Monday, December 31, 2007

2007 Performance/Results

Well, 2007 is in the books, and its time to see how we fared. The Nasdaq led US stocks with a 9.8% return. The Dow returned 6.4%, and the S&P returned 3.5%.

Last year at this time, I recommended 10 stocks for 2007, and cumulatively, they returned 20.77%. Not bad. The losses were due to weakness in banks and a bet of housing turning around that obviously didn't happen. Here are the results for each of those ten:

Apple (AAPL): Up 133.47%
Bank of America (BAC): Down 22.72%
Capital One Finance (COF): Down 38.48%
Chevron (CVX): Up 26.93%
Cemex (CX): Down 23.59%
Garmin (GRMN): Up 74.27%
Johnson and Johnson (JNJ): Up 1.06%
Lowe's (LOW): Down 27.38%
Suncor Energy (SU): Up 37.79%
Textron (TXT): Up 45.84%

Also, I have the results for my blog picks portfolio. It is fairly diverse, and isn't specifically weighted in any sector more than another. It is just stocks that I've written about over the course of the year. That returned 6.69% overall. Major gainers include: Apple, CNOOC, BHP Billiton, Chevron, Noble Drilling, and T Rowe Price. The biggest losers were: Granite City Food and Brewery, Amgen, and Capital One. I'll update each position's gain or loss, which is displayed on the right tab under stock portfolio/performance.

I've made a few picks for 2008, but will put together a list of ten to twelve names like last year, as well as track the overall portfolio and newly added energy picks portfolio.

Hope everyone has a profitable and prosperous 2008!

Sunday, December 30, 2007

2007 Recap/Look Ahead

2007 was a year of incredible volatility in the markets, and presented an environment where probably only the most experienced investors had highly profitable years. Combining the volatile swings in the market with the high level of panic in the media, it was a tough year to hold onto your core investments as an individual. The major indices will finish higher for the year, with financial stocks obviously being the biggest lag. The international growth story continued as the world's financial market is becoming more diverse, complex, and fluid. Lots of international investment poured into US equities, particularly in struggling banks and brokerages. In past decades, most would throw up a protectionist wall, but things have changed. Thanks to vast resources, countries now are producing the wealth to compete on a global scale economically. The rise of China as a world power continued, but we're also seeing great things out of countries like India and Brazil. I don't see any reason why this can't continue.

2008 will be similar year for stocks. The stumbling of the US economy has been highly documented, and in my opinion, somewhat overblown. Employment has been solid, as well as productivity. Our corporations are gaining new business because of these aforementioned growing economies. Interest rates are very cheap, which will continue to help balance sheets and corporate expansion. The housing market has been very difficult, but like any market, a correction was due. Banks took on a lot of risk because of their confidence in the financial markets. Some of this proved to be foolish, but people will always be looking for an edge. When markets fall, everyone is affected. Some banks have remained better capitalized than others, so there may be some consolidation in the industry if further turmoil arises. There is no great way to measure the value of CDO's and mortgage backed securities. Most analysts have assumed the worst, and that they are all worthless investments. There are some great values to be had in 2008 in financial companies.

Whether our policies on energy are right or not, they will continue under this regime. They are committed to subsidizing ethanol, and the boom in agricultural-related products will continue. This has caused undue inflation in my mind, but we'll see where it goes. Alternative energies are what the rest of the world is going to, and that is also where I want to be invested. Wind power, biofuels, and solar power will all be profitable. Elsewhere in energy, oil will still be profitable. I'd lean away from big oil as they may come under excess scrutiny and taxes if the US sees a major shift in next fall's elections. But oil services and offshore drillers will be immensely profitable.

Technology will continue to do well, but only in pockets. Companies that continue to innovate will always do well, in good markets or bad.

