Question:
With the unrest in the Middle East and oil prices rising, do you still believe the Dow Jones Industrial Average can gain 10% a year? What stocks would you recommend in the Dow? I own both Chevron Corp. (NYSE: CVX) and Exxon Mobil Corp. (NYSE: XOM) Should I hold?
Answer:
Long term, we see no reason the Dow cannot average 10% a year. We are sticking by our targets for this year that both the Dow and the Standard & Poor’s 500 Index will hit new highs; however, they may not close the year at those highs. Our predictions for the year are close to the current all-time highs. Right now, the chaos in the Middle East is not a game-changer for us. Prices appear to be driven by oil, but we see this is a short-term bubble. As oil prices rise, the market tends to go down. Even if Libya were to cut off their supply of oil, Saudi Arabia has said they will make up the difference.
For Dow stocks, we like Intel Corp. (NASDAQ: INTC) and Microsoft Corp. (NASDAQ: MSFT). We recently added a position in The Travelers Companies, Inc. (NYSE: TRV) to our Traditional Recommended Portfolio. We also like Verizon Communications Inc. (NYSE: VZ) and JP Morgan Chase & Co. (NYSE: JPM). Verizon is an income stock, which we hold in our High Yield Dividend Portfolio, and we feel their recent deal with Apple will pay off. We like where JP Morgan Chase is going, but currently the stock does not meet our criteria for 3 to 5 year earnings growth.
We suggest you hold Chevron and Exxon Mobil for now, as neither have much exposure to Libya. We hold Chevron in both of our Income Portfolios and Exxon in our Traditional Recommended Portfolio. Exxon is also investing in shale in the United States. Analysts have said that the United States has more than 600 billion barrels a year in oil shale. We think this makes Exxon something to watch.
Question:
Under what conditions would you repurchase Johnson & Johnson (NYSE: JNJ)? With what did you replace it when you sold it?
Answer:
We sold Johnson & Johnson because of their ongoing problem with consumer product recalls. Consumer products have been the lifeblood of the company for several years, and in the last three years, they have suffered with numerous recalls. We cannot imagine worse problems for a pharmaceutical company than the inability to produce safe and clean drugs. We have been patient with Johnson & Johnson for quite some time. Right now the market does not reflect the damage done by empty shelf space when their products have been recalled. We think it is only a matter of time before both the public and the marketplace stop giving them a pass. We would like to see a two- to three-year stretch with no product recalls once they get their house in order.
In Johnson & Johnson’s place, we added Novartis AG (NYSE: NVS), a Swiss-based health care company that ranks among the world’s largest pharmaceutical companies. Novartis has had more new drugs approved by the FDA than any other global pharmaceutical company, in the last decade. With 13 additional regulatory submissions expected in 2011, we feel the company’s momentum will continue to build. Novartis also has acquired Alcon, an eye-care company that we once owned.
Question:
With what is going on in the Middle East, will Teva Pharmaceuticals Industries Ltd. (NASDAQ: TEVA) have any issues?
Answer:
Of course, but we see it mostly as headline risk. Teva is an Israeli-based generic pharmaceutical company, which has only 26% of its production based in Israel. The company is diversified globally. We feel they are one of the best generic drug makers in the world, with one of the best pipelines. Right now, the company is suffering mostly from the psychological impact that the company is based in Israel. Currently, their earnings are growing faster than other drug companies and most biotech companies as well.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
