Assuming Enough Confidence in the Economy, Expect Higher Rates in June – September

February, 2015

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Observations from Dennis Lockhart’s Naples Talk

Last Friday, Jennifer and I attended a speech by Dennis Lockhart, President of the Federal Reserve Bank of Atlanta and a member of the Federal Open Market Committee. Given his position in setting interest rate policy, every word he said was evaluated by the audience organized by First Florida Integrity Bank and the Naples Area Chamber of Commerce.

His comments were generally positive in regard to the overall economy and expectations of 3% Gross Domestic Product growth while inflation should remain moderate.  One interesting fact was that there is now 2 million more people employed now than prior to the financial crisis.

Given the strong employment report for January released Friday morning, the focus of the speech and questions was when would the Federal Reserve raise interest rates and how much? Mr. Lockhart did provide guidance of potential time of June to September for a policy change. He further emphasized the importance of economic confidence as a key factor in the decision to raise interest rates at that time.

Disclosures

Information sources used to prepare this report include Argus Research, Value Line Investment Survey, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics.  Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the state of Florida and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.   Our current disclosure statement is set forth in Part II of Form ADV and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.

Andrew D.W. Hill, CFA

President & Co-founder

Andrew Hill Investment Advisors, Inc.

4081 Tamiami Trail North, Suite C-105

Naples, FL  34103

Direct Dial:  239-777-3188

Facsimile:   239-236-0484

andy@responsibleadvisors.com

Visit us on the web:   www.responsibleadvisors.com

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Employment Report has the Economy in the Holiday Spirit

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December 5, 2014 

The November Employment indicated that 321,000 new jobs were created, the strongest gain in years and providing evidence that the economic growth is broadening.   The strength was also much stronger than expected by about 100,000 jobs.   While it would not be a surprise to see the strong figure reduced in subsequent reports as the initial is revised, but the trend remains upward.   The implications for the financial markets is that possibility of the Federal Reserve raising short term interest rates increases while equity markets will benefit from stronger corporate earnings.   Within the equity market, the shift from defensive stocks to economically sensitive sectors may gain momentum.

–        November has 321,000 new jobs which is 100,000 better than projected

–        Maybe revised down due to errors in seasonal adjustment

–        Solid evidence that economic growth is broadening and problems in Europe/Russia are not invading the U.S.

–        Investors may shift focus back to economic sensitive stocks (1st half of the year favorites) and out of risk adverse holdings (2nd half of year favorites).

Brief Look at Macro Investment Strategy

With a degree of calmness reaching the financial markets, I wanted to update on our macro investment outlook.

Currencies, Commodities, and Geo-Politics

Much of the excitement in the stock and bond markets commenced from the rapid rise in the U.S. Dollar. The rise in the U.S. Dollar has led to a decline in commodities, especially oil. The decline in the price of oil is perceived by some investors that think the economy is weak. This trend has helped stocks like Walmart, Coke, and Proctor & Gamble that investors prefer when risk is on the rise. With evidence indicating economic strength is building, a shift in the equity markets back to economically sensitive stocks maybe starting.

The outlook for oil has to include both political and economic issues. Saudi Arabia has been losing business to domestic production.   Also Russian bad behavior is being punished by lower oil prices since Russia’s most important exports are Vodka, Hockey Players, and Oil.  The price of oil is expected stabilize over the next three months as new drilling programs are cancelled that are not economically viable.  Offshore and projects in remote areas will be the first to be halted.  Kiplinger’s projects the price of oil to average $80 – $85 next year.   Separately, natural gas is about even with prices since last December and is trending with limited impact from the fall in oil.

Bonds
So far this year the focus on “medium grade” bonds has a near perfect match between capturing a reasonable yield and not reaching too far into higher risk securities that have performed poorly recently. We plan on continuing with our strategy of laddering maturities which makes a bond portfolio well prepared from whatever happens to interest rates.