I will go into more detail about individual picks and their story, but here is the "first draft" of picks for 2008:

Noble Drilling Corp. (NE)
Manitowoc Corp. (MTW)
Potash Corp. (POT)
Credit Suisse (CS)
Morgan Stanley (MS)
Schlumberger (SLB)
Global Water ETF (CGW)
Agribusiness ETF (MOO)
Alternative Energy ETF (GEX)
SAP Software (SAP)
Cisco Systems (CSCO)
Apple (AAPL)
News Corp. (NWS/A)

Thursday, December 27, 2007

Looking for Opportunity/Update

The market is moving mostly lower on a day with some negative, but mostly non-significant data numbers. There continues to be a battle among the brokerages and banks, each downgrading each other and cutting price targets. This is an element that is interesting. Brokerages have to make recommendations on stocks, but what happens to their opinions on their own company or their direct competitors? It seems tough to believe what one says about the other, and the only brokerage people seems to be trusting right now is Goldman, as they were the only ones to profit from mortgage troubles.

The energy stocks I recommended are really taking off. Here are the results so far. This is only in one week!

None have dropped. Potash up 19%, Mosaic up 14%, Monsanto up 10%, Diamond Offshore 10%, Transocean 10%, Schlumberger 9%.

I think these names are getting overheated in terms of price. Their earnings are growing rapidly, but that is all getting priced into the stock. I'd wait for a pullback before stepping in.

Monday, December 24, 2007

Cash Infusions

In a time of year where most of us could use a cash infusion, Wall Street's biggest brokerages are all getting them. The interesting thing to me here is where the money is coming from. Sovereign wealth funds from overseas, particularly the Middle East and Asia. This is truly a testament to how strong the global financial system is, and how far we've come. Imagine this happening even five or ten years ago, let alone 40. There would have been public outcry and a protectionist wall thrown up. The same goes for those crying over the exporting of manufacturing jobs. It doesn't mean our economy is getting worse, its actually getting better. We are leaders in technology and skilled work, and the quality of our workforce is increasing. That is what will give us an edge in the future when more countries are on the same level as we are economically.

So as we head into 2008 and beyond, we need to embrace the rise of other economies, not shun them. As far as today's action goes, there are a few buyers out there, and little volume is allowing them to have an impact. Don't put to much into what happens today. I like the trend though.

By the way, the energy portfolio has exploded in the past few days, up 5.5% collectively in less than a week! I'd be careful on the agriculture stocks here, they are getting a little overheated. I'd wait for a little pullback to get in there.

Have a wonderful Christmas!

Thursday, December 20, 2007

Energy Issues for the Future

I've always been very interested in energy issues, and have been studying the current events and where we're headed in terms of energy. Energy is important for economic, political, and environmental issues. With the rise of new powerful economies, specifically China, the demand for sustainable energy is even more important. The U.S. has relied on oil rich countries in the Middle East and South America for oil simply because it was cheap and easy. Now it's neither. These countries have begun using their resources to gain power in the political realm. And who can blame them? The bottom line is that the U.S. has to now become the leader in new forms of energy.

There is a lot of debate to which type of energy is best. The current administration has been adamant about promoting ethanol. Mostly because we have the resources (specifically corn) to produce it. But they made an error in judgment here. Because we've subsidized these programs and have used the corn for ethanol, food prices are going through the roof. Look at the prices of milk, flour, almost any basic food staple. But as investors, we have to find out how to profit from this. This brings me to my first 2008 energy investment, agribusiness. Fertilizer companies are coming out best here. Mosaic (MOS), Potash (POT), Monsanto (MON), and others. Most of these stocks have increased already, but they will continue. I actually like an ETF to play this trend in case any specific company has trouble, I like to be diversified. Market Vector's Global Agribusiness. (MOO).

Now, on to the rest of the world. Most countries, aside from Brazil using sugar cane for ethanol, don't have the resources to look at this trend. They are investing in wind and solar power. I personally like wind the best. Europe and Canada are leading in this trend, but there are plenty of wind farms popping up in the U.S., in Texas, California, and Upper Midwest. It is a clean energy source that is completely renewable. The leaders in this technology are conglomerates. General Electric (GE), German's version Siemens(SI) is also there. I like the Danish company Vestas, but they don't trade via our stock exchange. In my region, Xcel energy (XEL) is a leader in wind implementation, and just came out with a plan to increase the level of activity. I'd invest in any of these, and to invest in Vestas, look at Market Vectors Global Alternative Energy ETF (GEX). It is heavily weighted with Vestas, as well as some solar companies.

