Stocks 

Stock Commentary

• Toyota: predicted huge share gains due to hybrid vehicles. While not as many hybrids have been launched, stock did well, up 19.1%
• Wipro: Indian software company. 3:1 split, up 60%
• Intel: expected the Wintel Monopoly to continue. It didn’t. CPU speeds did not increase notably this year; no reason to upgrade. Down 26.6%
• Microsoft. Expected them to skyrocket. It didn’t; up 9.2%, but nice fat dividend.
• Intuit. Predicted them to gain in home loan space. But, in the end, they are a cyclical company like H&R block. Down 16.7%
• Adobe. Predicted big success for them this year as DSL, better computers, and digital cameras would drive imaging software. Stock up 60.5%
• Sina Net: Predicted huge growth in China. Had some bright spots, but ended down 5.0%.
• Yahoo: predicted it would double; it split and did, up 67% for the year
• Total performance: up 15.4%, ahead of the Dow (3.1%), S&P 500 (9%), and Nasdaq (8.6%).

Howard Dean
We all thought he’d be the front runner and maybe next president. Too bad he was eviscerated by the press and thrown out for showing too much emotion. Yet we can forgive Presidents for having an affair(s). 
But the Howard Dean Scream is pretty funny...

Sports
Hat’s off to Brian Fitzgerald for picking the Patriots and the Red Sox for 2004. 

Environment
Again, great prediction from Brian Fitzgerald “2004 will be a bad year for natural disasters due to an imbalanced climate.”

Entertainment
Spot-on prediction from Dave Lundell: “By the end of the year, the $10 movie is the rule, in all major cities and large suburbs. Viewers will watch an average of 3 commercials before the previews start.” Well, maybe not the commercials, but it is ten bucks.

Success Stories

• Starbucks (SBUX). This company is unstoppable. Coffee is a legalized drug and it doesn’t cause carb weight gain (like Krispy Kreme and Twinkies-which filed for bankruptcy this year). This makes demand immune to price increase. Plus, their “in-store” franchising opportunities are simply genius. Existing stores PAY starbucks for the right to franchise; they buy all the equipment and supplies, give up their own floor space AND do the hiring and training. Essentially this is pure gravy money for Starbucks. Stock ended up 88% this year.
• Boswell Farming (BWEL.PK). Very little known farming company in central California. They own massive amounts of land which, you guessed it, is being sold off for housing. Stock up 96%.
• Overstock (OSTK).Online retail liquidator seems to have found the sweet spot. Stock up an incredible 247%
• Apple (AAPL) Wow, that Ipod is the bomb. They out-Walkman-ed Sony. Licensing it to HP was genius as well, helping to create perception that Ipod is PC-combatible. Stock up 201%

Predictions for 2005 

STOCKS

Ask Jeeves - ASKJ. Yeah yeah, another gimmicky search engine. However, it’s a lot more human friendly than google or yahoo, if you ask me. Ask Jeeves is to search engines what Apple is to the desktop; a lot more intuitive. Though Ask Jeeves hasn’t really evolved their natural language interface (choosing instead to focus on sponsored links via google), there is a valuable asset there with the interface. Yahoo would be a natural fit as a company to acquire them; the new tagline: “search made simpler”.
Stock prediction: 50% gain if there are rumors of a favorable buyout. If not, they will loose at least 25% of their value as analyst worry too much about their reliance on google’s ad words for their revenue stream. 

Google - GOOG. Google is on fire. Buy the stock? Despite it’s founders whimsy which creates uncertainty in the stock’s performance, this stock HAS to and WILL take off, even more than it has in 2004. It will go up at least 50% this year. Short term, it will eat away at Yahoo share. Long term, it will be the only place people will go to research ANYTHING. Their announcement, to start scanning out of print books from the world’s leading libraries, is GENIUS. As they curry favor with the world’s most sacred libraries, they will be given unprecedented access to do more. While expensive, in the long term, Google will be the only place where students will go to get information for their term papers, and if Yahoo doesn’t react, the only place people will search.
Stock prediction: up at least 50% by year end.

