Friday’s labor report for the month of November reported job gains of 321,000, nearly 100,000 more than expectations of 230,000. Furthermore, October’s job count was increased by an additional 31,000. The market, as I expected, responded positively, but rather muted with the S&P 500 (SPX) rising about 0.17% to a new all-time high. The Dow Jones Industrials Average (INDU) also rose to an all-time high.
Barron’s Makes Wrong Call on Hawaiian Electric
Barron’s is a weekly newspaper (though it calls itself a magazine) that is widely read by market professionals and some individual investors. Many people refer to it as “Bearons” because of its propensity to run negative stories. Anecdotally, taking the other side of Barron’s suggestions has been a winner (buy its sells and sell its buys). The publication, let’s categorize it as such, is issued every Saturday. In the November 29 issue, Barron’s ran a story on Hawaiian Electric (HE). As it turns out, I bought a small amount of HE in the company’s dividend reinvestment and stock purchase plan (DRIP) a few weeks earlier. I have for the last thirty plus years invested in many utility companies DRIP plans and in the past few years extended that to non-utility companies. Anyway, in that November 29 story, the author, Avi Salzman wrote about HE that, “The shares have risen 17% in the past six months, to a recent $28.19, and trade for 17.5 times forward-four-quarter earnings, a five-year high. At a more reasonable multiple of 14 times, toward the low end of the industry’s range, the shares would trade for about $22.50, a 20% discount to Friday’s [November 28] close.” So, guess what happened? The following Wednesday, NextEra (NEE) announced that it would acquire HE for .2413 shares. Furthermore, HE shareholders would get a one-time special dividend of 50 cents per share and shares in ASB Hawaii, HE’s banking subsidiary in a spin-off. When you put it all together, the value to HE shareholders’ is about $33/share. Way to go Barron’s.
Markets Set For Slow Steady Rise Into 2015
What has been quite wonderful about the market’s ascent since the beginning of November is the ever slow stair-step higher. While a rise of 10 – 25 basis points per day may seem boring or insignificant, it is anything but that. Bull markets are known for their slow steady incremental moves rather than huge bursts of capitalistic adrenaline.
There are twenty trading days left to 2014. I expect that the major indexes will continue to inch higher to all-time highs over that period. My SPX target for the end of 2014 which I set at the beginning of the year is 2,148. While reaching that level is not a certainty, being 3.5% away from Friday’s close is also not out of the question
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long HE — although positions can change at any time.
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