Chasing down 007 picks: AAPL +135%, PTR +85%, GOOG +53%, & VLO +36%

Through September and October, the market benefited from a half-percent interest rate cut by the Federal Reserve Board, recovering much of August's losses. However the Fed's quarter-point cut on Wednesday did not have the desired effect, and yesterday the Dow tumbled. This has also stimulated oil and gold prices to new highs and caused the dollar to decline overseas. I think this boosted foreign stocks significantly, most notably Huaneng Power International ADS, which derives 100% of its revenue outside the United States. Last December, I made a strong case for HNP; prior to its recent rise, I did so again for our Volatile Market picks: Huaneng Power (HNP) is my pick for the next 50 years.

The Dow Jones Industrial Average is once again approaching its high of 14,000, and looks like there might be room to exceed it. The housing market and subprime loans continue to worry investors, but unlike last month when an interest rate cut was not a certainty, the market got its wish but not as much as hoped, with some concern that future cuts are less likely.

The month of October continued the trend of stock-picking outperforming the indices. Quarterly earnings reports have been mixed, and more reports are coming out daily. The global economy is still clicking along in a positive direction, but with much greater angst. U.S. interest rates, the devalued dollar, rising oil prices, and international entanglements of all kinds are creating uncertainty. Mergers and acquisitions are slowing or being renegotiated. It has been another month where Chinese stocks did very well, but more people are questioning how long this can continue, including "My Pal Warren."

Summary of Results:

• Google (NASDAQ: GOOG) continues to race into uncharted territory, doubling its year-to-date growth since last month. The prognosticators are so crowded on that proverbial bandwagon that they have to refrain from jumping on it because there's little room left. August lulls, and two stories in Barron's (subscription required) that sought to temper investor enthusiasm (questioning ROIC and sustained advertising income in a slowing economy), are a distant memory. Few investors have even paused to take a breath in October. GOOG closed at $707, for a solid +52.85% gain through the first 10 months of the year, holding the top spot again, and by a widening margin.
• My picks continued to advance considerably through October, improving to a 18.14% gain year-to-date. Adding the dividend portion of 2.41% (2.89% x 0.833) brings the total return to +20.55%, a very solid total performance. Dividends make a difference when the returns are modest, although this month they were less important. PetroChina ADR (NYSE: PTR) replaced Valero Energy (NYSE: VLO) as my biggest winner, leaping forward for almost an 85% YTD gain. Nevertheless, VLO has been the most consistent all year, and Huaneng Power International ADS (NYSE: HNP), another crowd pleaser, was third. My biggest disappointment is Time Warner Inc. (NYSE: TWX), which is down 17%. I just can't believe so much potential goes under-utilized and undervalued.
• Jim Cramer's average return on his nine picks was 17.14% over the 10 months, beating the Standard & Poor's index, the DJIA and the NASDAQ, and changing positions with me this month. Adding the dividend portion of 0.55% (0.66% x 0.833), brings Cramer's gain to +17.69%. Apple (NASDAQ: AAPL) was his best pick of the year. Given new product and software launches and the continuation of current products and programs, there is every reason to believe 2007 will finish as another one for Apple's record books.
• All of the indices gained ground in October, with the DJIA, NASDAQ and S&P all making a good showing for an overall average of +12.68% year-to-date. Adding their portion of the dividend yield of 1.5% (1.8% x 0.833) brings it up to a total gain of +14.28%, a notable return on investment, beating out most fixed income securities. They also beat the long-term market averages. This is a reminder that just by being in the market, the most conservative of investors would have done very well.

Note that portional dividends have been added to the results. This is one of the criteria I use in my stock picks, and it is having an impact on the results thus far. Only three of Cramer's picks pay dividends, averaging about 0.66%. The indices pay a higher average of 1.8%, and my picks average still higher at about 2.89%. Google does not pay a dividend. The flatter the market is, the more dividends are a factor in overall returns.

Google wavered in the first half of the year, took off and then cooled over the summer, being the most speculative of stocks early on, but it was the best bet for the fourth month in a row, and has been on fire the last two months. I still maintain that Value will beat Growth and Indexing over the long run, but I must give Google its due -- it has been great.

Two of my picks continue to be mentioned as buyout candidates but the rhetoric has died down considerably: The Dow Chemical Co. (NYSE: DOW) and The Home Depot (NYSE: HD). Home Depot continues to receive the most negative sentiment, and the crushed housing market is keeping it from rebounding despite what many market watchers see as a deeply discounted turnaround play and I would agree.

The following are the closing prices as of December 28, 2006 and 10 month returns for the seven stocks I recommended, plus the addition of Spectra Energy Corp. (NYSE: SE) that was spun out of Duke Energy (NYSE: DUK). Among Cramer's picks, Kraft Foods (NYSE: KFT), which was spun out of Altria Group, Inc. (NYSE: MO), is included in the calculations.

