I was heartened, recently, as an investing newsletter revealed its five top value picks. I’d written positively about four of the five over the past couple of years, illustrating that I have an eye for bargain stocks.
Alas, the piece was titled “5 Stocks That Are Cheaper Than They Were At The Market Bottom in 2009” – and I’d touted them before they hit those recent lows.
Such is the life of a columnist with a value-investing bias; you always have the phrase “catching a falling knife” at the ready when writing.
Looking back at 2011, however, I’m only really embarrassed about a couple of things, I’m happy about several more, and I still have faith in many more of my calls.
Worst first: I already expressed my chagrin at my Liquidation World recommendation, which produced an 88-per-cent loss in 40 days. A couple of other picks have also been spectacular misfires.
I recommended whiteboard maker Smart Technologies in April, believing the conventional wisdom about declining U.S. education spending to be too pessimistic. I still believe that, but the pessimists have the upper hand, as the stock is down nearly 60 per cent.
Lone Pine Resources, a Canadian energy spinoff from U.S. company Forest Oil, seemed to be suffering from a lack of investor attention when I recommended it in April. But when investors looked closely, they didn’t like it at all, sending it down more than 40 per cent.
And a June “buy” on retailing giant Best Buy has gone wrong, with the stock falling nearly 20 per cent. This pick is one I’d like to have back. I underestimated how much its customers – or ex-customers, to be precise – have come to dislike the store. The news story about Best Buy reneging this week on orders placed on Black Friday, leaving customers scrambling to replace pricey Christmas gifts, seems emblematic of a larger issue.
Moving on: I’m still mostly unapologetic about my frequent, and sometimes too-early, recommendations of U.S. financial companies. Some of the names, like PNC Financial, have recouped the losses that occurred in the weeks after my picks. One, U.S. Bancorp, has gained nearly 10 per cent since my late-September recommendation.
And then there’s Bank of America, which is down by nearly a third since the day it announced Warren Buffett had made an investment in the company. The key to Mr. Buffett’s deal is millions of stock warrants that will be worthless if B of A doesn’t recover and gain on its late-August price, so I still feel there was a good reason to see upside from that point. But the market clearly doesn’t believe B of A’s balance sheet is worth what the bank says it is.
Most of my better 2011 calls were stocks to avoid, rather than ones to buy.
I love picking on overhyped IPOs, and my negative calls on several high-profile debuts were generally successful. I believed Dunkin’ Brands would be overpriced on its first day of trading, and it’s down more than 10 per cent from there. Groupon, which I criticized twice, lost half its public value in the first weeks of trading before recovering slightly. Qihoo, a Chinese Web company, is down by nearly half since I expressed my doubts.
There are two ways to look at my skepticism of LinkedIn: I believed the shares overvalued at their IPO price of $32 (U.S.) to $35, so their current price of about $65 makes me look silly. But not as silly as those who bought them near their first day high of more than $122.
I also had a good year targeting high-flying cult growth stocks. Green Mountain Coffee Roasters is down by a quarter, just since late October, when I sided with a short-seller who believed the company was poised to fall. SodaStream is down more than 40 per cent since I described the share price as bubbly in late May. (Penny stock Jammin Java, also targeted in that piece, is down 86 per cent.) And Salesforce.com is down more than 15 per cent since I wrote about an analyst report that questioned the company’s accounting.
Meanwhile, I usually wait longer than seven weeks to declare a column a success, but Sun Life Financial is down nearly 30 per cent since Nov. 1, when I said its opacity made it “more risky than cheap.”
On the buy side: I’m still positive on DVD renter Coinstar, which has retreated to the levels of my April recommendation after gaining roughly 25 per cent during the year. Double-digit winners include Cogeco Cable, up as investors seem to be moving past its Portuguese troubles, and Lions Gate Entertainment, where investors are warming to the Hunger Games potential.
The single best “buy” call I made, I figure, was a March column in which I swallowed hard at American Tower’s price-to-earnings ratio of 50 and focused on the cash flow instead. The stock is up more than 20 per cent since then.
It’s an ironic winner for a value guy – but symptomatic of the choppy year that was 2011.
Special to The Globe and Mail