Now I can't write about energy without talking about Oil. Its not going away anytime soon. I think that refiners and diversified companies will be under pressure from the government, especially with next fall's regime change. I could see lots of new taxes and requirements facing these companies. But oil is in big demand. So I like offshore drillers and oil service companies. I've talked a lot about drillers. Their earnings are exploding right now. Here's the three to look at. Transocean (RIG) just merged with Global Santa Fe to become leader in the industry. Lots of rigs in the Gulf of Mexico. Diamond Offshore (DO) and Noble (NE) are the other two. I've liked Noble better because they have more rigs in the Middle East and Asia than the others. Its also trading cheaper than the others. The next few years will be very profitable for these companies as their day rates are unbelievable and rising.

Also, the oil service companies that explore for new drilling areas, and provide technology for these drillers. I like Schlumberger (SLB) here. Also, Baker Hughes (BHI).

These are the trends that I see for energy heading into 2008 and beyond. There is a lot of money to be made investing here, and I'll be in on it. I'll make a new energy portfolio with each of these names, and will update the blog with its performance.


Disclosure: Author currently owns Noble (NE).

Wednesday, December 19, 2007

Market Moving as Expected

More issues in the financials, and today its Morgan Stanley. About what we expected. Took on too much risk, more write-downs etc. But isn't this what we wanted them to do? Aren't they supposed to be one of the few companies with a global reach and can get into markets no one else can? Obviously they could have chosen to go about things differently, but wasn't Goldman taking a big risk by shorting mortgage-backed securities? Goldman just happened to be right. These businesses have to take sizable risks, and unfortunately this time around, almost everyone got pinched. But they'll live to fight another day. Morgan Stanley is one of the best in terms of global reach within investment banking. If you're looking to buy a broker long term, I'd be in Morgan or Goldman.

With the bad news out, the markets breathe a sigh of relief, even if the news was bad. It is the fear of the unknown that drives markets lower, not the fear of the already known.

There will be more market turbulence because of how many people are convinced we're heading for a recession. This talk is helpful if you're a bull. But you have to be selective about what you're buying. So I'm saying buy specific sectors rather than an index.

I'm working on some ideas for where to invest in 2008, and those will be posted in the next week or two.

Tuesday, December 18, 2007

Cautious Optimism

Stocks are reaching a pretty attractive point. I'm not surprised to see the negative sentiment continue through the media. The media can be helpful, but most commentators give us a good idea of what not to believe. Lets face it, if they were really good at predicting trends in the market, they wouldn't be in the media, they would be managing money. If you look closely at the major brokerage projections for 2008 S&P results, the average is a gain of 13.11%. But no one wants to believe that.

Take a second to look at Ken Fisher's Market Minder column yesterday.




S&P projections courtesy of Bespoke Investment Group.

Friday, December 14, 2007

Negative Sentiment Aplenty

The inflation numbers came in higher than most expected. Inflation is one issue that has concerned me, because if it gets out of control, it will erode the consumers ability to spend. If the consumer stays strong though low unemployment and manageable inflation, the market should avoid recession. As far as other issues, I continue to think the credit crunch has been overblown. We're talking about assets that are very difficult to value, so everyone just assumes the worst and that they all went bad? I think this is why banks, Citi specifically, are agreeing to take on more of these loans. The same with the private equity groups. They are taking advantage of panic in the markets, and buying assets at incredible values. But at the same time, this doesn't necessarily mean that these banks are buys for you and me. There will be future uncertainty, and their stock prices could easily fall even more. But in the next few months, I think there will be tremendous opportunity.