Ebay - EBAY. Perhaps the luckiest company in the world. They created the marketplace. But will they continue to grow at such a rapid rate?  No way will ebay match the growth of last year. They are too focused on their treasured individual seller marketplace and too leery of creating a real marketplace for NEW products. Plus, consistent/reliable revenue increases are what drive the company (to avoid instability in the stock price). This means innovation is less important than measured growth. BORING. This being said, there must be hundreds of really bright employees feeding ideas that will become Ebay spin offs from either it’s internal R&D dept or from their founder, http://www.omidyar.net/.
Stock prediction: up 20% by year end. 

Yahoo - YHOO. Being rightfully accused of being too conservative and “me too”. I am worried that the company is too big and diversified without enough focus on where to be #1 or innovation. That said, Yahoo is full of a lot of smart people and there will be some changes in the next 3 quarters. And, unlike Ebay, because so diversified, can afford to innovate without threatening stock performance. What Yahoo should do is leverage their “fun/trust” and “ease of use” by cobranding other services, as they did with SBC. Imagine Yahoo Loans (partner with Intuit or Lending Tree),  Yahoo Insurance (Geico), Yahoo Movie Tickets (Fandango), Yahoo Movie Rental (Netflix or Block Buster), maybe even Yahoo Shopping using Yahoo Wallet, one way to buy from anyone.
Stock prediction, huge correction in Q2, down to the high 20’s, but will be up 30% by year end. 

Amazon - AMZN. What a cool company. In addition to doing a simply outstanding job of merchandising products online, and carrying essentially everything, Amzn’s continued investment and deployment of web services make them a durable and viable long term entity, and the place to buy anything new. For instance, how did they strike the coup to handle most of the red cross’s transactions for the Tsunami? Why didn’t Yahoo do the same as soon as Amazon did with its’ yahoo store platform? On the downside, not sure where they are going with their expensive A9 initiative (web product search), and their stock has suffered in 2004 (down nearly 16%). Also their user interface is getting complicated, meaning they are just adding functionality but not sure why. I think they need to simplify, regardless, Amazon is the one place to buy anything (that’s new). Maybe they should spend less money on R&D and more on marketing. Perhaps a good stock buy entering 2005.
Stock prediction: up 25% by year end. 

Walmart - WMT. Their online business is growning rapidly and now are in third place behind eBay and Amazon. The online business makes Walmart’s killer pricing more accessible to people who wouldn’t necessarily shop there. Expect online business to continue to climb, focusing on  higher end products while also entering the Costco space based on volume. As stated earlier, expect their Market Cap to exceed GE by 2009.
Stock prediction: has a lot of inertia. Be pleased with a 10% increase by year end. 

Sears and KMART - S. The best thing about these companies is Land’s End and Craftsmen tools. The rest is garbage; Martha Stewart can’t reinvent herself enough to save her kmart brand. But Land’s End and Craftsmen are like LL Bean and Jiffy Lube—are these the same buyers? The common ground is Kenmore appliances. In my opinion Sears is the stronger brand (yet Kmart bought them…) They need to do some serious reinvention to compete with Walmart and Target.
Stock prediction: stock eekes out modest gains; in an ironic twist, Sears will lease out it’s property to new Walmart and Target stores and make most of their net new revenues on the real estate they own. Up 5%.

Texas Instruments - TXN. These guys are the main chip supplier for a lot of Consumer Electronics, esp cell phones and DLP televisions. Stock didn't do so well last year, but sales growth this year may make it attractive. View the last analyst presentation here.
Stock prediction: up 25%.

ATHLETICS 

• Steroids. Steroids in baseball will somehow manage to slip back out of the headlines. The only thing that will change perception will be if Barry Bonds gets critically sick and disfigured, as happened to Lyle Alzado many years ago. If this happens, Bonds will make a public statement indicting steroids as dangerous and usage will finally become “uncool”. In the meantime, “the cream” and “the clear” will be copied and distributed by more companies and its’ use will spread to more sports.
• Kobe Bryant. I really don’t care about Basketball, but is that guy the biggest A-hole in history? He’s going to get sucker punched by either another player, coach, his wife, or fan. And there is no way the Lakers are going to win the NBA finals this year.
• Michael Vick. Famous quarterback for the Atlanta Falcons; I think he has a $100 million contract. He's a novelty because he's very good at running the ball and does so often. Guess what-quarterbacks are supposed to throw; when you run you can get hurt. He spent all of last year on the bench with a broken leg because of that. Cordell Stewart was the same kind of QB back in the day; he ended up loosing his foot speed and his passing was never that great, so he ended up an also-ran. Same will happen to Vick.
  Speaking of football, I still think the coolest players are Vinny Testaverde (turns 41 years old this year), Chris Chandler (39), Doug Flutie (will be 43), and Gary Anderson (46!). These old farts are still playing pro ball. That's inspirational.
• Cycling. Lance will attempt the Giro but do poorly. Pissed off, he will come back and place 2^nd in the Tour de France behind Vinokourov. He will then retire and spend the rest of his life making motivational speeches and following Sheryl Crowe around. They will release a horrific duet that fails to sell. Sadly, Floyd Landis will not race because Phonak won’t be granted a license.
  Tyler Hamilton will be vindicated. However, due to stress and inability to focus on training, he will never return to the potential he had this year and will fade away as the gritty nice guy who waited to long to make his mark.

