After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and Berkshire Hathaway (NYSE: BRK.B) to being humbled by the market. However difficult it is to display your failings, once again I will share all. This is the low point since I posted the original story Chasing Value: Final list -- 8 stocks for 2008.
Only Reliance Steel & Aluminum (NYSE: RS) remained in positive territory, down from five stocks that were up in the last report. Sometimes, the reasons for the downslide were more obvious than they were in the cases for my picks. The cutting in half of Valero Energy Corporation (NYSE: VLO) has been reported often, as the largest independent oil refiner in North America has had its profit margins squeezed.
Loews Corporation (NYSE: L) has been hurt by its insurance interests and helped by its holdings -- a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.
The stock market is in turmoil today and the reasons can be found elsewhere (including in some peoples' imaginations). But if you are a bottom line investor, then here is where you should be looking. Food and energy exploration are the places to be.
Things can change rapidly, but as of right now food related stocks like Bunge Ltd. (NYSE: BG), the largest company involved with soy based products, and Potash Corp. of Saskatchewan (NYSE: POT), the largest fertilizer company, are up.
In the exploration sector, Anadarko Petroleum (NYSE: APC), the oil, gas and exploration company, Loews Corporation (NYSE: LTR), which is the majority shareholder in Diamond Offshore Drilling and is separating from its tobacco interests, and Precision Drilling TR (NYSE: PDS), the Canadian contract driller that is expanding into the lower 48 states, are all up.
All five stocks have out performed the market this year and that trend does not seem to be in jeopardy yet.
I will update this post with final results after the market close to see how the story ends.
UPDATE: four of the five closed in positive territory when all the major indices were in the red.
APC finished down to $77.69,-0.54 (-0.69%)
BG finished up to $122.40, +0.47 (+0.39%)
LTR finished up to $48.95, +0.45 (+0.93%)
PDS finished up to $26.95, +0.49 (+1.85%)
POT finished up to $223.10 +2.54 (+1.15%)
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 APC and PDS.
The transaction will close as of trading on Tuesday, June 10. Lorillard is being distributed to the public via a two-tier process involving: 1) the retirement of the tracking stock Carolina Group (NYSE: CG), in exchange for which approximately 62% of Lorillard's common stock will be issued, and 2) an offer in which shares of S&P 500 constituent Loews Corp. can be exchanged for the remaining shares of Lorillard
It was a smart move by Loews company management to separate the tobacco company from its other interests in hospitality, oil exploration, real estate and insurance.
After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and Berkshire Hathaway (NYSE: BRK.B) too. It has been painful to have to report each month that I was being bested. However, since I have not seen anything contradicting my original rationale for my eight picks I stood my ground.
Moving into positive territory by pennies was Loews Corporation (NYSE: LTR). Among its holdings is a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.
Bunge Limited (NYSE: BG) was the other stock to cross the line into the black, while Valero Energy Corp. (NYSE: VLO), although improving, remains my worst performer. It is still down almost 28% after five months.
This month saw great improvement after last month's disaster. Having to conclude my findings on a specific month end day, or any day, depending on the news, sometimes distorts results. For example news on March 31 sent the market down and on April first my picks shot up an unusual amount; hopefully the trend will continue.
My riskiest stock pick Newcastle Investment Corp (NYSE: NCT) was down the most in March but recovered about 35% of the loss in April leaving Valero Energy Corp. (NYSE: VLO) the dubious honor of being my worst performer, down over 30% in the first four months of the year.
April showed improvement as many companies reported positive earnings reports or beat expectations.
Most of my picks improved. Higher food prices no doubt helped Bunge Limited (NYSE: BG) which recaptured losses moving up 23% from its recent bottom. My two winners Raytheon Co. (NYSE: RTN), the high tech defense contractor, and Reliance Steel & Aluminum (NYSE: RS) were joined by a third, Anglo American plc (ADR) (NASDAQ: AAUK) which had a 10% swing entering positive territory.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
My riskiest stock pick Newcastle Investment Corp (NYSE:NCT) is down almost 37% this year, and the energy stocks did almost as poorly even though fuel prices are near all-time highs. The downers were not offset by this months' repeat winners.
March was a seesaw battle, but in the end there was not much to show for it. However, unlike the last day of January (down 370 points in the Dow) and February's last trading day (down 315 points), March had a final day of plus 46.49, which is not very meaningful.
Most of my picks sagged a little more, while two remain in positive territory. Raytheon Co. (NYSE: RTN), the high tech defense contractor is up and Reliance Steel & Aluminum (NYSE: RS) is way up.
