Time running out for Fortune stock picks for '08

In December of last year, Fortune magazine came out with its list of "The Best Stocks for 2008."

Supposedly, they were 10 stocks that "will thrive despite — or even benefit from — the troubles facing the markets next year."

Well, all I’ve got to say is they better hurry up and get to thriving.

Of the 10 stocks, only one, biotech Genentech (DNA), is up from the price it was back in December.

And some of the remaining nine, like General Electric (GE) and Electronic Arts (ERTS), have declined 50 percent or more.

Here’s a rundown of the stocks, with their price in December, followed by Friday’s closing price:
Annaly Capital Management (NLY), $17; $14.37
Berkshire Hathaway B shares (BRK-B), $4,750; $3,499
Dick’s Sporting Goods (DKS), $32; $12.61
Electronic Arts (ERTS), $55; $19.06
Genentech (DNA), $67; $76.60
General Electric (GE), $37; $17.17
Jacobs Engineering (JEC), $87; $44.77
Merrill Lynch (MER), $59; $13.22
Petrobras Energia (PZE), $11; $6.65
St. Joe (JOE), $28; $26.41

This is not to pick on Fortune. After all, everyone has had a pretty rough go of it this year in terms of stock-picking.

But it does teach a valuable lesson: Think twice before diving into recommendations carrying hyperbole. "The best," and "The hottest," and "Surefire" picks may turn out to be just the opposite.

A wise investment?

Investor’s Business Daily carried an article over the weekend taking a look at stocks and real estate investment trusts that focus entirely on senior living facilities.

"A senior-housing-focused business is not necessarily reliant on or impacted as much by things like GDP growth, consumer spending, employment growth and business travel," Keven
Lindeman, director of real estate services with SNL Financial, told the newspaper.

But the article cautioned that the senior living space was not totally without worry. At least for the time being, there seems to be a senior living center glut as declining home values have delayed some seniors from moving into such facilities.

One company that stands out, according to the article, is nursing home operator Ensign Group (ENSG), which has posted double-digit profit growth for four quarters.

Sleeping well on the sidelines

Once again, I am out of stocks and waiting for a clear sign that "up" is the new direction.
The Dow has posted five straight days of gains, but the volume, or number of shares trading hands, hasn’t been all that convincing.

I’m keeping my eye on some stocks, but mostly I’m just relaxing and not obsessing on the market. It’s much easier that way, but I know I’m going to turn around one day and see that a rally has begun anew.

Brian

Things to be thankful for, and it ain't the market

Though Turkey Day is on the horizon, this year hasn’t given us much to be thankful for, at least as far as the stock market goes.

With the holidays coming on, I was going to try to stay upbeat.

I wasn’t going to talk, for instance, about how once again I have cashed in all my shares and given up hope about the stock market.

I wasn’t going to talk about how the Vanguard 401(K) into which I’ve been faithfully dribbling what little cash I can each month has been cut in half in the past six months.

Nor was I going to mention that I was less than encouraged about Friday’s fat rally of nearly 500 points in the Dow, because I know that recent history says this week will be full of more ups and downs — but mostly downs — and the uptick hardly makes up for the 43 percent cliff the index has fallen over since the highs in October of last year.

I wasn’t going to talk about how all those comparisons of the current market to the Great Depression seemed so crazy six or eight months ago, but now don’t seem so far-fetched after all.

So I won’t.

Instead, I’ll spend the rest of this column talking about some of the things I am thankful for.

I am thankful for the fact that my 12-year-old son, Brady, is coming to visit me from New Jersey this Thanksgiving. He lives too far away and I don’t see him enough, so I am thankful he is coming. I plan to send him home well-fed.

I am thankful for my new little boy, Cooper, and even though he is too young yet to gobble any gobbler I’m sure he’ll get a kick out of meeting his brother for the first time.

I’m thankful for my oldest son, Justin, and even though he won’t be able to make if for the holidays, I’m thankful he’s safe and he’s thinking about the future.

I’m thankful for my terrific wife, Stacey, who puts up with my blathering about the stock market all the time.

I’m thankful for cookbooks, good wine and great Scotch — even though I’ve been drinking the discount stuff lately.

I’m thankful for the invention of the iPod.

I’m thankful for Dostoyevsky. Ditto Henry Miller, Cormac McCarthy and Gabriel Garcia Marquez.

I’m thankful for the Coen brothers.

I’m thankful I have a job.

