Halfway through their one-year commitment to a single stock, My One and Only stock-picking contestants are mostly smiling. But two of them are crying into their BlackBerrys.
Ten of the 13 financial experts in our annual stock-picking contest have seen their picks rise on a total-return basis (including dividends) in the first six months of the year – not bad considering the S&P/TSX composite index fell 3 per cent over the same period.
Leading the way is David Sherlock, portfolio manager at Calgary-based McLean & Partners Wealth Management Ltd., whose pick of Texas petroleum refiner HollyFrontier Corp. generated a six-month total return of 57 per cent. His pick benefited from a pair of 50-cents-a-share special dividends in March and June, as well as two share buyback programs since Januray.
“This is probably what’s really gotten the stock moving,” Mr. Sherlock said.
It also helped that a glut of West Texas intermediate (WTI) oil at the major oil transportation hub of Cushing, Okla., has been pushing down WTI prices, at the same time as the price of imported Brent crude has risen on geopolitical concerns. HollyFrontiers’ location in the middle of the United States means the refinery mostly processes WTI, so “they’re not subject to the pressures of Brent pricing like some of the Eastern-based or Gulf Coast-based refiners,” Mr. Sherlock said.
The fall of Canada’s struggling tech giant Research In Motion Ltd. has dragged two of our contestants down with it. Sienna Capital Management Inc. president Malvin Spooner and AlphaNorth Asset Management president Steven Palmer both gambled that RIM would turn things around this year – and lost nearly half their (hypothetical) money in six months.
“It was a contrarian pick and obviously it hasn’t worked out,” Mr. Palmer said. “Almost everything that could have gone wrong has gone wrong.”
The annual My One and Only contest follows the picks of some of the smartest investment and personal finance professionals in Canada over the course of one year. At the end of 2011, each contestant picked one stock, income trust, American depositary receipt or exchange-traded fund traded on a major exchange in Canada or the United States. The minimum market capitalization for Canadian securities was $100-million, and for U.S. picks it was $1-billion (U.S.).
“One and only” implies the contestants are wedded to their stocks for the duration of the year. For contest observers, it’s entertaining to watch where this year-long commitment will take some of the best investing minds in the country. The prize? Eternal bragging rights.
But keep in mind that this contest encourages potentially risky picks that have the best potential for big returns – playing it safe may be a sound investing strategy, but safe stocks have little chance of being runaway gainers that typically win our contest. The RIM case is evidence that even for savvy investing professionals, trying to pick one big winner is a dangerous proposition.
The contest rules also highlight the potential danger of holding onto a winning investment for too long.
For instance, HollyFrontier is nearing Mr. Sherlock’s target price of $39 (U.S.), and he thinks it will probably get there before August. At that point, he said, he would cash out if he had actually purchased the stock (he didn’t). Under the contest, though, he’s stuck to the end of the year with a pick that may be running out of upside.
This most recent quarter saw our first-quarter leader, financial author Gail Bebee, knocked from her perch. Her pick, auto parts manufacturer Magna International Inc., slipped to third place despite the company’s announcement in May of a new contract to assemble Nissan Infiniti vehicles in Europe.
“It went down with the market,” Ms. Bebee said. “If the economy doesn’t go down the drain, I think it should do okay for the rest of the year.”
Auto sales in the United States and Canada have picked up over 2012, but sales in Europe are a different story. Ford Motor Co., one of Magna’s customers, recently warned of deepening operating losses in the second quarter, citing slumping sales in Europe, Asia and South America.
Ms. Bebee, who holds Magna stock in her real-world portfolio, said Magna’s international presence was a reason she chose the stock, although she admits right now “Europe is a question mark.”
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