The Bear Case for Stocks – Barron's
U.S. stocks have been sputtering this year following a sixth straight year of positive performance in 2014.
But can things take a true turn for the worse? Several articles make the case for why a correction or even a bear market could be around the corner.
A few months ago, many market stories argued that stocks would be taken down by a host of geopolitical concerns, from Russia’s invasion of eastern Ukraine to tensions in the Mideast. But geopolitical concerns haven’t managed to topple the market; they rarely do.
These days, a big concern is tied to the rising dollar, which can adversely impact the earnings of large-cap exporting companies that tend to dominate U.S. investor portfolios. Moreover, it seems that the dollar shows little sign of reversing its upward march relative to other major currencies.
In a piece by CNNMoney, Patrick Gillespie writes that U.S. exported goods are quickly becoming more expensive — and less attractive — to foreign buyers.
CNNMoney
“Consider that Microsoft (ticker: MSFT MSFT -3.832420852178053% Microsoft Corp. U.S.: Nasdaq USD40.4 -1.61 -3.832420852178053% /Date(1422655200217-0600)/ Volume (Delayed 15m) : 75697156 AFTER HOURS USD40.4 % Volume (Delayed 15m) : 2307788 P/E Ratio 16.16 Market Cap 344641000000 Dividend Yield 3.0693069306930694% Rev. per Employee 728656 More quote details and news » MSFT in Your Value Your Change Short position ) reported solid earnings Tuesday, but its shares dropped as much as 10% because it’s forecasting weaker sales abroad due to the strong U.S. dollar,” writes Gillespie. “The same is true for Procter & Gamble ( PG PG -1.610832263336057% Procter & Gamble Co. U.S.: NYSE USD84.29 -1.38 -1.610832263336057% /Date(1422655354482-0600)/ Volume (Delayed 15m) : 13615698 AFTER HOURS USD84.43 0.14 0.16609324949578835% Volume (Delayed 15m) : 1069552 P/E Ratio 24.673613957028277 Market Cap 231352687500 Dividend Yield 3.0542175821568396% Rev. per Employee 692110 More quote details and news » PG in Your Value Your Change Short position ) and United Technologies ( UTX UTX -1.4340918849291542% United Technologies Corp. U.S.: NYSE USD114.78 -1.67 -1.4340918849291542% /Date(1422655453172-0600)/ Volume (Delayed 15m) : 4326122 AFTER HOURS USD114.65 -0.13 -0.11326014985189058% Volume (Delayed 15m) : 296939 P/E Ratio 16.63912324954336 Market Cap 106162570312.5 Dividend Yield 2.056107335772783% Rev. per Employee 307075 More quote details and news » UTX in Your Value Your Change Short position ), some of America’s biggest companies, which employ thousands.”
Then there’s the negative ramifications of falling oil prices to many big companies and we’re not just talking about energy names. On Tuesday, for example, the Dow fell hard in part because Caterpillar ( CAT CAT -0.0375% Caterpillar Inc. U.S.: NYSE USD79.97 -0.03 -0.0375% /Date(1422655275144-0600)/ Volume (Delayed 15m) : 8043861 AFTER HOURS USD80.05 0.08 0.10003751406777542% Volume (Delayed 15m) : 106810 P/E Ratio 12.693650793650793 Market Cap 48431917968.75 Dividend Yield 3.5013129923721396% Rev. per Employee 465684 More quote details and news » CAT in Your Value Your Change Short position ), the nation’s largest building equipment company, reported a 25% decline in profits due to business slowdown in oil-producing regions.
Concerns abroad: Beyond oil, the global economic picture makes bears believe that the U.S. cannot be the tug boat pulling everyone ahead.
While a falling oil price is a positive for consumers of gasoline and heating oil, it’s not so beneficial for investors in many a host of companies that either produce energy or supply the equipment and support for those producers.
Meanwhile, markets columnist Mark Hulbert looks at the recent weak behavior of America’s oldest stock index — the Dow Jones Transportation Average — as a sign that the rest of the stock market could turn south.
MarketWatch
The Dow Transports’ Warning Sign
He points out that during the past five weeks, when oil prices have fallen about 20%, the Dow Transports stocks have fallen by a few percentages despite the fact that lower energy costs should be helping the railroads and trucking companies that comprise much of this index.
As he puts it, the transportation average’s fall-off has long been a leading indicator of economic downturns, despite the fact that economic growth has been decent in recent quarters. “The transportation sector’s track record as a leading indicator was documented several years ago,” in a government study, writes Hulbert, who also pens a monthly column for this Website.
But even if the market does fall in the coming months, there are always stocks that will shine.
It’s hard to believe that McDonald’s ( MCD MCD -0.8898895679210893% McDonald’s Corp. U.S.: NYSE USD92.44 -0.83 -0.8898895679210893% /Date(1422655219465-0600)/ Volume (Delayed 15m) : 12081420 AFTER HOURS USD92.56 0.12 0.12981393336218086% Volume (Delayed 15m) : 303951 P/E Ratio 18.0546875 Market Cap 90770734375 Dividend Yield 3.6780614452617915% Rev. per Employee 62366.6 More quote details and news » MCD in Your Value Your Change Short position ) will be one of them, given years of share-price underperformance that contributed to the departure this week of its chief executive, Don Thompson.
A more intriguing pick might be shares of Papa Murphy’s Holdings ( FRSH FRSH -1.5555555555555556% Papa Murphy’s Holdings Inc. U.S.: Nasdaq USD13.29 -0.21 -1.5555555555555556% /Date(1422655200019-0600)/ Volume (Delayed 15m) : 97500 AFTER HOURS USD13.29 % Volume (Delayed 15m) : 7908 P/E Ratio N/A Market Cap 228703506.469727 Dividend Yield N/A Rev. per Employee N/A More quote details and news » FRSH in Your Value Your Change Short position ), a premium-pizza chain based in Washington state that debuted as a public company last May to a lukewarm reception but has managed to recover to the point where it is trading about 20% above its IPO price.
According to Street Authority, the chain has managed to overcome legal issues tied to its relationship with its franchisees and is now growing nicely.
“New product launches have helped fuel this accelerated growth,” writes Street Authority’s Tim Begany. “The latest new offering, a lower-fat, lower-calorie gourmet pizza, has quickly become Papa Murphy’s bestseller by volume. Also, the company shows appeal across generations, with recent market research showing it is the number one or two pizza chain in its markets among Baby Boomers, gen-Xers and millennials. Millennials will be the focus of Papa Murphy’s online and social media campaign in coming years.”
He concludes by saying that there are only short-term obstacles going forward. “Management can overcome them and position Papa Murphy’s stock for 15% annual gains over the next few years,” he adds.
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The Bear Case for Stocks – Barron's
