Good Call, Bad Call: Revisiting a Year’s Worth of Stock Picks
Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks. Today’s column takes a look at some of their calls this year.
Jim: Boy, am I in a great mood today, Michael. It’s the holiday season, the air is crisp outside, everyone’s in high spirits and--oh, yeah--it’s time to review how each of us fared picking stocks this year. Let’s just say I’ve been looking forward to this!
Mike: Are you finished? I can’t wait to wipe that smirk off your face. But first, I have to make a confession.
Jim: Already?
Mike: I plead guilty to having fought the tape . . . and the tape won.
Jim: A common mistake, my friend, but explain anyway.
Mike: There’s an expression on Wall Street that says you can’t fight the tape, meaning that if everybody is pushing stocks in one direction, you can’t, like King Canute, hold back the tide. You have to go with ‘em or get trampled.
Jim: Good thing Canute didn’t manage a growth fund, eh? Anyway, you’re talking about the surge of technology stocks, aren’t you? Or, should I say, a couple of Internet stocks?
Mike: Correct. But I am confident that the tape will, not long from now, come back my way.
Jim: Then you’ll look really clever.
Mike: Not yet, though. I guessed wrong on Lycos and Yahoo, to name two, and these companies have something in common. They don’t make anything.
Jim: But their prices keep going up anyway.
Mike: I know. These are stocks that have defied gravity. Back in May, I said don’t buy Lycos, and it’s up 65% since then.
Jim: And Yahoo?
Mike: I voted no on Yahoo in October, and it has doubled. And to anyone who would buy these stocks today, I would say the loony bin has an empty bed for you. This is just ridiculous.
Jim: No argument here. I’d sell those stocks immediately, take my money off the table and run away as fast as I could.
Now, before we go any further, we should remind our readers what we’re doing in this column.
Mike: And especially what we’re not doing.
Jim: Right. What we’re doing is introducing our readers to certain stocks and companies so they can take the information and make their own investment decisions. And have some fun along the way.
Mike: And even though we vote on certain stocks every week, we’re not proposing a model portfolio here. Nor are we telling anyone to short some stocks or unload all of his or her holdings if we say “don’t buy.”
Jim: We’re just providing some insight into the fundamental analysis of stocks.
Mike: And we don’t claim to be perfect. If we were, we wouldn’t be sitting here scratching out a living jawing with each other like this.
Jim: Yeah, we’re sort of the Great Expectations of the stock market, except instead of introducing singles to one another for a $2,000 fee, we introduce you to stocks for two bits.
Mike: And you get what you pay for.
Jim: So let’s move on. First, there were some stocks we both agreed on that, with all due modesty, came out exactly as we predicted. Does the name Iridium ring a bell?
Mike: Back in March we said this wireless phone system using a network of global satellites had failure written all over it, and sure enough, the company is now in bankruptcy proceedings and the stock is nearly worthless.
Jim: Another good pick was Applied Materials, the big maker of semiconductor-production equipment. We both recommended the stock in March, and I’m happy to say it’s doubled in price since then.
Mike: But we also walked off a cliff a few times, hand in hand, namely with financial stocks such as Washington Mutual and Bank of America, which we recommended. They’ve since taken a terrible hit.
Jim: That’s because the Federal Reserve has been nudging interest rates higher, raising the banks’ cost of doing business. Plus there’s a lack of investor interest in the financial sector, what with technology and other growth areas doing so much better.
Mike: So we made a mistake there. But for the long term, I still think we’ll be right.
Jim: I agree. Washington Mutual, for instance, is still a sound holding, in my view, for the long run.
Mike: Of course, as John Maynard Keynes once said: “In the long run, we are all dead.”
Jim: Yeah, and he was a famous investor and economist! Now, let’s get back to some stocks we both correctly called. We said avoid Mattel back in June, and sure enough, that stock is still going nowhere.
Mike: Except down. We said the mushrooming questions about the management skills of its chief executive, Jill Barad, would keep hurting the stock, and indeed it has since lost half its value.
On the other side of the coin, we both recommended buying some high-tech companies and were justly rewarded. Case in point: Apple Computer. More than a year ago we panned Apple, but then we revisited the stock in August, changed our minds and recommended it.
Jim: And it’s shot up 82% since then. We also agreed early in the year that CBS was a buy, and we were right.
Mike: That was basically a vote of confidence in CBS’ boss, Mel Karmazin, who’s obsessed with pushing up the company’s stock price. And he has: CBS is up 73% since we picked it.
Jim: At this point we should put these gains in perspective. Clearly high-tech and Internet stocks have powered the Nasdaq composite index to an astonishing 81% gain so far this year, which is pretty hard to match. Meanwhile, the bellwether Standard & Poor’s 500 index is up about 18%.
