2010 Prognostications

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2009 Stock Pick Recap

How did the 2009 picks do?
"2009 will be a year of getting back to the basics. People will be spending more time with comfort foods and basics -- Campbell Soup, Procter & Gamble, and Walmart."
- Only Campbell Soup was up of those. Every time I've chosen Walmart in these annual picks, it disappoints. Guess they can't grow or cut cost much more.

"Poorer people will also spend more on cheap luxuries like cigarettes and candy (PM, MO, TR)."
Bingo! 6-21% gains. The "tootsie roll theory" is proven once again.

"If The Gap merchandises effectively, they could gain back lost ground, especially since the demise of Mervyns. If gas prices stay low, aging baby boomers may turn to our own backyard and 'go RV'ing' (Winnebago)."
- These were the huge gainers with 49% and 93% YOY increases!

"Poorer people will also turn to cheap fast food; McDonalds will grow but to diversify, they will buy Chipotle."
- McDonalds didn't buy Chipotle but they both went up, esp Chipotle (+37.4%).

"For entertainment, folks will enjoy more "staycations" and family time so Nintendo and Hasbro may have some headroom for growth"
- Nintendo already had it's run up though Hasbro did all right.

"Finally, Yahoo and Google are ridiculously cheap right now. And the market will come up, hence the SPY choice.".
- Yep, all three were big winners.

Looks like these picks turned out pretty well with a nice 39% return overall, though the Nasdaq did virtually the same and QQQQ was up 48%! Should have bought QQQQ.

2009                    
Picks Ticker 1/2/2009 12/31/2009 2009%   Indices Ticker 1/2/2009 12/31/2009 2009%
Campbell Soup CPB 30.43 33.8 11.1%   NYSE ^NYA 5,915.73 7,184.96 21.46%
Walmart WMT 57.18 53.45 -6.5%   DJIA ^DJI 9,034.69 10,428.05 15.42%
Phillip Morris PM 44.12 48.19 9.2%   S&P 500 ^GSPC 931.80 1,126.42 20.89%
Altria Group MO 15.2 19.63 29.1%   Nasdaq ^IXIC 1,632.21 2,269.15 39.02%
Procter & Gamble PG 62.8 60.63 -3.5%     Total 17,514.43 21,008.58 19.95%
Gap, Inc GPS 14.07 20.95 48.9%            
Tootsie Roll TR 25.77 27.38 6.2%            
Winnebago WGO 6.32 12.2 93.0%            
Yahoo YHOO 12.85 16.78 30.6%            
Google GOOG 321.32 619.98 92.9%            
S&P index SPY 92.96 111.44 19.9%            
Chipolte Mex Grill CMG 64.14 88.16 37.4%            
McDonalds MCD 63.75 62.44 -2.1%            
Nintendo NTDOY.PK 48 29.82 -37.9%            
Hasbro HAS 29.6 32.06 8.3%            
Total 888.51 1236.91 39.21%            
    Avg return 24.42%            

Here's the historical performance of the "prognostication picks".