Aside from that, there is just too much negative sentiment out right now to have a drastic effect. Major corrections and bear markets begin with euphoric sentiment, not cautious.

Thursday, December 13, 2007

Why Private Equity Will Win

Looking at the mess in the financial markets right now, I've been trying to come up with where the buying opportunities are at. Right now it seems all banks are just trying to get the "evil buzzwords" (sub-prime, CDO, etc) off their sheets. They will continue to unload all these assets at prices way below their worth. This is done because they have to answer to the public. Every move they make is being scrutinized. The banks are willing to do anything right now to alleviate the short term pain and fear investors have. Thats why the private equity firms are going to come out on top. Right now they are analyzing these assets and buying them at pennies on the dollar. Look at the deal Citadel got on Etrade's assets. Now I see Blackstone is putting together a fund to buy loans and CDOs. They've got the ability to recognize what is a value, and they are taking advantage of the fear in the market to lock in massive future profits. Is this making Blackstone (BX) a buy as we head into future market uncertainty? Time will tell, but right now, its beginning to look that way.

Here's the Bloomberg article from this morning.

Wednesday, December 12, 2007

Post-Fed Analysis

I applaud the Fed for their move yesterday, and not caving in to the people clamoring for a .50% cut. There is still too much information that needs to be seen. Many economic measures are holding up nicely, and there is no indication that we're set for a recession. Yes, there is a liquidity problem with the banks, but there are many other portions of our economy that are doing quite well.

Some notes on portfolio holdings:

Manitowoc (MTW): The crane company I've like for awhile. They guided earnings up significantly for both 2007 and 2008. Lots of positives for this company. The stock is up 9% this morning.

AT&T (T): Raised their outlook and share buyback yesterday. This company is clicking on all cylinders. Apple iphone is helping. This news also bodes well for a company like Cisco (CSCO), and stock I'll probably add on any weakness.

News Corp. (NWS/A). They are due to close on their deal with Dow Jones this week. I'm hoping for some weakness in the stock price due to that. Sometimes when a company acquires another, shareholders don't like it because it adds debt, which means less near term money for shareholders. But I like the long-term prospects for this company. They are building a brand that is now going to have a major business news presence.

Monday, December 10, 2007

Stay the Course

Stocks are rallying again this morning on the potential of a rate cut tomorrow. I'm not even sure if the market needs the cut. The question is what is going to happen when the Fed makes it clear that they're going to stop cutting rates? Is it like the rug is going to be pulled out? It shouldn't be. The market is strong enough on its own, and should be allowed to re-price itself based on the risks that exist.

I continue to like stocks with international exposure, but I wouldn't totally disregard US stocks. There will be some buying opportunities in US financial stocks, and I'm thinking that the time to buy those will probably be Q1 or Q2 2008. You can buy them now because a lot of downside has been taken out, but I think there will be a little more shakeup when they report year end 2007 numbers.

If you're inclined to buy a financial stock, I'd take a look at Credit Suisse (CS). If you're looking US, try none other than US Bankcorp (USB).

Friday, December 7, 2007

Friday Trading

The jobs report came in a little better than expected. This leaves uncertainty over next weeks potential rate cut. This is proof that our economy is much stronger right now than the media is trying to convince us. The reason this report could be taken negatively is because it could have taken a .50 point cut off the table. I still think the market is in rally mode. Too much negative sentiment and too little actual negative news.

I'm looking to buy on any rate-cut associated pull backs.

Wednesday, December 5, 2007

Strategy Continued

Being short term bullish continues to be the best strategy. The sentiment has been much to negative, and I've focused on that as factor for stocks to run higher. The Fed appears poised to cut rates again next week, although I'm not sure its necessary. Productivity stats continue to come in strong, showing the increasing efficiency of US businesses. The outlook does remain somewhat cloudy for the US, but what does this mean for stocks? The short answer is nothing. We've got to continue the strategy that has worked. Look for companies with revenues in growing overseas markets. Also, focus on strong brand names.