Mike: So many of our winners fall in the middle.
Jim: Correct. Now, I can’t wait to get to the winning stocks that I picked and you didn’t. But I’ll give you first crack to cite a few of my bad calls.
Mike: Fine, and I’ll give you one word: Vimpelcom.
Jim: I knew this was coming. Yes, I have to admit it, you called that one right on the money.
Mike: This outfit, formally known as Vimpel Communications, controls the wireless phone business in and around Moscow. When we talked about it in April, it was still under pressure from the Russian financial crisis. But it has since done great, and then it hitched a ride on the sharp run-up in all telecom stocks during the last few weeks.
Jim: Don’t remind me. I said pass, and the stock has since doubled in price.
Mike: Then there was CompUSA, which I said to avoid because this big computer retailer was still saddled with problems.
Jim: I know. I figured the chain would have recovered by now, but it hasn’t, and the stock now sells for a measly $5 and change.
Mike: While we’re on the topic of stocks you missed, does the name Gemstar mean anything to you?
Jim: I hope you’re enjoying this while you can, Mike. Yes, Gemstar, the Pasadena outfit that makes the VCR-Plus programming system. I thought it was overpriced, and it has since doubled.
Mike: It’s gotten involved in the business of electronic programming guides for TV, which is becoming more valuable as TVs become smarter.
Jim: Any others?
Mike: Yes, since I’m still monopolizing the spotlight, I want to claim credit for picking Hewlett-Packard when you didn’t.
Jim: When we discussed it in March, the company was staggering, was in dire need of a restructuring and its management was under pressure. I remember suggesting that the company be broken apart, in fact.
Mike: And guess what? A week later Hewlett-Packard announced it was going to do just that--and the stock took off.
Jim: Don’t remind me.
Mike: How much did you earn for that brief consulting stint? Anyway, it also named a new chief executive. As I said, this is a company made up of engineers, and engineers fix things for a living. And the stock has a nice 65% gain to show for their trouble since March.
Jim: OK, Mike, you’ve had your turn. Now it’s my chance to remind you where you should have listened to me.
Mike: Just remember Vimpelcom.
Jim: It wasn’t just the Internet stocks where you fell down. Let’s start with Xerox. In late September I said avoid it; you wanted to buy. But what you couldn’t foresee was that Xerox would issue a string of bad earnings news, hammering the stock.
Mike: Yeah, and to add insult to injury, I had some kind words for Xerox’s new CEO, Rick Thoman. But now he really has his hands full, and questions abound whether he can juggle it all.
Jim: Oddly enough, that same day in late September you also recommended buying Avon Products, but I didn’t. And faster than you can say “mascara,” Avon then issued its own lousy profit outlook, and it was Xerox all over again.
Mike: Yes, but turnabout is fair play, my friend. For instance, you had a lot more faith in some big retailers than I did, remember?
Jim: I was hoping this wouldn’t come up.
Mike: Keep hoping. Let’s start with J.C. Penney, which you suggested buying despite my arguments to avoid it.
Jim: I should have listened that week. Nothing Penney does seems to help its slumping sales trends, and its stock has been on a steady decline ever since we talked about it in September.
Mike: You also blew it with Nortel Networks, which I recommended and you didn’t.
Jim: The big Canadian telecom company. In this case, I was the one who got bloodied fighting the tape, because most telecom stocks have rallied in recent months.
Mike: If it makes you feel any better, that rally is more powerful than I ever expected, and investors should be wondering when reality is going to catch up with the prices of these stocks. And I’ll include MCI WorldCom and Motorola, both of which we recommended.
Jim: Now, one big surprise was Pixar Animation. In November, in advance of Pixar’s newest movie, “Toy Story 2,” we voted against the stock because it seems to do well only in advance of each of its pictures and then sort of just drifts along until the next one comes out.
Mike: Isn’t that exactly what’s happened this year?
Jim: Yes, except this time the stock dropped immediately after the movie opened, despite enormous publicity about the huge sums it was making at the box office.
Mike: This was a case of investors buying on the hype and selling on the premiere. This is a real roller-coaster of a company. Not a long-term play, in my opinion--though the movies are great.
Jim: Another one that turned out in my favor was Gateway. In September, you recommended not buying the personal computer maker, but I thought it had a good future, and the stock has gained 30% since then.
Mike: That’s barely anything.
Jim: Not compared with the Nasdaq index--but what is? Anyway, my hunch is that people think Gateway’s going in the right direction by shifting more toward online services and away from making just simple computer boxes.