Two months into the year and investors' true 'metal' was tested, and mine more than most. February showed signs of improvement over January, but the last week ended hopes of any rally. The last day of January saw a 370 point drop in the Dow and February's last trading day closed with similar results, down 315 points.
The soft stock market did display many points worth noting. The Dow Jones Industrial Average was about break even for the month, indicating investors were showing some signs of support for large cap stocks, prompted in part by news of increased profits at Wal-Mart (NYSE: WMT) and share buy-backs at IBM Corp (NYSE: IBM).
Some of my picks also sagged a little more, although not as much, while two turned into positive territory. In January, only Raytheon Co. (NYSE: RTN), the high tech, defense contractor, was up. In February, the weak dollar and inflation concerns boosted Anglo American plc (ADR) and Reliance Steel & Aluminum (NYSE: RS) -- two commodity plays.
Allstate Corp. (NYSE: ALL) stock is declining this morning after competitor Loews Corp. (NYSE: LTR) reported a fourth-quarter profit, excluding investments, of 81 cents per share, 26 cents below analysts' forecast of $1.07 per share. LTR blamed the disappointing earnings on a 50 percent decline in profit at its CNA Financial Corp (CNA) insurance affiliate, which could be a bad sign for ALL. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ALL.
After hitting a one-year high of $63.73 in May, the stock has hit a new one-year low today. This morning, ALL opened at $46.56. So far today the stock has hit a low of $45.30 and a high of $46.60. As of 11:05, ALL is trading at $45.89, down 68 cents (-1.5%). The chart for ALL looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
January was a wild ride and February holds the promise of more of the same after yesterday's 370 point drop in the Dow. All the major indices were down in January and so were seven of my eight picks. Only Raytheon Co. (NYSE: RTN), the high tech defense contractor, was up. My two high flyers from last year, Huaneng Power International, Inc. (ADR) (NYSE: HNP) and Valero Energy Corp. (NYSE: VLO), were the biggest losers.
Among the indices, the DJIA lost the least and the NASDAQ lost the most. The average return for my eight picks was -7.82%. This underperformed the average of the indices that was -7.58% -- but my new stalking horse Berkshire Hathaway (NYSE: BRK.B) bested both, so Buffett is still the man.
Now including dividends for my picks which average 3.91% divided by 12 for the one month allows for an additional .326%, reducing the loss to -7.494%. Using 1.8% for the average dividend of the indices divided by 12 adds 0.15%, reducing the loss to -7.43%. The dividends tighted things up. BRK.B does not pay a dividend.
The following are my eight picks with the starting share price as of December 28, 2007:
It goes without saying that diversification is one defense against the onset of a bear market. Further, occasionally the market offers a conglomerate that possesses many of the characteristics of a diversified mutual fund or portfolio, and with the above in mind, Loews is worth a review.
Loews (NYSE: LTR) is a holding company with operations that include property / casualty insurance, hotels, offshore oil/gas drilling, natural gas pipelines, and cigarettes. Don't confuse LTR with that other company with a similar-sounding name: LTR is a conglomerate.
Analysts really like LTR's Diamond Offshore deepwater/midwater oil rig operations, which, as one might sense, are experiencing strong demand and pricing power, given the global drive for more oil. Analysts are equally impressed by LTR's natural gas pipeline business.
I recently posted Chasing Value: Final list -- 8 stocks for 2008 and mentioned that all of them pay a dividend. If this year is going to be as gloomy as some would have you believe, then stocks that pay dividends, as a group, will outshine those that do not.
The following are my eight picks, with the closing stock price as of my start date December 28, 2007 and the dividend yield. Last year, there were more stocks among my picks that paid a dividend higher than the S&P 500 Index average of 1.8% . This year there are only two.
A few days behind schedule, but here is my list of eight stocks. Included in the list there are two holdovers from the 2007 list of seven stocks. I do not see any value in creating an entirely new list when I have done well over the years riding the winners. This is particularly true if the reasons you bought the stock in the first place remain valid.
These eight picks for the year will be tracked monthly with updated results. The initial share prices are from December 28, 2007. They are focused on defense, energy, food, gold, metals, mining, oil, power, and every one pays a dividends. The following are my "Quick Takes" in alphabetical order with links to the complete stories.