1. The Dow Chemical Company: (NYSE: DOW) $40.02 is Up to $45.04 (+12.04%) 3.54% yield
2. Duke Energy: (NYSE: DUK) $33.02 (incl. of Spectra Energy (NYSE: SE) is Down to $32.16 (-2.6%) 4.31% yield
3. The Home Depot Inc.: (NYSE: HD) $39.73 is Down to $31.51 (-20.69%) 2.31% yield
4. Huaneng Power International ADS: (NYSE: HNP) $36 is Up to $48.05 (+33.47%) 3.62% yield
5. PetroChina ADR: (NYSE: PTR) $142.12 is Up to $262.60 (+84.77%) 4.5% yield
6. Time Warner Inc. (NYSE: TWX) $22.00 is Down to $18.26 (-17.83%) 1.1% yield
7. Valero Energy: (NYSE: VLO) $51.61 is Up to $70.43 (+36.47%) 0.84% yield

The following index comparisons are also from December 28, 2006 :

• Dow Jones Industrial Average: 12,501.52 is Up to 13,930.01 (+11.43%)
• NASDAQ Composite Index: 2,425.57 is Up to 2,859.12 (+17.8%)
• Standard & Poor's 500 Index: ($INX): 1,424.73 is Up to 1,549.38 (+7.16%)

The Cramer Speculative Stocks for 2007:

1) Level 3 Communications (NASDAQ: LVLT) $5.66 is Down to $3.03 (-46.47%) No dividend
2) Rite Aid (NYSE: RAD) $5.49 is Down to $3.91 (-28.78%) No dividend
3) Savient Pharmaceuticals (NASDAQ: SVNT) $12.01 is Up to $14.08. (+17.24%) No dividend

The Cramer Growth Picks are:
1) New York Stock Exchange Group (NYSE: NYX) $97.51 Down to $93.87 (-3.73%) No dividend
2) Apple Inc. (NASDAQ: AAPL) $80.87 Up to $189.95 (+134.88%) No dividend
3) Cisco Systems (NASDAQ: CSCO) $27.42 Up to $33.06 (+20.57%) No dividend

The Cramer Value Picks are:
1) Altria Group (NYSE: MO) $86.23 Up to $72.93 +(Kraft at .692024 x $33.41 = 23.12) to $96.05 (+11.41%) 4.12% yield
2) Goldman Sachs Group (NYSE: GS) $200.80 Up to $216.74 (+23%) .72% yield
3) Halliburton Co. (NYSE: HAL) $31.26 Up to $38.40 (+26.1%) .97% yield

The New Powerhouse Google

What an amazing month for Google, up significantly, and passing its high prior to dropping after its last quarterly report. The Wall Street darling is being tracked since it is of broad interest to the investing public and internet users alike. Google closed December 28, 2006 at $462.56, rose in January, then traded downward for a few months before hitting new highs in June, followed by another all-time high of $558.58 in July. A 3-cent earnings miss, based on analysts' expectations, caused an immediate drop of about 10%. But coming on strong, Google ended October at $707.00, for a solid YTD gain of $244.44 per share (+52.85%), more than doubling last month's YTD gain. Google does not pay a dividend.

In Closing

I continue to watch the sad state of affairs at Time Warner, which has faltered all year long for what I consider to be no good reason, or maybe there is: Time Warner (TWX): No catalyst or no leadership? Some comparisons. I am still waiting for my invitation to a board meeting to share my thoughts personally. No doubt Jim Cramer would like to do the same with the boards of Rite Aid, as well as Level Three, considering it is a tech stock but has been a disaster for him. I will continue to report during the week following the closing stock prices each month.

James Cramer of TheStreet.com has the distinction of making both the best and worst picks of the year so far. The past few months have been dismal for the financial sector and anything lingering near its giant shadow. Neither of us wandered near the banks although Cramer does have Goldman Sachs, which has been on a roller coaster ride. No telling where it will end up.

This Chasing Value post marks my 436th story for BloggingStocks over the last 19 months, and the 10th report where I compare my stock picks to Cramer's and the indices. Some months have been remarkable, and some have been rather blasé. Many of our readers have contributed some thought-provoking commentary and made this time a more interesting journey.

I created the Chasing Value section after discussions with Senior Editor Amey Stone, and it seems to be doing well with a modest but growing following. I hope readers appreciate the depth to which I am sharing ideas and eating my own cooking. The ideas I present are the basis of our investment strategy for my own small private investment company and personal portfolios. I hope readers will continue to share their ideas, I am still learning too.

I must close again with this: It would be very unusual for someone to expect a beginning investor or novice to hold just a single stock in their portfolio, but if they did, that stock could very well be Google. For that reason, in this unique circumstance, such a person would have beaten Cramer and myself at stock picking, and 99% of Wall Street, and tripled the return of the indices as well. You all know it's often better to be lucky than good, and this proves it again!

Disclosure: I own shares of BRK.B, DOW, DUK, HNP, PTR, SE, TWX, and VLO.

To find more potential opportunities and verify my track record read Chasing Value or Serious Money.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture & planning firm. Check out his other posts for BloggingStocks here.