2008                    
Picks Ticker 1/2/2008 12/31/2008 2008%   Indices Ticker 1/2/2008 12/31/2008 2008%
AT & T T 41  $       28.50 -30.5%   NYSE ^NYA 7,753.95 5,757.05 -25.75%
Comcast CMCSA 17.7  $       16.88 -4.6%   DJIA ^DJI 10,717.50 8,776.39 -18.11%
Tootsie Roll TR 26.33  $       25.61 -2.7%   S&P 500 ^GSPC 1,248.29 903.25 -27.64%
Plantronics PLT 25.4  $       13.20 -48.0%   Nasdaq ^IXIC 2,205.32 1,577.03 -28.49%
Tata Motors TTM 19.45  $         4.45 -77.1%     Total 21,925.06 17,013.72 -22.40%
Electronic Arts ERTS 56.76  $       16.04 -71.7%            
Rainmaker RMKR 6.12  $         0.85 -86.1%            
Philips PHG 42.34  $       19.87 -53.1%            
Johnson Controls JCI 34.59  $       18.16 -47.5%            
Etrade ETFC 3.43  $         1.15 -66.5%            
Chinindia ETF FNI 27.37  $       11.60 -57.6%            
Makita MKTAY 41.95  $       22.18 -47.1%            
Total 342.44  $      178.49 -47.9%            
    Avg return -43.7%            
2007                    
Picks Ticker 12/29/2006 12/31/2007 2007%   Indices   12/29/2006 12/31/2007 2006%
Microsoft MSFT  $       29.86   $       35.60  19.2%   NYSE ^NYA  $  9,139.02   $  9,740.32  6.58%
Nintendo NTDOY.PK  $       32.50   $       74.05  127.8%   DJIA ^DJI  $12,463.15   $13,264.82  6.43%
Toyota TM  $     134.31   $     106.17  -21.0%   S&P 500 ^GSPC  $  1,418.30   $  1,468.36  3.53%
Google GOOG  $     460.48   $     691.48  50.2%   Nasdaq ^IXIC  $  2,415.29   $  2,652.28  9.81%
Yahoo YHOO  $       25.54   $       23.26  -8.9%     Total 25,435.76 27,125.78 6.64%
Cummins CMI  $       59.09   $     127.37  115.6%            
Caterpillar CAT  $       61.33   $       72.56  18.3%            
Dell DELL  $       25.06   $       24.51  -2.2%            
China ETF FXI  $     111.45   $     170.45  52.9%            
Korea ETF EWY  $       49.40   $       64.70  31.0%            
Brazil ETF EWZ  $       46.85   $       80.70  72.3%            
India ETF INP  $       52.45   $       97.79  86.4%            
Total  $  1,088.32   $  1,568.64  44.1%            
    Avg return 45.1%            
2006                    
Picks Ticker 12/30/2005 12/29/2006 2006%   Indices   12/30/2005 12/29/2006 2006%
Cisco  CSCO   $       17.12  27.33 60%   NYSE ^NYA 7,753.95 9,139.02 17.90%
Honda HMC  $       28.97  39.54 36%   DJIA ^DJI 10,717.50 12,463.15 16.30%
Infosys  INFY   $       40.43  54.56 35%   S&P 500 ^GSPC 1,248.29 1,418.30 13.60%
Toyota  TM   $     104.62  134.31 28%   Nasdaq ^IXIC 2,205.32 2,415.29 9.50%
Apple  AAPL   $       71.89  84.84 18%     Total 21,925.06 25,435.76 16.01%
Google GOOG  $     414.86  460.48 11%            
Walmart WMT  $       46.80  46.18 -1%            
Ford F  $         7.72  7.51 -3%            
Motorola  MOT   $       22.56  20.56 -9%            
Yahoo YHOO  $       39.18  25.54 -35%            
Total  $     794.15   $     900.85  13.4%            
    Avg return 22.6%            
2005                    
Picks   12/31/2004 12/30/2005 Return   Indices Ticker 12/31/2003 12/31/2004 Change
AAPL AAPL  $       32.20   $       71.89  123.3%   NYSE ^NYA 7,250.06 7,753.95 6.95%
Google GOOG  $     192.79   $     414.86  115.2%   Dow Jones ^DJI 10,783.01 10,717.50 -0.61%
Texas Instruments  TXN  $       24.62   $       32.07  30.3%   S&P500 ^GSPC 1,211.92 1,248.29 3.00%
Amazon AMZN  $       44.29   $       47.15  6.5%   NASDAQ ^IXIC 2,175.44 2,205.32 1.37%
Ask Jeeves ASKJ  $       26.75   $       28.31  5.8%     Total 21,420.43 21,925.06 2.36%
Yahoo YHOO  $       37.68   $       39.18  4.0%            
PalmOne PLMO  $       31.55   $       31.80  0.8%            
Starbucks SBUX  $       31.18   $       30.01  -3.8%            
Sprint FON  $       24.85   $       22.82  -8.2%            
Walmart WMT  $       52.82   $       46.80  -11.4%            
Sears S  $       51.03   $       43.86  -14.1%            
Research in Motion RIMM  $       82.42   $       66.01  -19.9%            
Ebay EBAY  $       58.17   $       43.22  -25.7%            
Kodak EK  $       32.25   $       23.40  -27.4%            
Ford FORD  $       14.64   $         7.72  -47.3%            
Total  $     737.24   $     949.10  155.6%            
    Avg return 8.5%            
2004                    
Picks Ticker 12/31/2003 12/31/2004 Change   Indices Ticker 12/31/2003 12/31/2004 Change
Toyota TM 68.75 81.87 19.1%   NYSE ^NYA 6,464.00 7,250.06 12.16%
Wipro WIT 15.4 24.65 60.1%   Dow Jones ^DJI 10,453.92 10,783.01 3.15%
Intel INTC 31.85 23.39 -26.6%   S&P500 ^GSPC 1,111.92 1,211.92 8.99%
Microsoft MSFT 24.48 26.72 9.2%   NASDAQ ^IXIC 2,003.37 2,175.44 8.59%
Inuit INTU 52.86 44.01 -16.7%     Total 20,033.21 21,420.43 6.92%
Adobe ADBE 39.08 62.74 60.5%            
Sina.com SINA 33.75 32.06 -5.0%            
Yahoo YHOO 22.51 37.68 67.4%            
Total 288.68 333.12 15.4%            
    Avg return 6.4%            

