In this latest installment of our quarterly report, my colleagues and I share some observations on the market’s behavior in 2011, offer our outlook for the economy and market in 2012, and discuss three of the securities we are currently buying: Apple (AAPL), General Dynamics (GD), and Lowe’s (LOW).
Click here to go to the full report on our website. Following are a few highlights:
- …Volatility and correlation among stocks were much higher than normal. As a result, even stocks of companies with no change in their fundamental business prospects were whipsawed with the broader market.
- The U.S. outperformed other major markets, which suffered due to sovereign debt problems in Europe, slowing growth in emerging markets, and falling commodities prices.
- The issues in Europe remain the primary threat to the global economy and financial system. Europe will likely enter a recession, but we do not expect broad recession elsewhere.
- Emerging markets should rebound this year as the trend of more rapid economic growth there than in the developed world continues.
- We expect the U.S. economy to continue its slow recovery, with recent reports indicating an acceleration of growth in manufacturing, rising consumer spending, and other positive trends.
- Corporate earnings remain strong, and we expect further increases in 2012.
- We continue to prefer shares of high quality, well capitalized, multinational companies that pay dividends and trade at significant discounts to intrinsic value. With the S&P 500 trading at only 12x forward earnings, plenty of stocks with these traits are available.
- We also continue to favor stocks over bonds. The 1.9% yield on the 10-year Treasury is lower than inflation, resulting in a negative real return. When interest rates rise, long-term Treasurys will get crushed.
Jordan Smyth and the Edgemoor Investment Advisors Team