TECHNOLOGY In a word, the PC is now stabilized. Sophisticated home electronics are where the growth is. One thing I am really pleased with-the computer I bought last year, with a 2.8 pentium is STILL FAST. And I don’t need to upgrade it! What a relief. However, though computers are a $1000 upgrade, we’re switching our upgrade-aholicism to Televisions which will cost $3-5,000! 

What matters this year:

• HDTV/Big screen TVs
• Digital Cameras (still)
• On demand radio
• PDAs
• Cell Phone SERVICE
• Cost of Cable

HDTV. This is bizarre to me; the government is regulating the switch to digitial TV by the end of 2006. While utilities may need government backing to “make it happen”, it also seems like a government-sponsored event to stimulate world economies. Think about it-there is already a growing concern that your existing TV is “outdated” and “won’t be compatible”. This means: buy a new TV (from mostly international companies), pay more (now) for HDTV programming (from US cable/satellite companies), allow us to track usage (Cable CARD). Then, when the switch happens, pay more to have your “old” TV backward compatible and, likely, pay more for premium HDTV channels. Money is going to be spent on televisions as never before. Further, just think of the waste this will create; what will people do with old tube and projection screen tvs that are not HDTV compatible? To that end, as of 1/1/05, California adopted recycling fees for old TVs which are payable when you buy your new set.

The ensuing frenzy-what to buy-has helped to revolutionize the TV industry with LCD and DLP alternatives to Plasma. But do we really need that much sophistication from the boob tube? Do we need to see and hear contestants eating meal worms on Survivor in that much detail? There will be a backlash from older generations who will simply get new antennas to once again receive 5 main channels.

The “HDTV switch” is the next most impactful event of the technology age after the announcement of Windows ’95 and the introduction of the Ford Model T. (In my opinion, the launch of Windows ’95 was perhaps the most far reaching, simultaneous, and important technological innovation of the modern era. No other event required so much planning/budgeting from companies and individuals than the launch of Windows ’95; everyone had to budget for more expensive computers and software applications to be Win ’95 compatible).

On demand radio/Satellite Radio.  I am amazed that Sirius and XM still exist and that the format seems to be growing. It’s phenomenal how it’s installed on so many new cars these days, complete with the goofy antennae. Sirius’ exclusive contract with Howard Stern is the biggest reason it’s a contender at all. This is a case in point for content being king.

The killer app for customizable radio programming is still to come; Tivo for the radio. It will be a device that allows the user to program from books on tape (www.audible.com), NPR, satellite and local stations, combined with stored MP3 files. You’ll be able to fast forward, rewind, and pause stories so you can listen to Terry Gross on the way to work. The device is essentially a giant hard drive with ability to upload/download via satellite to a web server, and of course, will have a web-based interface for primary functionality and ability to stream through the household.
Apple has a huge opportunity to be the market maker with the IPOD, leading the way in “add on” features either through their own investment of through licensing. “Ipod compatibility” and ease of use make it the natural contender for this device. Imagine Apple further leveraging the Ipod name, as Dolby did. Unfortunately, Apple’s stock price is already too high, but they are going to be one of the main companies to watch in 2005.

Speaking of radio, it is amazing to me that there isn’t CNN for the radio; news and financial info (esp in the morning), available round the clock.