Anglo American plc (ADR) (NASDAQ: AAUK) is a world-class player in precious metals, diamonds, and commodities, which are all growing in demand. When the world economy is booming, all of its mining products are sought after, and when the market runs scared, gold goes up. It pays a dividend yield of 1.9% and is trading almost 25% off its 52-week high. For full story: Chasing Value: Anglo American diamonds and gold are your best friend. The closing price on December 28, 2007, for AAUK was $30.79.
Stocks seem to start the week on a down note as geopolitical concerns, combined with another slide in Chinese stocks are putting pressures on U.S. markets. Stock futures are down at this time, responding to the numerous forces playing out internationally and domestically.
Last week, the Dow industrials rose 1.2%, the S&P 500 rose 1.4% and the Nasdaq Composite rose 2.2%. Both the Dow and the S&P 500 closed at record highs on Friday following two days full of economic reports. In response to the strong jobs reports, bond yield soared. The yield on 10-year Treasury notes surpassed 5%, the highest level since mid-August, making fixed income an attractive vehicle again. This might also explain some of the decline this morning as money shifts from equities to the safer instrument -- government bonds.
Today, there is news coming in from around the globe, news that can pressure stocks down:
Russian President Vladimir Putin said today that Moscow could aim nuclear weapons at targets in Europe as part of "retaliatory steps" if Washington proceeds with building a missile defense system on the continent.
After reaching levels not seen since 2000, European markets reacted to Putin's statement, naturally, but also to the Chinese stock market plunge. China's main stock index tumbled 8.3% Monday, extending losses from last week. Hong Kong and Japan stocks didn't follow China's example, however, gaining on the strong U.S. economic data. Similarly, other Pan-Pacific markets reached record highs.
April factory orders are the only economic report due out today at 10:00 a.m. EDT. Orders are expected to have risen 0.7% after a 3.1% jump in March.
Corporate:
Palm Inc. (NASDAQ: PALM) said it will sell a 25% stake to private equity firm Elevation Partners for $325 million. Palm shares are up 11.9% in pre-market trading (7:373 a.m.).
Krispy Kreme Doughnuts Inc. (NYSE: KKD) is set to release its first-quarter earnings. Analysts are calling for 5 cents earnings per share.
Wal-Mart Stores Inc. (NYSE: WMT) shares are rising 2% in pre-market trading (7:41 a.m.) after gaining 3.9% on Friday. WMT was upgraded to Overweight from Equal-Weight at Morgan Stanley and to Overweight from Neutral at J.P. Morgan. Wal-Mart revealed plans to cut capital expenditure and return more cash to shareholders. Update: Wachovia and HSBC also upgraded Wal-Mart, from Market Perform to Outperform and from Neutral to Overweight respectively.
Johnson & Johnson (NYSE: JNJ), the massive pharmaceutical company, is being mentioned more and more by well-respected fund managers as a stock to own.
Most notably, J&J showed up in Berkshire Hathway's (NYSE: BRK.A) recent holdings. As usual there has been little-to-no commentary from the Omaha-based investor as to why he picked up shares in the pharms company.
However, legendary investor, Joe Rosenberg of Loews Corporation (NYSE: LTR), has been more vocal supporting this stock even going as far to say J&J could become a private-equity candidate. J&J is trading at 15.8x 2007 estimated earnings, below that of the S&P 500. Rosenberg believes J&J has a decade of earnings growth ahead and a stock buy back program should drive the stock higher.
J&J's lower valuation may be punishment by investors for overpaying for recent acquisitions. However, J&J management could be pressured from the mere presences of its well-respected new shareholders' to be more disciplined with its acquisition strategy.
With smart investors piling into J&J shares, it is time to start buying this stock.
After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and Berkshire Hathaway (NYSE: BRK.B) to being humbled by the market. However difficult it is to display your failings, once again I will share all. This is the low point since I posted the original story Chasing Value: Final list -- 8 stocks for 2008.
The stock market is in turmoil today and the reasons can be found elsewhere (including in some peoples' imaginations). But if you are a bottom line investor, then here is where you should be looking. Food and energy exploration are the places to be.
After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and 
This month saw great improvement after last month's disaster. Having to conclude my findings on a specific month end day, or any day, depending on the news, sometimes distorts results. For example news on March 31 sent the market down and on April first my picks shot up an unusual amount; hopefully the trend will continue.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
Dow. All the major indices were down in January and so were seven of my eight picks. Only 
Stocks seem to start the week on a down note as geopolitical concerns, combined with another slide in Chinese stocks are putting pressures on U.S. markets. Stock futures are down at this time, responding to the numerous forces playing out internationally and domestically..gif){kind=logo}
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