2010 Predictions

2010 will see the '09 trend of savings and reflection continue to mainstream. The shock of the economic downturn has left lasting impressions; look around and you'll see it's still tough to find a new job. Folks will continue to be more frugal and relatively more time will be spent with friends and family. Luckily, the latest technology products have gotten less expensive; flat panel TVs are 50% cheaper than a year ago, there is no overwhelming need to upgrade your computer, and the biggest expense is a new smart phone which should be less than $300.

Unfortunately, the "new black" of technology hasn't yet materialized so there isn't really a tech growth story. Verbatim from last year:
" The economy will flounder. "The Internet" will search for new killer apps but fail to monetize them; Green technologies will continue to be elusive and widely accessible solutions will not be realized for years to come."
Rinse & Repeat for 2010.

"Feeling Connected" accelerates. It's remarkable how you can recognize this new life style in a visit your local Starbucks; "barristas" (don't you love that upsell nomenclature?) craft (take your order) for a seemingly customized caffeinated beverage of your choice. Meanwhile, the patronage is multi-tasking on an iPhone or equivalent, speaking, texting, emailing, checking Facebook updates, or just trying to turn the damn thing on. It's an ironic clash of being social (on the iPhone) while being an anti-social a-hole while you're being served. I just can't grasp it. Perhaps in 2010, the new social "thing" will to be being actually polite to strangers. But I seriously doubt it. The more important realization is while Facebook is being praised as the next Yahoo, it should be seen as just another social channel. I think there is a deeper need to feel connected and people crave it.

Automotive. Kudos to Ford for kicking ass; their stock went up 560% in 2009. But they've done it with terrific innovation and styling. The reborn Mustang retains it's early styling roots while modernizing much better than the thirsty and ponderous Dodge Charger and truly disappointing Chevy Camero. For 2010, Ford  now has a fleet of new and attractive models, including the Taurus, Fusion, Flex, and totally cool Fiesta and Transit mini-van. Too bad I didn't have the guts to by Ford stock in '09!
Honda has taken an unfortunate step backward with it's styling. The new Element has goes from cute to fugly with a squared-off profile; the Accord has ridiculous pokey headlights, the Insight is a blatant and uglier rip-off of the Toyota Prius, and the once gorgeous Acura TL now looks positively dorky. What a shame.
What's truly puzzling, though, is that there is yet to be a hybrid or diesel option for the mini-van segment from Toyota, Chrysler, or Honda. How obviously successful would that niche be?
With regard to fuel efficiency, it's great to see innovations in diesel and the increasing numbers of hybrid alternatives and how fast car companies are producing new models. However, methanol may be the largest and quickest to realize alternative to fossil fuels; can you imagine if we could grow gasoline? And while not as "green", it seems like more R&D should be put into maximized fuel economy and performance from methanol. Hybrids seem great but the big question mark: how do you dispose of the batteries?

