Assessing Where We Went Right and Where We Went Wrong

Today's column takes a look at some of their previous calls.

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Jim: We decided against our better judgment to once again review some of our past recommendations.

Mike: We last did this six months ago, and we're doing it again now because it's been about a year since we started this column.

Jim: Now, the last time we did a review we got a lot of letters questioning our ability to pick stocks. And I think it's important to remind everyone that that's not what this column is all about.

Mike: Right. Some of our readers may be under the misapprehension that what we're doing here is proposing a model portfolio in our "buy" and "don't buy" picks. But what we're really trying to do is give our readers some guidelines for looking at companies.

Jim: Exactly. The way I look at it, people who might be interested in a particular stock can take our position as a jumping-off point for them to investigate the stock further themselves . . .

Mike: . . . by highlighting some pertinent points about these companies--whether it's the performance of the CEO, or the likelihood of a takeover, or the health and direction of the general industry. We try to show that companies are dynamic things, with individual personalities. You have to really understand what they do and how they do it to decide whether you want to invest in them.

Jim: People should remember, though, that they really shouldn't even be in stocks unless their financial houses are already in order. But once you're ready to invest, you find that, unfortunately, a lot of the information out there is in Wall Street-speak. What we try to do is cut through all that and give you a plain-English overview.

Mike: So, to all of our readers who have been spending time putting our picks down in a spreadsheet and doing the quantitative analysis and measuring our picks against the S&P; 500: I'm not saying we don't appreciate it, and I'm not saying that we don't try to keep score ourselves. But that's more or less beside the point.

Jim: So, having said all that, one thing I have noticed, Mike, about our recommendations is that we've been cautious in some sectors, passing on some stocks that have done quite well.

Mike: To name one: Broadcom . . .

Jim: . . . which is the maker of the electronic chips that go in sophisticated TV-set-top boxes that are going to be able to carry all sorts of interactive broadband technologies. We both passed, and it's done extremely well. Then there's IBM, which we both thought had peaked at the beginning of December.

Mike: And I'm happy to report, since I own the stock, that that peak was surpassed long ago. The stock is up 40% since we talked about it.

Jim: There're a couple of others we passed on for fundamental reasons and that have gone up nonetheless.

Mike: You're thinking of Revlon and Polaroid.

Jim: Exactly. I thought those stocks had nothing going for them. But they've been buoyed by takeover speculation since we talked about them.

Now, there are a couple that I'm particularly proud of, Mike. One is Nike, which we talked about last November. You felt that all of their problems were ongoing. I felt that they were starting to get their act together. I'm happy to say that Nike is up more than 30% since then.

Mike: As I've said before, you really know how to hurt a guy. But turnabout is fair play: Does the name Bed Bath & Beyond mean anything to you?

Jim: Oof!

Mike: Right. I thought this retailer of household furnishings would do great in the buoyant housing market, and do well even if housing sales slowed down, because people priced out of the housing market would console themselves by gussying up their existing homes. You feared the economy and the housing market were heading for a slowdown and would take BBY down. Anyway, the stock is up more than 64% since we talked about it in October.

Jim: On the other hand, we both agreed that Gap Stores had a lot of momentum going for it. We happened to talk about that in November as well. And Gap, which has been a perennial all-star, continues to do well. I'm happy to say it's up 50%.

Another I'm particularly proud of is PeopleSoft.

Mike: I've spent a lot of time trying to forget this.

Jim: PeopleSoft is the big maker of database software whose stock was a real highflier until last year, when that whole industry suddenly turned sour. Why don't you remind us of your position on PeopleSoft when we discussed it in January? The stock had already taken a tremendous dive, and you were of the opinion that it was going to start working its way back.

Mike: Yes, I believed that its troubles were behind it and that this was such a strongly growing market that PeopleSoft was sure to participate in further growth.

Jim: Actually, I still think that's the case. I just didn't and don't think it's hit the bottom yet, so I still recommend staying away from the stock for a while. It's dropped more than 25% since we spoke.

Mike: There's an old Wall Street axiom that it's a fine line between being wrong and being early. I plead guilty to being early on that stock.

Jim: Now, the biggest surprise for me, but in a positive way, was Tandy Corp., the owner of the Radio Shack chain of electronic stores. Tandy's up 55% since the beginning of March. We both agreed that Tandy, in making a big push to provide more service to customers, had a much better game plan than before for the chain. We both recommended the stock, but I certainly didn't expect that it would jump as far as it has in just the last three months. That was a great pick.

Mike: One stock that has done all right but that we both thought would do better is Hasbro. When we talked about the toy maker back in December, we were very much excited about the arrival of its Star Wars toys this year in anticipation of the new movie.

Jim: It seems opinions are mixed about how well they're selling. Hasbro is up 18% since we talked about it. But people are now unsure that Hasbro's Star Wars licensing will pay off as well as Hasbro thought it would.

Mike: As the people at Planet Hollywood would tell us, there's such a thing as too much of a good thing. Could it be there's a Star Wars glut?

Jim: I must say that I have never seen such a cascade of merchandising from a movie as I have with this one.

Mike: If you come over to my house you can stand under the waterfall.

Jim: It's pervasive. So I think Hasbro's piece of all this has been sorely diluted.

The last stock I'll point out is EarthLink. This company, an Internet service provider, is one we both saw as a genuine player in the Internet business. But the main reason we decided the stock had some merit was that we thought EarthLink was a takeover target. And guess what? After the stock slumped for a considerable period, that speculation has reared its head again. We may yet end up being right about it.

Anyone else you want to mention?

Mike: I think we ought to mention a company that has fully lived up to our skepticism: Eastman Kodak. We remarked in October that this was a company whose management was throwing every idea it could at the wall to see what would stick. And now George Fisher, the chairman and CEO, is a short-timer. He's going to be stepping aside next Jan. 1.

Jim: Fisher was brought aboard in 1993 to great fanfare as the man to turn around the ailing Kodak. He made some strides but didn't ever really solve the basic problem at Kodak, which is--and it's still very much there--that it can't shake itself from an ugly price war with Fuji in the conventional film market, a war that keeps eating away at its profit margins. Nor can it find the new photographic technology that would revolutionize its basic business. That company is still very much between a rock and a hard place. We'll have to see what happens to the next CEO, or the one after that. But the bottom line is that since October, Kodak stock has lost 30%.

Mike: My closing thoughts on all this: Once again, what we're trying to do here is provide some real-world and plain-English sense of what might affect a company's stock. There's a lot of art mixed in with the science--but if it were cut-and-dried, we wouldn't be doing this column, would we?

Jim: That said, I still think it's a good idea to review what we've done, because a lot of readers have asked us to go back and remind them of what we said about particular stocks, or to take new looks at them. And, I will tell you, it's amazing what the span of one year will do with regard to your outlook for a particular stock. I can think of a lot of names that we discussed early on that I have vastly different opinions about today--the exception being Planet Hollywood.

Mike: As a matter of fact, we both recommended avoiding Planet Hollywood when it was trading at about four bucks. And today a share of that stock won't even buy you a Coke.

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 and is the author of the new book "Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age." 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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The Expected...

Gap Stores is up 50% since November, when Jim and Mike said the clothing retailer had a winning formula and the stock had plenty of momentum.

The Gap on Friday: $49.88

Source: Bridge Information Systems

Jim and Mike agreed in December that chip maker Broadcom had great potential but that its stock price was just too rich. The stock has doubled in price since then.

Broadcom on Friday: $137.03

Source: Bridge Information Systems

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