Stocks

After very strong results in the first half of the year, the second half of the year has been a challenge, but more recently, the winds have begun to favor some of our core holdings.   Today’s very strong employment report could motivate investors from the defensive holdings which fail to meet our investment criteria back to economically sensitive stocks (like Ford).  We remain focused on companies with industry leadership, revenue and earnings growth, limited debt, and a product or service that is of value to society.   Many of our core holdings have not fully participated in the overall stock market gains but currently offer above market potential returns.   Below are a few positions to highlight a few significant positions held in most client accounts.

Highlighted equity holdings

–        Gilead Sciences ($104); The leader in HIV drugs is rapidly growing its Hepatitis C drug portfolio.   Investors have recently been concerned about competition from Abbvie’s Hepatitis C drug expected to be approved by the FDA on December 21st, but there appears to be plenty of business to share with over 3 million people in the US caring the disease.  Presently, Gilead sells at only a price to earnings multiple of 11, a significant discount to other biotech stocks and the overall stock market.  Price target $150.

–        Apple ($115); Apple’s new iPhone 6 is a big hit and several other new products and the ability to share information between Apple products is making customers purchase more Apple devices. Apple’s shares still trade a discount to the overall market despite strong growth potential for a huge business. Price Target: $150.

–        Ford ($15.70); Investors are recently taking interest in Ford’s stock with a recent gain over 10%. 2014 was a write off for Ford with expenses associated 23 new models highlighted by the new, lighter, stronger, and more efficient F150. Price Target: $20.

–        Ecolab ($109); Ecolab is one of the most stable companies in the SP500 as sales, earnings, and dividends increased for years. Recently, Ecolab shares were unfairly punished with energy stocks that provided the opportunity to the purchase additional shares. This week, the dividend was increased 20%. Price Target: $125.

–        Comment on Energy holdings—Helmerich & Payne and EOG; the exposure to the energy sector has been reduced after the recent OPEC (Saudi Arabia) decision not to cut production. Our two primary energy holdings are widely viewed the best in their sector and positioned to take market share when weaker competitors fail to strive in a lower price environment. Much like waterfront property in Naples, Florida, sticking industry leaders limits declines during downturns and they are often the first to recover, a sign of confidence.  Subsequent to the OPEC motivated sell off in energy stocks, insiders have reported buying shares of both Helmerich and EOG this week.

On Other Issues
Our firm recently signed a contract to upgrade our client portfolio management software. The new system, Black Diamond, is a cloud based service offering better reports, easier use, and a client portal.  More details to come on our new software which is anticipated to be a big favorite with clients.

Disclosures

Information sources used to prepare this report include Argus Research, Value Line Investment Survey, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics.  Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the state of Florida and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.   Our current disclosure statement is set forth in Part II of Form ADV and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.

Ford featured in Barron’s article and new F150 wins Kelly BlueBook “Best overall buy of 2015”

Brief update on Ford shares which is held in most, but not all client accounts.

The attached report does a very good job in explaining the investment thesis behind Ford.

Ford is launching 23 new products over the next year with none bigger than the new F150.  The F-150 pickup truck has been the top selling vehicle in the US and Ford’s key to success historically.   With the F-150 being out of production since July for the conversion to the new 2015 model, revenues have been hurt while expenses for new products, warranty, and foreign business problems has caused 2014 be basically a write off, but sets up 2015 for a much stronger sales and profits.

Looking forward, I concur with Barron’s outlook for rise to about $20/share.   Longer term, assuming the new models do well, $25 to $30/share seems like a reasonable expectation over the longer term.   Also, the stock currently yields 3.3%.

Ford shares are held in most but not all client accounts and a truck load in my family accounts.

Read more here  

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Ford Shares Could Climb 30%

 

Stocks More Than Half Way Back

After a month of rough patch of financial market performance for the past month, the SP500 has recouped over half of the recent losses while bonds have given back about half of their recent gains.   The SP500 lost about 10% from the recent highs in September to the lows last week.  The average stock was punished much worst as represented by the SP600 small cap index losing 13%.