Lance Armstrong.  Love him or hate him, Lance Armstrong is truly larger than life. He has an incredible ability to merchandise himself; those yellow livestrong bracelets? Around thirty million sold; where else in history have so many people commemorated an individual in such numbers? More recently, he's found Twitter. He's the first individual to really recognize and leverage the power that Twitter puts in the actor/artist/athlete's hand. While Twitter may help some mainstream folks feel more connected (not me), the real power of Twitter is in the hands of the famous. It provides a proactive and one way stream of communication from the "famous person". These folks, for the first time, are able to speak on their own behalf without filter. But I firmly believe Lance Armstrong was the first "famous person" to realize and leverage twitter. In fact, Lance has the 17th most followers, more than Al Gore, the New York Times, and even People magazine. Other sports figures have tried to emulate him, but none have been able to leverage it so successfully.
As a bike racer, Lance has been looking for a suitable rival to compete with, as he did against Jan Ullrich for many years. This is why he continues to stoke the fire against his former team mate and winner of the '09 TDF, Alberto Contador. The truth is, Contador is younger and likely a better pure cyclist than Lance. To win in 2010, Lance is working the mental game, nearly 1 year in advance, to try and dislodge his nemesis. Competing and winning is what Lance lives for.
Back to his ability to merchandise: Radio Shack is the teams new title sponsor. Want to bet that Radio Shack doesn't become a whole lot cooler this year? They'll figure out some way to merchandise Lance et all and Radio Shack will reinvent itself. Though helped by the announcement that Radio Shack would start selling the iPhone, since Lance's team sponsorship was announced, RSH stock has gone up ~40%.

Apple Grows. Wow, are they on fire? I finally bought an iPhone a few months ago. Buying it in the store was incredible; an exercise of efficiency and I happily accessorized on the spot; it was the best retail experience I've ever had. The iPhone itself is remarkable; it's incredible how they've made texting and emailing so easy. While some apps are truly amazing (and Google Maps pretty much eliminates the need to get a GPS), most of the thousands of apps are still a bit lite but that will evolve with time (Apple needs to make the AppStore a lot easier to use and find cool products though). But the real genius of the iPhone/iPod? They have made micropayments painless and easy. I'm finding myself spending $.99 for a song or $3.99 for an app with virtually no hesitation. It's the Gillette/printer cartridge business model all over again. The soon to be released Apple Tablet will be the next Apple revolution. More books will be downloaded from Amazon to it than their own Kindle. It will be a true internet appliance, able to operate iPhone apps in addition to full screen web browsing and email. The big question: what will be the default word processing and spreadsheet software? Microsoft Office or Google Docs?

Google Stumbles. Google is undoubtedly impressive. Their market cap is HUGE; at $197 billion, they are 4th in the US behind Exxon, Microsoft, and Walmart. But way ahead of IBM, AT&T, GE, and Cisco. But I believe they are starting to become too powerful and too diversified. It's unclear if their motives are really as altruistic as they claim "to share the world's knowledge" or is it really to "control the world's knowledge"? I believe they are getting distracted with too many initiatives. More importantly, how will they monetize their other efforts, especially Google Apps/Docs? Every great technology company that has experienced dramatic growth has stumbled and had to reinvent. IBM, Microsoft, Apple, and now Yahoo!. I think in the next 12-24 months, Google is going to hit some turbulence.

