Chasing Value: 2009 blazing picks -- Q3 review

In my first review the big winner was American Eagle Outfitters (AEO), and it remained the best performer through the second quarter. It was overtaken this past quarter by Intuitive Surgical Inc (ISRG). Seven of the nine stocks were in positive territory this time around continuing to improve.

I was on a buying spree last March and April putting my money where my mouth is after posting, on March 9, Nostradamus was a punk! Have we reached bottom? -- what timing!

Contrasting ISRG, the loser after the last review was Wells Fargo & Co. (WFC), however, WFC picked up some steam, besting our new loss leader EZCorp Inc. (EZPW).

Among the nine stocks, seven originally paid a dividend. The average yield for the nine stocks was 4.82% when the year started. However, during the first quarter AAUKY stopped paying a dividend and GE and WFC cut their dividends substantially, reducing the average payout to 3.31%. This is better than average but not all that I hoped for.

In previous yearly recommendations I included both stocks that I owned and did not own, for 2009 I own all of them. I have been a buyer throughout the turbulence and have benefited by capitalizing on others' fears. I have reviewed the nine stocks from year end as of the date of the December post.

Review based on December 30 closing price: The average change ended positively gaining 37.92%, but adding the dividend of 2.48% (3.31 x .75) totaled 40.4%, a welcome gain, beating the DJIA, S&P, and the NASDAQ which did very well.

1. American Eagle Outfitters (AEO) improved dramatically from $9.13 to $16.86 for a 84.67% gain.
2. Anadarko Petroleum (APC) went from $37.95 to $62.73 for a 62.3% gain.
3. Anglo American ADR (AAUKY) began at $11.37 and increased to $15.88 for a 39.67% gain.
4. Annaly Capital Management ( NLY) started at $15.29 going to $18.14 for a 18.64% gain.
5. Diageo plc (DEO) was $55.65 and rose to $61.4 for a 10.33% gain.
6. EZCorp Inc. (EZPW) slipped from $14.81 to $13.66 for a 7.77% loss.
7. General Electric Company (GE) was initiated at $15.82 compressed to $16.42 for a 3.79% gain.
8. Intuitive Surgical Inc (ISRG) was $124.34 but sprang up to $262.25 for a 110.19% gain.
9. Wells Fargo & Company (WFC) began at $28.80 and still lagged behind $28.18 for a 2.15% loss.

Review of the three major indexes: ALL three showed strong gains. The average return was a 22.53%, plus the dividend of 1.8% (2.4% x .75) totaling a 24.33% return if you invested in all three equally.

• The Dow Jones Industrial Average (DJIA) climbed from 8,668.39 to 9,712.28 a gain of 12.04%.
• The NASDAQ Composite sprang from 1,550.70 to 2,122.42 for a very good gain of 36.87%.
• The S & P 500 Index appreciated from 890.64 to 1,057.08 for a gain of 18.69%.

The 2009 picks are doing very well so far with only one quarter to go. During the year I have written about "selling to open" put options (naked puts). This has juiced my portfolio dramatically far exceeding the 40% noted herein. This is an opportunity not available to most investors and has a high level of risk.


American Eagle Outfitters: During the quarter retailers have been volatile and AEO has drifted up and down in a two point trading range and is off a little today.

Anadarko Petroleum: APC has moved up as oil has moved up. Having 70% of its reserves in North America remains a very positive attribute. Natural gas prices have remained soft but if this changes it should contribute to further gains. The company has reported new oil finds in West Africa and continues to explore.


Anglo American: last time I reported that AAUKY had eliminated its dividend, sold off assets, closed mining operations, cut its workforce in an effort to "right-size" the company. It has succeeded to some degree and clearly this has been recognized by others. Serious Money: Anglo American - Xstrata merger? The merger talk appears dead for now.

Annaly Capital Management: The stock has continued to rise and is still paying its sizable dividend as planned, and that alone has beaten the DJIA.

Diageo: The company has been on the upswing for most of the year; continues to strike deals globally with noteworthy activity in China and India, and is bringing out new products and making changes in its manufacturing plants. This is stock still pays a great dividend and is a hold-forever investment.


EZCorp: I have been surprised that EZPW stock has not performed better since the company continues to grow and prosper both organically and by acquisition domestically and internationally.

General Electric: GE issues multiple press releases daily. It still pays a dividend, and raised its cash position. It struggles under the shadow of its financial division and the threat of unknown damage that could be caused by its commercial mortgage and real estate assets.

Intuitive Surgical: ISRG made a strong move after dropping below $100 dollars a share. At that point I was jumping up and down banging this drum to wake folks up and point out one of the greatest bargains of the year. It has recently been trading around $265.


Wells Fargo: WFC has been down with the financial sector and rebounded with the sector as well. The bank is benefiting from reduced competition, lower interest rates, and higher margins and a lot of refinancing that has been spurred as a result. They are consolidating by closing many Wachovia branches.

I will do a final review of the picks in January 2010. By then my new picks will be out stay tuned.


I know that a lot of people are still sitting on the sideline earning little so I posted Serious Money: Five high-yield, safe, diversifed stocks to show those folks that you can participate relatively safely in the market and make a profit while waiting out better times. And if you want real long term peace of mind read Where should granny put $50,000?

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of all nine stocks as indicated.