. This suggests that markets could pause for breath until we get stronger indications that economic recoveries are out of low gear.
Closed end bond funds, which have worked so well for us over the past year, are attractive during this trendless period. Their yields have dropped as fearful buyers returned but Credit Suisse Income (CIK-$3 is still yielding 10%, paid in convenient monthly distributions. It holds second-level corporate bonds from companies like Spring Nextel, HCA and GMAC,
Both Alliance Bernstein (AWF-$13) and Franklin Trust (FT-$6) pay a little under 9% monthly. Over half of AWF’s bonds are from emerging economies like Russia, Brazil, Indonesia and Turkey. FT keeps 30% of its assets in utility stocks and the reminder in corporate bonds. Eaton Floating Rate (EFT-$13) pays 6.7% with variable rate holdings that provide protection against rate increases.
Emerging economies are growing faster than the developed world. China leads although its markets are volatile and its all-pervasive government inconsistent. China Life (LFC-$67) is a relatively stable company, even offering a 2% yield. Jinpan Int’l (JST-$31) and Harbin Electric (HRBN-$19), makers of transformers and electric motors, respectively, are small, growing manufacturers. Rino Int’l (RINO-$23) and China Fire and Security Group (CFSG-$19) provide environmental and fire protection to China’s heavy industrial manufacturers. All four are growing rapidly with its surging economy.
Brazil’s Petrobras (PBR-is already a large oil and gas company with $100 billion sales. Its large offshore discoveries will take years to develop but insure future asset growth. America Movil (AMX-$46) continues its growth through wireless services through all of Latin America. Companies like these should help investors as they face challenges in October or any other month, for that matter.