Sunday, June 29, 2008

Mid Year Checkup/Performance


Each January, I give a preview of upcoming trends that I see in the next year, and ten stocks or etf's that will benefit. Its time to check up on those picks. First lets look at the major market indexes. The Dow is down 14.46% YTD. The Nasdaq is down 12.69%. The S&P 500 is down 12.94%. My 2008 stock portfolio is down 2.23%. On a relative basis, this portfolio outperformed by about 10%. But losing money, even in a tough year, is not acceptable. Anyway, here is the roundup for each stock.

Claymore Global Water Fund (CGW): Down 9.58%
Credit Suisse (CS): Down 24.35%
Japan Index Fund ETF (EWJ): Down 6.25%
Market Vectors Alt. Energy (GEX): Down 13.95%
Manitowoc Corp. (MTW): Down 31.67%
Noble Corp. (NE): Up 13.77%
Potash Corp. (POT): Up 59.01%
Rio Tinto (RTP): Up 10.10%
SAP Software (SAP): Up 3.15%
Siemens (SI): Down 29.34%
Schlumberger (SLB): Up 6.24%
T Rowe Price (TROW): Down 3.96%

Some thoughts on the results: Well, oil, agriculture and materials have worked in 2008, and that helped the portfolio. The bad news is that not much else has worked. The markets are pushing bear market territory as we've pushed through the March lows. I think there will be more pain amongst financials and consumer related stocks. But I think there will be more prosperity with the other companies as well. The problem with calling oil a bubble is that its something people actually use. Emerging economies continue to need more and more. I agree there is some speculation in the price, but not that much. The only way I see oil dropping significantly is if the global economy really starts falling apart. And if that happens, it will be too late for lower oil to help the economy, so what's the use? To help the US economy and companies dependent on oil, we need reassurance that oil prices can stop accelerating, because its not so much the high oil, but the fear of higher oil thats causing people to panic. The US can help themselves here through demand destruction with alternative energies (hopefully helped by government implementation) and conserving energy (WHAT?) for a change. Yes, we too can conserve energy.

Moving forward, you have to look at companies in the middle of this changing landscape. Companies who are supplying those countries and people looking to grow(BRIC countries), or looking to rebuild new infrastructure (US, Western Europe). I still like oil as an investment. This should be played through an offshore driller or oil service company. Refiners are a big no! US gasoline use is dropping, and they are paying more and more for their oil. Oil will be harder to find, and those that can get it will be rewarded handsomely. Noble Corp. (NE) is still right in the middle of this. They have contacts with dayrates that are strong and rising. I also like National Oilwell Varco (NOV) who supplies cranes and equipment for these rigs. Although the stock is pricey, it could still advance from here.

In the alternative energy sector, there are lots of options, with more arriving daily. I'm not an investor in risky solar companies. Although solar is important, I'm bigger on wind right now. And to invest, let's look at suppliers of key components for wind turbines, not the turbines themselves. Here I like Swiss company ABB(ABB). To quote their interim CEO, "We are in the sweet spot of energy efficiency and of climate change." I chose Siemens to start the year, which operates in many of the same spaces. But Siemens is too bloated and problems sectors, much like GE, are pulling down the ones that are working. So go with ABB here. Here's a nice analysis of the company as well. I also like Quanta Services, who supplies the power grid for new solar and wind. (PWR). Its expensive, but they should perform well up ahead.

Looking to materials, I continue to like CVRD or RIO, as I call it. (RIO). The stock has been taken down by their talks of potentially buying a copper or aluminum producer. This is an important company in the growth of the world. Continuing down the line, steel has performed well, and I didn't catch that this January. ArcellorMittal (MT) is my top choice here. No question.

I don't like to talk about financials stock much, but I'll say a couple of things here. Banks are still in trouble. Investment banks are still in trouble. Credit card companies are overpriced. The only financial companies I'd buy are what I consider the "best of the best," and I still think we'll be able to buy them at lower prices. Those are Goldman Sachs (GS), American Express (AXP), and US Bank (USB). They each still have their issues, but when the sector comes out of this mess, these leaders will be even stronger.

I've made some money with Wyeth (WYE) the past few weeks. They had some good results with their Alzheimer's drug. The stock has a good group of drugs and consumer products. Its fairly cheap, and has a decent dividend. It won't blow the doors off, but not a bad place to keep your money right now.

I also like Nokia (NOK). They have a great global brand, and can get their cheaper phones into markets that others can't. They've gotten hit by "smart phone hype" but the numbers show that Nokia is still dominant. And its really cheap here.


Looking at the second half of the year, I think there will be more pain, but don't be surprised if the market moves higher. This week saw a lot of fund dumping stocks because its the end of the quarter. If things continue to get worse, we could see more downside, but the optimists usually win on Wall Street. I'll start a second portfolio to watch, with my original twelve picks, plus the ten more I mentioned today, and call it "the 2008 second half portfolio."

Disclosure: Long ABB, NE, WYE, NOK, RIO, MTW, CGW.

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