It is time for an update!
As usual, the stock market is suffering from summer doldrums. Due to low volume, the few transactions that take place will have a bigger than normal impact on the market. Usually September and October are bad months for the market. In my opinion, since we had a lackluster year, we might see the market move up during September. The high flyers for 2014 such as Apple, Tesla, Biotechs and so on might see a severe correction during August-November period as money moves out of these stocks in to stocks that were unappreciated during Q1 and Q2 of 2014. Investing in companies with a reasonable PE (price to earnings ratio) with good future prospects would be a prudent policy. However, like a broken record, I have to repeat that this bull market is getting very old so keeping 25% to 50% in cash is always advised. Sophisticated investors should have 1% to 3% in put options as a hedge against a downturn of more than 20% (3400 in Dow points).
About 2 months ago, Wells Fargo downgraded Johnson Controls (JCI); and ever since then JCI has been doing quite well. On 7/14/14, Barron’s had a very positive article on JCI:
Industrial conglomerate Johnson Controls is wheeling and dealing its way into a more profitable business. The stock could jump 20% or more. CEO Alex Molinaroli has accelerated the pace of buying and selling businesses, The deal with a unit of SAIC Motor (China’s enormous state owned car maker) gets JCI out of the day-to-day slough of operating in a low margin, slow growth business and gives it with a 30% stake in a division of SAIC Motor. The joint venture will have about $7.5 billion in annual revenue, margins of roughly 6%, and top line growth of 8% once it gets underway in 2015. Johnson Control’s earnings could top Street estimates within 12 to 18 months, taking share price to $61 or more from a recent $50. Despite investors recent infatuation with corporate deal making Johnson Controls’ disposal of its auto-interiors business didn’t generate a lot of love. Johnson’s stock didn’t move much in reaction, but it should have. The transaction give added credibility to Johnson’s vow to manage it capital more aggressively, resulting in favorable long-term effect on its share price. Currently Johnson stock is flat this year; it’s likely that earnings will jump sharply with in the next 12 to 18 months taking its stock up 20%, to $61. With an uptick in global growth and the redeployment of about $5 billion in capital, earnings could jump to an annualized rate of $5 to $6 a share within 12 to 18 months as margins improve – great for stock price, the share could move well above $60 and closer to $70.
(Source: Barron’s Newspaper, page 20-21, July 14, 2014)
I wish you all the best!