I’m thankful I don’t have to stand in the unemployment line.

I’m thankful I have enough to eat.

I’m thankful I’m not an auto worker, or an employee in the financial industry, or a bank robber, or a sports commentator.

I’m thankful I live in this country, though I know it has its problems and a lot of people abroad don’t like us very much.

I’m thankful for the outcome of the election, even though I’m probably not supposed to say that because it will be interpreted that I’m biased.

Don’t worry, I’ll still criticize him if he doesn’t do a good job, and he’d better, because we need more than anything right now for a good job to be done.

That would be something we could all be thankful for.

Happy holidays.

Brian

There's a new index to kick us around

There’s a new index in town. It’s called  the Global Dow.

Now we have something else to watch go down, I guess.

The index launched Tuesday and contains 150 stocks, rather than the 30 its cousin, the Dow Jones Industrial Average contains.

And rather than strictly U.S. companies, the Global Dow reflects stocks from around the world, as its name implies.

It includes Russian oil and gas giant Gazprom OAO, Spanish bank Banco Santander and Chinese solar firm Suntech Power holdings.

Of course, some U.S. stocks on the tradition Dow like United Technologies Corp. (UTX) and Wal-Mart (WMT) are also on the Global Dow.

In introducing the new index, Wall Street Journal Managing Editor Robert Thomson said the Global Dow is a reflection of the increasingly interconnected world of commerce and finance.

"What's become very obvious, sometimes painfully obvious, is that the world has never been more coupled commercially and financially," Thomson said at a press conference.

He gave as examples the world's attention on China's recently announced $500 billion-plus economic stimulus package and the impact of tiny Iceland's financial collapse on the rest of the globe.

"Who would have thought a relatively small country would have so much impact," Thomson posited.

The geographic weightings are as follows: U.S., 42 percent; Europe, 32 percent; and Asia-Pacific, 21 percent. The rest is sprinkled among emerging markets.

Though the index gives a broad and unique measure of global growth and investing potential, the stocks in it have had a far-from-stellar year so far.

Taking the index back from Oct. 31 to the beginning of the year, it has lost 42 percent on a return basis, according to MarketWatch.

But back-tested five years, the Dow Global Index would have returned 17.8 percent, better than the returns of its close relatives, the DJ Wilshire Total Market Index and the S&P Global 100 — 15.4 percent and 13 percent, respectively.

Should I stay or should I go?

The markets continue their see-saw ride. Witness last week when the Dow closed down 411 points, then up 552 points and then down 337 points on Friday.

This isn't volatility. This is gut-wrenching, white-knuckle, roller-coaster-off-the-rails insanity.

With the markets in decline more than 40 percent since the highs of last October, many say it's too late to cut your losses and get in cash. It's best to ride this thing out.

They say you should even be buying — that stocks are at unprecedented lows and one can clean up and be sitting pretty three to five years from now.

I remain committed to doing nothing. I am still in stocks, but I am more poised to sell than buy.

I'd rather regret potential gains than realized losses.

Brian

Will Obama bring the bull or the bear?

President-Elect Barack Obama may have received an overwhelming endorsement from the voters, but Mr. Market is still undecided.

The two days following Obama’s election, the market posted a woeful sell-off of more than 900 points in the Dow. That was followed Friday by a decent gain of around 250 points in the Dow, but on light and unconvincing volume.

The jury’s still out on whether Obama, a Democrat, will cause stocks to rise or fall.

Conservatives fear his promises to raise taxes on the wealthy and intensify regulation may put a damper on any potential climb in the stock market.

But others hold faith in the fact that Obama has aggressively engaged financial experts — among them, former Federal Reserve Chairman Paul Volcker — to seek a solution to the current economic crisis.

Obama also has support from some heavy-hitters in the investment and business world, including Warren Buffet and Google CEO Eric Schmidt.

Only time will tell.

Maybe a peek at history holds a clue.

When former President Bill Clinton, another Democrat, entered the White House in 1993, the Dow was just at 3,300. Seven years later, it was at nearly 11,000 — an increase of more than 200 percent.

Ditto the Nasdaq, which rose from just under 700 to 3,900 during the same period.

Obviously, Obama has a tidal wave of obstacles to overcome before he can work the same magic.
General Motors (GM) has said it is nearly out of money, Goldman Sachs (GS) economists are predicting the worst unemployment since the end of World War II — 8.5 percent by the end of 2009 — and retailers are expecting anything but a jolly Christmas.

