Depending on how you’re positioned the last three trading days have either been relatively uneventful or something between 1929 and the Spanish Inquisition. As of last Friday morning the S&P500 (^GSPC) was sneaking up on 1,900. Then all at once the selling started. From the opening tick on Friday the NASDAQ (^IXIC) dropped 3% in a straight line. The S&P 500 is almost exactly flat over the last 5 days but it’s gotten there the hard way.
It’s a pattern that’s become all too familiar for investors in 2014. After an uninterrupted rally in 2013 stocks can’t seem to stay on the happy side of flat this year. There may not be cause for panic but even optimists are running out of reasons to buy.
In the attached clip Hugh Johnson of HJ Advisors says the bubble stocks can come and go but the economy is still in a constructive groove. Since the swoon of January stocks have at least made a tepid comeback. More importantly it’s backed up by the economic data. “Leading indicators continue to expand. The cycle is still alive. I don’t see signs that the bull market recovery is about to end. Stocks are still the best place to be.”
He offers up three investment ideas for those willing to bet on growth:
Johnson Controls (JCI)
A supplier to the auto and construction industries, Johnson Controls has new management focused on higher margin product. Johnson says the company of the same name (no relation) “is a real good example of what you want to own in a bull market. Positive relative performance as well as good and improving profits and profit margins.”
Normally a defensive sector, healthcare has been rocking with the bull. Johnson likes Mylan for its generic and worldwide growth profile. Not only that but the empty drug pipelines for some of the larger players and cheap debt financing has kept takeover premium in the names. Mylan is often chattered about as a candidate.
United Technologies (UTX)
We’ll let Johnson take the last pick himself:
“I’d say (United Technologies) is the best-managed company in the industrial sector,” Johnson gushes. “They understand that it’s all about return on invested capital. It’s been a real winner for us and my expectation is that it’s going to continue to be a winner.”
Hopefully the same will be true for the market once these consolidation pains get out of the way.
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