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It appears that the selloff in stocks was largely emotionally driven.  Initially, the decline was sparked by economic concerns from Europe, further fueled by Ebola fears, propelled by index fund investors bailing out, and the downward trend was accelerated by high frequency traders.  As was pointed out as a potential catalyst for change in sentiment in our 4th quarter Outlook, corporate earnings have been coming in generally strong.  Intel, Texas Instruments, most of the major banks reported solid earnings last week.   Interestingly, the banks showed nice loan growth, a sign that the economy is growing.  On the downside, IBM, McDonald’s, and Coke reported weak results.  IBM missed the move the cloud and mobile, while McDonald’s is out of touch with customers, and consumers prefer water over carbonated drinks.

Specific to core holdings in client accounts, six companies have reported with most have been solid, Verizon the weakest with competition hurting margins, but still growing.  However, Apple was the star so with the strongest growth in years and solid guidance for the December quarter.  Apple’s new iPhone 6 is being very well received and the new Apple Pay offers a more secure payment method.  Oh yes, to get Apple Pay you will need to buy a iPhone 6.

Looking forward, the growing economy provides the background for corporations to produce earnings growth.  Overtime, earnings growth will drive stock prices higher from modest valuations.   Also, we are about to enter the seasonally strong period for stock market performance from November to May.

Regards,

Andy

Disclosures

Information sources used to prepare this report include Argus Research, Value Line Investment Survey, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics.  Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the State of Florida and with the State of Texas and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.   Our current disclosure statement is set forth in Form ADV, Part 2 and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.

Andrew D.W. Hill, CFA

President & Co-founder

Andrew Hill Investment Advisors, Inc.

4081 Tamiami Trail North, Suite C-105

Naples, FL  34103

Direct Dial:  239-777-3188

Facsimile:   239-236-0484

andy@responsibleadvisors.com

Visit us on the web:   www.responsibleadvisors.com

Please consider the environment before printing this e-mail P

Andrew Hill Investment Advisors, Inc., is registered as an investment advisor with the State of Florida and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.  Our current disclosure statement is set forth in Part II of Form ADV and is available for your review upon request.

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August Ending on an Uptrend in Stocks and Bonds

Hurricane planning

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As the month of SepteAdd Mediamber is a few days away, we will soon be in the month with the highest frequency of hurricanes; we reviewed our business interruption procedures today.   While we are hardly getting routine afternoon thunder storms, a review of hurricane plans is timely.   Thus, if you need any transfers or other help, please let us know well in advance, just in case…

 

Financial markets behaving better lately

Recently, stocks and bonds have both rallied.   Bonds trended higher in price, lower in yield, largely due to falling yields in Germany, Spain, and other developed nations that make the 2.3% yield on our 10 Year Treasury Bond look like a great deal.

 

After a rough patch in late July to early August, stocks have rally over the past three weeks.   Client account performance has also been a bit better than the SP500 more recently.   Generally, the earnings reports of our top holdings were strong, but the stocks of the best performers got a muted reaction, while any sort of problem reported to investors resulted in the stock being severely punished.

 

Gilead had the most notable earnings report with sales and earnings more than doubling from a year ago.   The results were led by their new blockbuster drug, Solvaldi, which cured 9,000 patients of Hepatitis C.  Although the stock has risen recently, giving the results, a larger gain would seem reasonable.   On the downside, Helmerich & Payne and Synaptics, two big gainers earlier this year, gave back a portion of their profits, despite strong earnings reports due to profit taking.

 

Buying new two new stocks lately: EOG Resources and Hexcel

For some client accounts, we have added positions in EOG Resources and Hexcel.  EOG is one of the largest natural gas and oil exploration firms in the U.S.   They have grown rapidly due to new drilling technology and are considered one of the best managed in this industry.