The hope that we could limp along for a period, relying on the growth of foreign and emerging markets to lift all boats, has also been dashed, as governments abroad are slashing their interest rates and racing to stave off their own recessions.

Headlines in the Wall Street Journal and other business publications read like obituaries, with companies laying off workers, postponing expansions and even heading to bankruptcy court.

Some are already beginning to question whether Obama’s enthusiasm and sense of urgency are enough to conquer this current landscape.

Of course, when things get this bad, some advise it’s time to buy.

But a roundup of hedge fund newsletters by MarketWatch this past week suggests there are still many who are hesitant to begin buying equities.

Some of those highlighted in the MarketWatch piece suggest it will be another couple of years before it’s truly safe to buy stocks.

One of those was Kyle Bass, managing partner of Hayman Advisors, who told investors in an Oct. 17 letter, to "be careful buying ANYTHING today."

According to the MarketWatch piece, Bass was also highly critical of a recent editorial in the New York Times from Warren Buffet suggesting that now is the time Americans should begin buying stocks. After all, Buffett wrote, that’s what he is doing.

"Mr. Buffett has enough money to be able to have his holdings drop 50 percent and still fly in his jets and live the way in which he has become accustomed," Bass wrote in his investor note. "Do you have enough capital to take what you have left, cut it in half, and continue to live the way you have for the past few years? I don’t."

I still remain in stocks, though I fortunately cut my position in business consulting firm FTI Consulting (FCN) days before a lousy earnings forecast shaved 24 percent off the share price. FTI was a recent high-flyer and started looking shaky. I don’t want to take any chances the way things are going. This time my concern paid off.

Brian

Should you consider preferred stock?

You probably recall the recent great deal Warren Buffett got in preferred stock of General Electric (GE) and Goldman Sachs (GS), those shares netting him a dividend yield of 10 percent.

Of course, most of us aren’t Warren Buffett and won’t get that type of deal.

But there are still decent yields to be found in preferred stock.

There are risks, too, however.

The latest edition of Fortune magazine carries an article entitled, “Be Like Buffett? The Case for Preferred Stock.”

In it, Oppenheimer & Co. analyst Meredith Whitney says she likes preferred shares of strong financials like J.P Morgan Chase, Bank of America and Wells Fargo, even though she’s been bearish on financials overall.

Preferred shares in those “strong” financials have been yielding between 8 percent and 9 percent, according to the article.

Similar to bonds, preferred shares carry a commitment by the company to pay a certain amount of interest to shareholders.

However, preferred shareholders are next in line behind bondholders for payment, should a company encounter problems. Therein lies one of the risks.

Preferred shares can also be a bit of a hassle to research. Pour enough money into the preferred of a company that suddenly hits the skids and you may be left holding the bag with defaulted shares.

Also, preferred shares are often subject to more volatility than other fixed-income assets.

Even so, a May article in USA Today looking at preferred shares noted that the equities had returned a 7.4 percent annual rate of return since 1900. That was less than common stock returns of 10 percent, but better than the 6.4 percent earned by corporate bonds.

Bottom line: If nothing else, preferred shares can be a good diversifier for those looking for income yield.

And like every other investment class, there’s an exchange-traded fund, or ETF, that can give you preferred share exposure with little hassle.

The Fortune article notes iShares S&P U.S. Preferred Stock ETF (PFF).

Morningstar says the ETF is a good option for investors looking for extra fixed-income yield, as long as they are comfortable with more volatility.

A Morningstar analyst also suggests a strong stomach for exposure to financials, since 74 percent of the ETF’s holdings were in that sector as of September.

“Prior to July, iShares U.S. Preferred Stock ETF had held up considerably better than the common equity of financial stocks, but fears surrounding bank failures and a continued collapse of the mortgage market put even the security of structurally superior preferred shares in doubt,” the analyst wrote. “Although things have settled down quite a bit, this should serve as a reminder to any would be investor that there is still a decent amount of risk inherent in this ETF.”

Morningstar also mentions as preferred stock ETF options the PowerShares Financial Preferred Portfolio (PGF) and the PowerShares Preferred (PGX). The latter also has a high concentration in financials, about 70 percent.

If you want to check out individual preferred shares, QuantumOnline.com allows you to do so with free registration.

Send me your ideas

As always, I’m looking for your stock picks and ideas.
Please e-mail me at bneill@bradenton.com or post a comment here.

Brian