Online Education. Online education is the next iteration of "Internet making life easier". I'd never have thought that online personals would take off--but they have and are now fully mainstream. Getting a degree used to mean college application and entry and devoting 4+ years to the pursuit. But now you can get a degree online at much lower cost and with much greater flexibility. The lower cost, lower barrier for acceptance, and convenience are fast forwarding it's acceptance. Online education is simply the way things will evolve and the tide is picking up. I believe the largest challenge will be creating a reputation system for instructors and proving that an online degree is equal to a traditional one.

Robots! Longer term, and you read it here first, there will be a spark in robotics. Until now, robotics has been a focus of bleeding-edge nerdom, academia, and occasional corporate-sponsored forays. However, I think there is a real opportunity for earnest applications to help humans make their lives easier, especially for the disabled. There could and should be a focus to robotics that combines human need with physical automation.


2010 Stock Picks

So here are the 2010 stock picks:

  • APOL (Apollo Group/University of Phoenix), DV (DeVry Inc.), and ESI (ITT Educational services) to represent the online education segment. I can't tell which is the best bet so suggesting all three.
  • CMSCA (Comcast). There are two real telephony/cable monopolies: AT&T and Comcast. Comcast gets the nod for diversifying into controlling content (bought NBC from GE) as well as having a better network that is cable-based. AT&T has had exclusive distribution rights for the iPhone, but that's ending this year. Comcast is a smart company that continues to offer more and more features and their foray into controlling the content makes sense.
  • ETFC (Etrade). Totally risky bet. But could be the best gamble for doubling or tripling your investment. They are rumored to be for sale and they have the best online trading interface (blows away Schwab and Fidelity). Perhaps their installed base and UI will be attractive. Proceed with caution though.
  • CHL (China Mobile). This is the AT&T of China. Market cap close to Google's. And an incredible 83% gross margin. This seems like a great buy right now.
  • AAPL (Apple): Lord they are REALLY expensive right now. Buy on the dip and watch it climb.
  • YHOO (Yahoo!): The big housecleaning seems to be done and the company is getting focused. They will help enable new economic growth by being an ad platform to reach millions and they'll profit along the way.
  • ADM (Arthur-Daniels Midland): The largest supplier of corn (methanol) in the world.
  • RSH (RadioShack): The "lance effect" will help them reinvent and increase foot traffic and sales.
  • IRBT (iRobot): The company that brings you the "Roomba" automatic vacuum cleaner. If they diversify, they will be well positioned for growth.
2010                
Picks Ticker 12/31/2009 52wk Lo 52wk Hi P/E Ratio 1 yr target Target % %vs Hi
Apollo Group  APOL  $    60.58  $     52.79  $  90.00       16.32  $    83.53 38% 48.6%
DeVry Inc DV  $    56.73  $     38.19  $  64.69       22.45  $    63.89 13% 14.0%
ITT Educat Svcs ESI  $    95.96  $     85.00  $133.75       13.67  $   130.71 36% 39.4%
Comcast CMCSA  $    16.86  $     11.10  $  18.10       15.94  $    19.45 15% 7.4%
Etrade ETFC  $      1.76  $      0.59  $    2.90  N/A   $      1.88 7% 64.8%
China Mobile CHL  $    46.43  $     40.20  $  59.22  N/A   $    57.05 23% 27.5%
Apple AAPL  $   211.64  $     78.20  $213.95       33.51  $   235.24 11.2% 1.1%
Yahoo! YHOO  $    16.78  $     10.81  $  18.02     166.47  $    19.36 15% 7.4%
ADM ADM  $    31.31  $     23.13  $  33.00       17.64  $    35.45 13% 5.4%
Radio Shack RSH  $    19.50  $      6.47  $  20.57       12.82  $    20.82 7% 5.5%
Irobot IRBT  $    17.60  $      7.00  $  17.70     126.43  $    14.50 -18% 0.6%
Total  $   575.15        $   681.88 19%  

Good luck in 2010!

bull