Digital Cameras. Digital Cameras are complicated. Hat’s off to Kodak for making it a lot more simple. The quality and ease of use of their new products is very impressive. Expect them to take big share this year. Their stock will do well, especially as they get deeper into the home imaging (printing) business. Watch out HP. Long shot prediction: Kodak buys Xerox to jump start their printer business.
Stock prediction: Kodak up 30% this year. 

PDAs. Will go the way of the dinosaur. PDAs will need to integrate cell phone and email capability a la RIM and Treo 600/650. The rest are dead. PalmOne needs to let go of the PDA and focus on the integrated solution. RIM products are still too hard to buy for the non business user. One of these companies, one will buy Danger, makers of the HipTop.
Stocks: PalmOne (PLMO), despite their cash cow with the Treo 650, will struggle all year trying to rebrand themselves (dumb) and continue to push their PDAs. They may pull it out by year end. If they have a massive correction but still continue to innovate with the PDA/phone combos, they might be a good buy.

Cell Phones. Cell phone purchases will grow with the PDA convergence. But innovation otherwise will tail off; bells and whistles (text messaging, camera, ringtones, are all “tired”). Only thing left to innovate is faster download speeds to cell phones and improved UI for email use. The real story will be the consolidation of cell providers and the subsequent increase in price and decrease in quality service. Unexcusable! One bright spot: Sprint and Nextel. Together they’ll combine excellent availability (Sprint) with walkie-talkie featues (Nextel) that enable them to enter more markets together.

Stock pick: Sprint (FON). Up 25%.

Cable TV. Good lord it’s getting expensive. We’re paying 80$/month for cable. That’s outrageous; for comparison we’ve got 2 cell phones with unlimited minutes for the same rate. A few years ago, cell would have been at least twice that. With consolidation, HDTV coming up, and because Satellite is, frankly, complicated and not that much cheaper, cable prices will continue to escalate. AT&T was dumb to sell COX to Comcast. 

EVERYTHING ELSE

• Man to Watch: Jeb Bush. As the lead in the Tsunami relief effort, he will make a name for himself. Despite possible shenanigans getting his brother elected, his honest and heartfelt remorse about his daughters chemical dependency and experience with natural disasters (Florida hurricanes) will spin him as a republican Jimmy Carter. No foolin!
• Television Programming. Mainstream Network Television sucks. As Fitz said last year, expect the return of the sitcom. Also, there will be the reintroduction of the “variety show”, already seen in its’ bizarre hybridization with reality TV in the Jessica Simpson/Ozzy Osbourne/Anna Nicole disasters that air now. Mad TV will surpass Saturday Night Live in ratings. There will be a new version of All in the Family with a bigoted hero having problems with Muslims, a transgendered character, and a kid who participates in Extreme sports.
• Religion and Self Help. Religion and Self Help will metamorphize into a made-for-tv, instant-gratification miracle salve, combining the likes of Dr. Phil and Tony Robbins with the “heartfelt” preaching of Pat Robertson. There will be at least 3 new religion channels on Cable.
• Automobiles. Ford’s Mustang is the real car of the year. Affordable, exciting, retro, just damn cool. What else can you get for $25k that is so appealing to so many people? Ford just might eek out some decent gains this year with the Mustang and innovate Freestyle, ever popular F-150, hybrid Escape, cash cow Explorer, and exciting Mazda/Land Rover/Volvo offerings. Stock prediction: Ford up 25%
  
  Cadillac-though it won’t really help GM, Cadillac has some cars to watch this year. The XLR convertible is simply stunning and the CTS/CTS-V and SRX will be real competition for BMW. The Escalade will continue to be their cash cow.
  
  The real story though is that there has never been a better time to buy a used car. Never before could you buy so much luxury and performance for so cheap. Used Audis and BMWs depreciate like rocks and offer much more for the money than new American cars.
• Tsunami. This event will bring the world closer together than ever before. Massive reinvestment in infrastructure will help catapult some of the affected regions into the modern day; cell infrastructure will replace landlines, more modern sanitation will be donated, and better construction techniques will be taught and learned. The initial slow response for donations will emerge as the single greatest world-wide call for humanitarian relief to date. But at least one non-profit will be indicted for unethical business practices (skimming off the top).
• Iraq. Who knows. Likely forces will be reduced with more efficient use of state of the art weaponry and more targeted troop presence for key areas/objectives. But the “war” will continue on well in to next year.

2005 Stock Picks