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News
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So far, so good
graphic November 9, 2001: 7:24 p.m. ET

The Dow has finally recovered to where it was before Sept. 11. And the market outlook is brighter -- from big tech stocks down to less obvious sectors like specialty chemicals.
Michael Sivy
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NEW YORK (CNNmoney) - Mazar-e-Sharif has fallen! I don't have the faintest idea whether the Taliban have been permanently expelled from that key city in Northern Afghanistan or whether such victories significantly reduce the threat of terrorism in the United States. And I suspect most investors are just as bewildered as I am. But at least we're sloughing off the sense of helplessness that followed Sept. 11. Friday, the Dow closed up 20 points at 9,608, finally getting back to where it was before the terrorist attacks.

Consumers certainly appear to be increasingly hopeful. The University of Michigan's preliminary November consumer sentiment number actually rose slightly from the October level. And despite the widespread layoffs of recent months and the jump in unemployment, there was a slight increase in the number of consumers who said their current financial situation was fine.

Sentiment isn't the only factor that's improving. The awful third-quarter reporting season has finally ended. And although most companies announced disappointing results, at least a few provided positive earnings surprises.

In addition, the producer price data reported on Friday showed a complete absence of inflation. Largely because of falling oil and gas prices, the PPI plunged 1.6 percent in October, the largest monthly drop since the index was begun in 1947. Minimal inflation gives the Federal Reserve a free hand to cut short-term interest rates again in December and January. And that will mean more mortgage refinancing that will help support consumer spending and an economic upturn.

This improving market climate obviously depends on continued success in the war against terrorism. But barring another serious incident in the United States, most sectors of the market should perform well going into next year. The most direct beneficiaries would be technology and financial services companies. But it's important for investors to diversify their portfolios and include other groups such as cyclicals.

I'm particularly partial to what you might call growth cyclicals -- stocks whose earnings track the overall economy, but which can provide earnings growth and dividends totaling more than 12 percent a year. Specialty chemicals are a perfect example and are also likely to benefit from the recent drop in energy prices. In that sector, Air Products and Rohm & Haas look like the most attractive stocks.

Rohm & Haas specializes in acrylics used for coatings and adhesives. Over the past five years, those businesses supported 12 percent compound annual growth. Profits are off sharply this year but should rebound as soon as the economy turns up and outpace the overall industry by a couple of percentage points. Over the next five years, earnings could grow at nearly 12 percent annually. The shares also yield 2.3 percent. The one caveat is that the stock is not as cheap as it has been at other times this year. Currently at $34.50 a share, Rohm & Haas trades at more than 20 times next year's projected earnings.

Air Products & Chemicals looks like a better value. The company is a leading supplier of industrial gases to the chemical, health-care and electronics industries. Business has been hurt recently not only by the general decline in manufacturing but also by the severe downturn in semiconductors and computer hardware. Over the past five years, the company has grown earnings at a 12 percent compound annual rate. And growth should continue at close to that level after the economy snaps back; the stock also yields 1.9 percent. At a current price of $42.65, Air Products trades at only 16 times earnings, a very reasonable multiple for a stock that dominates such an attractive business niche. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

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