Mike: People are also looking at the economy at Christmas and thinking Gateway is going to sell a lot of boxes in the last quarter of this year. The 64-gazillion-dollar question is what’s going to happen come next year and next quarter.
Jim: Well, there’s one other sector I have to mention before we stop, and it’s one of your favorites. That’s gaming.
Mike: Why do I feel as if I just threw boxcars?
Jim: I keep fighting you about the prospects for gaming, which I think are horrible. You keep disagreeing with me, but so far all the chips are piled up on my side of the table. In June, for example, you liked Mandalay Bay, the former Circus Circus Enterprises.
Mike: Which, thank goodness, has hung on for dear life.
Jim: Right, the stock is basically unchanged since June. Then there’s Harrah’s Entertainment. Once again you couldn’t help yourself and recommended the stock. That was in October, and the stock is now down 12%. You just don’t know when to walk away from the table, do you?
Mike: Well, look, it’s common knowledge that in gambling, the house is the only player that wins--and these are the big houses, for God’s sake!
Jim: So why aren’t they winning more?
Mike: They haven’t been disasters, but the market has marched ahead at a double-digit pace, so they don’t look pretty. These are both well-managed companies, and their business is growing. That’s the bottom line.
Jim: So there you have it, Mike. I suspect the next time we meet for this semiannual review, I might very well have my head handed to me. Things can change that fast.
Mike: You’ve certainly hitched your record to some shooting stars. And they, as we all know, sometimes come crashing to Earth, like Skylab.
Jim: As they say, past performance is no guarantee of . . . anything else.
Mike: No, it isn’t. And in my defense, let me say that bubbles burst, and when they do, they burst with a loud pop! If you’re invested in Yahoo or Lycos, I’ll just say: Enjoy them while you can.
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Write or e-mail with a stock you would like to see discussed in this column. Times staff writer James Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Times staff writer Michael Hiltzik (michael.hiltzik@latimes.com) covers technology and entertainment. Either can also be reached at Business Section, Times Mirror Square, Los Angeles, CA 90053.
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You can hear a preview of Peltz and Hiltzik’s weekly column Mondays on the KFWB-Los Angeles Times Noon Business Hour on KFWB-AM (980).
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A Sampling of Stock Exchange Picks and Pans
Here’s how some of the stocks reviewed in 1999 by James Peltz and Michael Hiltzik in their Stock Exchange column have fared since being discussed. The stocks on which the pair agreed are in bold. All prices are adjusted for any splits after being reviewed. Year to date, the Standard & Poor’s 500 index is up about 18%, and the Nasdaq composite is up about 81%.
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Stock Ticker Peltz’s Hiltzik’s Date of Price on symbol call call column column day CBS CBS Buy Buy 1/25 $34.81 Hewlett-Packard HWP Don’t buy Buy 3/1 65.88 Tandy TAN Buy Buy 3/1 28.63 Seagram VO Don’t buy Buy 4/12 63.50 Vimpelcom VIP Don’t buy Buy 4/19 15.69 Cadence Design CDN Buy Buy 5/17 11.31 CompuUSA CPU Buy Don’t buy 5/31 8.13 Gemstar GMST Don’t buy Buy 6/7 33.06 Mattel MAT Don’t buy Don’t buy 6/28 25.13 Bank of America BAC Buy Buy 7/12 74.63 Reebok RBK Don’t buy Don’t buy 7/19 15.25 Apple Computer AAPL Buy Buy 8/9 54.44 Cisco Systems CSCO Buy Buy 8/23 65.75 EMC EMC Buy Buy 8/30 59.94 Gateway GTW Buy Don’t buy 9/20 53.88 Xerox XRX Don’t buy Buy 9/27 42.00 Omnicom OMC Buy Don’t buy 10/11 77.31 Yahoo YHOO Buy Don’t buy 10/18 170.38 Check Point CHKP Buy Buy 11/8 128.50 Nortel Networks NT Don’t buy Buy 11/15 75.00
Stock Mon. % close change CBS $60.25 +73% Hewlett-Packard 108.50 +65 Tandy 46.81 +64 Seagram 43.13 --32 Vimpelcom 33.25 +112 Cadence Design 23.31 +106 CompuUSA 5.31 --35 Gemstar 70.75 +114 Mattel 12.75 --49 Bank of America 49.00 --34 Reebok 8.19 --46 Apple Computer 99.31 +82 Cisco Systems 105.19 +60 EMC 105.00 +75 Gateway 70.00 +30 Xerox 22.31 --47 Omnicom 101.00 +31 Yahoo 415.00 +144 Check Point 183.38 +43 Nortel Networks 108.63 +45
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Source: Times research
