Market Monitor: Bill Stone

NBR: 3/1

Guest: Bill Stone, Avalon Advisors

Stone’s market outlook:

I think the most interesting thing is that we looked at past rebounds from roughly 20% declines.

The current rebound at +19% as of last Friday was the best of any post-WW2 rebounds for sell-offs not accompanied by a recession. In any case, we have gained back more than any of the average rebounds.

We think that the data argues that we might be a bit ahead of ourselves. But it makes sense to not be too negative, because the average return 1 year out from the bottom still leaves some good appreciation. And there was only one instance that the S&P 500 was lower than where we are now at the one year mark!

Stone’s stock picks:

Here are three stocks that we own that fit with our view that the market might shift to favoring less cyclical exposure. That being said we still like energy and consumer discretionary/media but need to be selective. The large dividends on the energy multinationals should cushion and we believe the U.S. consumer is far from dead. But healthcare is a also interesting to be a little less cyclical.

Walt Disney Co (DIS): Leading media/consumer company that is well positioned for the future. DIS has the content and the brand to continue to monetize in the new era of cord cutting. Pending acquisition of specific 21st Century Fox assets add to DIS’ content. Plus DIS has a real opportunity to be successful in direct to consumer (ESPN+ and Hulu). Parks continue to be successful destinations. 1.6% dividend yield

Eli Lilly & Co. (LLY): LLY spun off its animal health business to focus on the higher margin human health business. Less patent risk than other drug companies and a diversified portfolio of drugs. Strong diabetes drug franchise. Pipeline contains a couple late stage cancer drugs which should be blockbusters if approved. 2% dividend yield along with attractive long-term earnings growth estimates.

Exxon Mobil (XOM): Energy sector as a whole and XOM significantly underperformed the S&P 500 over the past 5 years. XOM recently posted very strong 4Q earnings. XOM is focusing on creating value via increases in cash flows and earnings versus the previous focus on production growth. 4.2% dividend yield.

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