 

Hexcel is manufacturer of carbon fiber products.  Carbon fiber products are stronger than steel, but weigh much less, but at a much higher cost.  Their biggest customers are Boeing and Airbus.   They also provide their products in high end products such as TREX bicycles and hockey sticks.

 

All the best for an enjoyable holiday weekend.

 

Regards,

Andy

 

Disclosures

Information sources used to prepare this report include Argus Research, Value Line Investment Survey, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics.  Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the State of Florida and with the State of Texas and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.   Our current disclosure statement is set forth in Form ADV, Part 2 and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.

 

 

 

Andrew D.W. Hill, CFA

President & Co-founder

Andrew Hill Investment Advisors, Inc.

4081 Tamiami Trail North, Suite C-105

Naples, FL  34103

Direct Dial:  239-777-3188

Facsimile:   239-236-0484

andy@responsibleadvisors.com

Visit us on the web:   www.responsibleadvisors.com

Please consider the environment before printing this e-mail P

Andrew Hill Investment Advisors, Inc., is registered as an investment advisor with the State of Florida and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

 

Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.  Our current disclosure statement is set forth in Part II of Form ADV and is available for your review upon request.

 

CONFIDENTIALITY NOTICE

Eeverglades fishing reports’

Eeverglades fishing reports’ Category

It has been very warm so far this winter and we need some cold weather to start the move of snook into the backcountry.    The really big snook  are slowly starting to trickle into the backcountry and we are getting good shots and  hooking  a few but they are breaking us off in the mangroves. We are also catching large mouth bass on some trips. The next couple of months will be the best time to catch a monster snook. Redfish are around year round and on the right tides we have been catching some big fish. Get in on this snook fishing if you can. I still have some opening on my calendar.

 

Big Snook in the Everglades

Fishing is heating up in the Everglades and Pine Island. Lots of shots at redfish and yes the snook are coming back after the freeze in 2010 that killed over 500,000  (FWCC). On this day we caught four snook over 27” with 6 or 7 smaller snook, and few redfish and one nice trout that Terry caught at the end of the day. November and December should be good if this weather stays nice. Tarpon still around as long as the weather does not get to cold!! Then the big snook really come in my area. Got my finger on the pulse!!

Relaxing after Andy's arms are sore from catching fish.

Andy Hill relaxing in the new skiff

 

Big snook

Steve Liesman with his biggest snook ever on fly…

March has been good for snook and lots of trout.  No tarpon yet but Steve Liesman of CNBC’s squak box, sight fished this 34″ snook in 6″ of water.  He got it done after many had tried but failed this month.

 

 

July Closes Out With Sharp Sell Off in Stocks

July Closes Out With Sharp Sell Off in Stocks

July 31, 2014

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In the 3rd Quarter Outlook, I made a comment that strong gains in June may have borrowed gains from July. Unfortunately, I was right. Despite improving macro-economic trends and solid corporate earnings so far, stocks had a rough July.   While the Dow Jones and the SP500 were down marginally, small and mid-cap stocks did much worse.   The sell off today was sparked by Adidas and Exxon indicating potential lost sales associated with the Russia – Ukraine conflict and Argentina debt default. While these issues have nominal impact on the overall stock market and holdings in client accounts, it lead to a fear motivated stamped of selling today.

Looking forward, often stock market bottoms are created on bad days like today. Many of our indicators are pointing to that conclusion, but it is too early to call it a bottom yet. The expectation for the year remains for returns in stocks of 10% to 12% and bond yields rising.

The only major portfolio action taken today was to sell the position in Met Life which reported lackluster financial results for the June quarter.   The sale of Met Life will free up some cash to take advantage of any opportunities that may occur if the selloff in stocks continues.

Regards,

Andy

Disclosures

Information sources used to prepare this report include Argus Research, Value Line Investment Survey, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics. Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the State of Florida and with the State of Texas and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.   Our current disclosure statement is set forth in Form ADV, Part 2 and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.