I see value in a company like Cisco (CSCO). They are tremendously positioned in international markets. Their outlook has been questionable because of a potential decrease in spending in US financial companies, and this has allowed the stock price to be beaten down. This gives investors an opportunity to buy a stock with good potential for a good price. The key is determining how much potential is there for a slowdown in US revenue. I see it as a positive risk/reward scenario based on current valuations.

The biggest risk in the US is not letting the market correct itself. There will probably be more pain ahead for a lot of banks, and there will be some buying opportunities. They are cheap now, but I think there will be more opportunity soon.

Brokerage projections for 2008 S&P results are almost all higher.

Monday, December 3, 2007

Interesting Diagram

In case anyone was questioning the demand for these cranes I've talked about, take a look at this diagram of skyscrapers under construction. Also look at how many are in Dubai. Wow.

View the diagram here.

Image courtesy of skyscraperpage.com

Market Opportunities

Here's a few items that I'm thinking about today:

1) I'm weighing the prospects between a fair amount of negative indicators vs. just plain negative sentiment. The key is determining what is a threat to the economy, and what is just perma-bear chatter. I like that the Fed is being more open with their opinions on the economy. I don't like their willingness to promote over-legislating. If the market needs a rate cut to keep liquidity manageable, then fine. But if its just to prop up the market because we're heading into an election year, then I don't like it. I don't like the talk of legislating to either re-negotiate or freeze rates on sub-prime mortgages. The banks made mistakes in issuing these loans, and people who couldn't afford them made mistakes of making these purchases. Both groups deserve the consequences. Most people don't get bailed out for making poor decisions, and this case should be no different.

2) Is the emerging market boom going to continue? Signs right now point to a normal correction, with further gains ahead. There is simply too much growth as these economies develop, and the markets have to keep up. But we can't overlook the effect that a US recession would have. That's what makes this a difficult call until we know more about the US situation.

3) I'm looking at Japan for an investment. I've covered this in a post or two earlier. If the Yen gains versus the Euro, then money will head back into Japan as investors who borrowed there will pay off their loans. Most stocks there are attractively valued, and would could be the next group to benefit. It is a good hedge against a reversal of the Yen carry trade. I would play this opportunity through an ETF, like I do with most international investments. Symbol here is EWJ.

4) Here's a couple of companies I'd like to establish a long position in, or add to a current position.

News Corp. (NWS-A) They are closing on the Dow Jones deal in December. Owning these publications will give them a big boost and will correlate with newly launched Fox Business Channel. I also love the prospects for myspace.com. Based on what facebook.com was paid for a portion of their business, myspace carries a huge future value for News Corp. I'd like to buy this stock under 20.00.

SAP Software. (SAP) I've discussed this company a fair amount here. I like their global reach, as well as their domestic business in Germany. I just feel there is so much business infrastructure growth that they will have to benefit. I also like their new strategy to work with mid-size businesses as well.

Manitowoc. (MTW). I currently own a small position in this crane manufacturer. They have a great reach into growing economies, particularly Dubai and India. They are a global leader in all types of cranes, and have a backlog way out for purchases. I'd like to pick up more shares if the market declines.

That's all for now. Have a great day!

Disclosure: Author owns shares of Manitowoc Corp.

Saturday, December 1, 2007

Some Weekend Reading

We've got a couple of interesting weeks ahead to close 2007. Here's a couple of good articles I've found for some weekend reading.

A great profile of the Citadel deal with Etrade. Courtesy of The Wall Street Journal.

An article about the government potentially freezing rates on certain subprime loans. Added regulation is not a good idea for the market. The market should be allowed to correct itself and re-price risk. Courtesy of The Wall Street Journal.

An article talking about sentiment, and what it means. I've talked at length about how negative sentiment is bullish. Courtesy of The Wall Street Journal.

An article about how to succeed in the future of business. A nice article from a good magazine. Courtesy of Portfolio Magazine.

And one crazy idea. Yikes! Courtesy of Reuters.