Newsletter Analysts Pick Their Favorites
When a brokerage house recommends a stock, you wonder whether it is an investment banker for the company--or wants to be. When an advisory newsletter recommends a stock, it might be right and it might be wrong, but at least you have fewer conflicts of interest to worry about.
Newsletters’ recommendations are frequently more original than brokerage-house picks--and originality sometimes translates into profit potential.
So here are major recommendations from six prominent letters. Naturally, each newsletter has other recommendations as well. (Newsletter names are in parentheses.)
* Andrew Addison: Technical analyst Andrew Addison (The Addison Report) says General Motors Corp. is “on the road to recovery,” with improved labor relations and a slew of new models. He also likes the recently completed spinoff of Delphi Automotive Systems and the possibility for a spinoff of GM’s 74% stake in Hughes Electronics, which trades as a tracking stock.
“Technically,” he says, “GM appears to be in the final stages of consolidating” and “would accelerate once it pushes through $95” toward a target price of $140.
* Frank Curzio: The man known for predicting the crash of 1987, Frank Curzio (The FXC Newsletter) is putting his money on Churchill Downs Inc., whose main racetrack is home to the Kentucky Derby. The company also owns other tracks including Hollywood Park. Curzio thinks Churchill Downs will increasingly supply broadcasts of its races to national simulcastsand even to “bettors sitting home at their computers, placing wagers at tracks.”
* Norman Fosback: HomeBase is a favorite of Norman Fosback (Market Logic). It is a home-improvement warehouse store that operates in 10 Western states. HomeBase was formed in 1997 when Waban spun off BJ’s Wholesale Club to its shareholders and then changed its name to HomeBase. It takes courage to recommend a stock that competes against “category killer” Home Depot. HomeBase has an erratic earnings history; management blames recent mediocre earnings on expenses for remodeling stores and pumping up advertising. But the balance sheet is sound, and the stock is extraordinarily cheap at 11 times earnings, 0.15 times sales and 0.55 times book value.
* Al Frank. Vicon Industries has caught the eye of Al Frank (The Prudent Speculator). It is a tiny company that designs and sells closed-circuit television systems. The stock has a market value of just $40 million or so. The price is $8.94, and Frank would buy it up to $9.35.
Vicon’s earnings per share have dipped recently, Frank notes, but that’s only because the company issued additional shares. The stock is cheap at seven times recent earnings. And Frank believes that “the tragic Columbine High School shootings might fuel increased demand for video surveillance systems.”
* Joseph Granville. The granddaddy of all newsletter pundits, Joseph Granville (Granville Market Letter) thinks that today’s market parallels that of 1927 and 1928 and that a crash is likely. He derives this conclusion partly from the rate of change in the 200-day moving average of the Dow Jones Industrial Average. He is advising his subscribers to sell short, or bet against, a number of blue-chip stocks, including General Electric.
* James Stack. Gloomy about prospects for the stock market, James Stack (InvestTech Research) recommends the Rydex Arktos Fund, which he describes as a “bear market fund designed to inversely mirror the Nasdaq 100.” The Rockville, Md., fund has shown a 16% loss so far this year. Signs of an impending stock-market decline, according to Stack, include the large number of new 52-week lows, the frothy speculation in Internet stocks and the rapid rise in stock-market capitalization as a percentage of U.S. gross domestic product--a rise comparable only to that of 1927 and 1928, he says.
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John Dorfman is a Boston-based money manager with Dreman Value Management in Jersey City, N.J. The firm or its clients may own or trade investments discussed in Dorfman’s columns.
