All entertainers are occasionally
called upon to do their hallmark trick, song or story. For
magicians, it's sawing the lady in half. Wayne Newton? It's Danke
Shoen. And for the investment columnist, it's "give us your
favorite stocks to own and best stocks to avoid." Like the magician
and old Wayne, I'll bow to the crowd pleaser.
But I go forth a bit begrudgingly with
the gratuitous "Picks and Pans: 3 Stocks to Own and 3 Stocks to
Avoid in the Coming Quarter." I say begrudgingly because I
actually think these things can do more damage than good in the wrong
hands. I always implore readers to view advised stock picks with a
grain of salt. I'm all for writers presenting names of investment
ideas, as long as the reader takes the responsibility to determine the
attractiveness and suitability of those investments for their specific
situation. Additionally, allow me to state that I am neither long nor
short any of the following and in no way benefit from the rise or fall
of these stocks.
PICKS
Tyco (TYC)
Tyco's been battered by executive
scandal, SEC investigations, and now a self-inflicted charge against
earnings of between $265 million and $325 million in the current
quarter. They're a poster boy for how not to behave. So why own them?
In a word, "turnaround."
Tyco is a giant company, selling about
$40 billion worth a year. Their new CEO Ed Breen seems to be a
no-nonsense kind of guy with the passion and bravado necessary to turn
around a ship this big (he uses expressions like "heads are rolling"
and says things like, "Our goal this year is to get this thing cleaned
up and get rid of the crap." Love it...).
Its stock is down 80% from its peak,
and took a 12% spanking today alone. At current prices, it's trading
at a P/E of just 9. The company is projecting a 3-year growth rate of
25%, and analysts put its long term growth at 15%. Using either
figure, or any in between for that matter, you get a very cheap
valuation: PEG ratios between 0.6 and 0.3. In any case, it suggests a
bounce back.
News Corp (NWS)
I've always liked News Corp and Rupert
Murdoch. News Corp has assembled an impressive roster of assets and
includes some of the most valuable brands in the media business. The
Fox franchise of TV and Cable assets are white hot right now on the
back of the popularity of Fox News and the homerun hits on Fox, "Joe
Millionaire" and "American Idol." These nicely compliment name stay
brands like 20th Century Fox, TV Guide, and the New York Post. They
also have a stronghold in satellite.
It's down 63% from its high three years
ago, and only up $6 from its bottom ($18) last fall.
OAO Tatneft (TNT)
Tatneft is a Russian oil company that
trades quietly on the NYSE. You probably have never heard of it. But
Russia ranks third behind Saudi Arabia and Iraq in terms of oil
reserves, and some speculate that they have a lot more still
undiscovered.
This company will do well in the
short-term because Russia will take full advantage of oil supply
shortages and does not bow to OPEC pressure. Their stock has already
run up a bit in recognition of the benefits of a war in the Middle
East. But it can and should continue to do well in the coming weeks as
the price of oil continues to rise. However, once an end to the Iraqi
conflict is in sight, the stock should retreat. But the coming decade
will be one of greater prominence for Russian oil firms as they
continue to enhance productivity, attract Western investors, and
increase production. So this is a stock with a good short- and
long-term outlook, but weak intermediate term prospect.
PANS
SatCon Technology (SATC)
SatCon is a stock I owned and had high
hopes for. They want to bring electronic components to market for use
with alternative energy products, like fuel cells, as demand picks up
in coming years. In the meantime, they have been living off of revenue
generated by power electronics used in other devices, like cell
phones.
But it looks like they're running out
of rope, as the dip in wireless product demand may prove fatal for
SatCon. They've been scrambling to raise the cash flow to survive
quarter-to-quarter, but recently their auditor issued a statement
questioning the company's ability to continue as a "going concern."
Continental Airlines (CAL)
Take an industry that can't control it
labor cost because of unions, can't control its primary expense
because petroleum prices are so volatile, and can't control its sales
flow because of a limited framework for competition and the rising
dent terrorism puts in domestic travel. Gee, where I can buy some of
those companies?
United's bankrupt, AMR is getting
closer every day, and Continental may be right behind them. Rising
fuel costs in the coming quarter will continue to drive this stock
down.
Brightpoint Inc. (CELL)
I found about Brightpoint when
researching this column. One place I always look for "stocks to avoid"
is within a momentum screen. Specifically, I look for the stocks that
have shot up the most in the past six months. Why? Because the
tendency to "revert to the mean" is overwhelming for stocks that grow
too much, too fast. Enter Brightpoint.
Brightpoint is a distributor of mobile
phones and wireless accessories. Concerns about growth took the stock
from over $100 in 2000, to $1.14 a few months ago. But now it's up to
$12 from $2 in just four months. Too much, too fast. It doesn't mean
it's going back to $1, but I think it has a very good chance of
cooling off over the next three months, and the market will leave it
behind.
WHO
WE ARE
