Last year the stocks mentioned in my newsletter, The Cohan Letter, were up 15%, 1% better than my benchmark, the S&P 500. But it was a humbling year, so I offer three stock picks for 2007 with a suggestion that you study them carefully.
2006 was humbling because my picks (I focus on three stocks in each monthly edition) trailed the market throughout much of the year. However, they ended up prevailing due to a late December surge in some of the top performing stocks -- e.g., Telefonos de Mexico, S.A. (ADR) (NYSE: TMX) was up 36% from $20.83 when I first mentioned it to $28.26 and Wal-Mart de Mexico (ADR) (OTC: WMMVY) rose 28% from $34.25 (I blogged about it here) to $43.85. This was due to portfolio managers' practice of window dressing -- buying stocks that have done well right at the end of the year so they can report to their shareholders that they owned the stocks.
Since 1998, when public sources began tracking my stock picks, I've been fortunate to have outperformed the S&P 500 in all but one year (in 2003, my stock picks were up 23% compared to 29% for the S&P 500). Since 1998, my stock picks have averaged a 67% annual return compared to a 6% return for the S&P 500. However, 2006 was by far the worst year for my stock picks -- the second worst was 2004 when my picks were up 20% compared to 9% for the S&P 500.
One of the key reasons for these results is limiting losses through a 2% stop loss on stocks mentioned in The Cohan Letter -- if a stock's price falls 2% below the level at which it was noted, the stock is sold. To put the importance of this rule into context, I used it to dump 61% of the 36 stocks highlighted in 2006. Without it, my stock picks would have lost money for investors.
So it is with a serious helping of humble pie that I offer these three stocks to consider for 2007:
- America Movil S.A. de C.V (ADR): (NYSE: AMX). America Movil provides wireless communications services in Latin America. America Movil has subsidiaries in the telecommunications sector in Mexico, Guatemala, El Salvador, Nicaragua, Honduras, Ecuador, Brazil, Argentina, Colombia, Uruguay, Chile, Peru, Paraguay and the United States. As of December 31, 2005, America Movil had 93.3 million subscribers in 14 countries. In the most recent 12 months, sales were $19.9 billion having grown an average of 42% over the last five years. AMX earned $4.3 billion in the most recent 12 months. AMX trades at a P/E of 19.2 and has risen 55% in the last 52 weeks. AMX is expected to earn $2.18 per share in 2006 and $2.89 in 2007, a 33% increase.
- Comcast Corporation (NASDAQ: CMCSA). Comcast Corporation is a broadband cable provider in the United States and offers consumer entertainment and communication services, serving 21 million video subscribers, eight million high-speed Internet subscribers and one million phone subscribers. In the most recent 12 months, sales were $23.7 billion having grown an average of 22% over the last five years. CMCSA earned $1.9 billion in the most recent 12 months. CMCSA trades at a P/E on 2006 earnings of 46.4 and has risen 63% in the last 52 weeks. CMCSA is expected to earn $0.89 per share in 2006 and $1.32 in 2007, a 48% increase.
- Affiliated Managers Group (NYSE: AMG). Affiliated Managers Group, Inc. is an asset management company with equity investments in mid-sized investment management firms (AMG's Affiliates). During 2005, AMG's Affiliates managed $184.3 billion in assets. In the most recent 12 months, sales totaled $1.1 billion up an average of 15% over the last five years. AMG's net income was $141 million in the last year up an average of 16% over the last five years. AMG trades at a P/E of 31 and has risen 31% in the last 52 weeks. AMG is expected to earn $5.61 per share in 2006 and $6.58 in 2007, a 17% increase.
In considering these stocks, it's worth analyzing the odds that the companies will be able to achieve their earnings forecasts; whether their P/E ratios already reflect the growth; whether the companies face internal risks -- such as accounting, legal or management problems; and/or whether the companies face external threats -- such as new competitors or reduced demand due to changing economic conditions.
I'm still trying to figure out what makes stocks go up or down. But my hunch is that these three should do OK.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in the securities of Affiliated Managers, American Movil, Comcast, Telmex, or Walmex.
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