Looking Back: Some Home Runs and a Few Doughnuts
Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.
Mike: I don’t know about you, Jim, but on the day after Christmas, and after this last year in the stock market, I feel like a character in Dickens. And I don’t mean the part of Dickens where everybody turns out at the end to be happy and prosperous. I mean the part before Scrooge shows up with the big goose.
Jim: And that brings us to our semiannual review of our recommendations here at Stock Exchange.
Mike: Here we should remind our readers that our goal in this column is not to propose a model portfolio.
Jim: No, we can’t emphasize too often that our aim is simply to give readers a little food for thought about stocks they might want to investigate for themselves.
Mike: Right, and if they’re turned off by a stock because of what we say . . .
Jim: . . . Go do even more research.
Mike: The key is to think in terms of your own investment needs and your own portfolio.
Jim: Having said all that, it’s clear from the mail that our readers enjoy finding out how our recommendations have fared. I can’t say I enjoy telling them as much, but. . . .
Mike: You know, the Germans have a word for it.
Jim: What?
Mike: It’s “schadenfreude.” What it refers to is the satisfaction one gains from the downfall of others. Like when your rival for a big promotion gets run over by a truck; you express grief around the water cooler, but what you feel is schadenfreude.
The point being, in the stock market, there’s a certain perverse satisfaction some people get when others blow one. And we have blown some this year, though we’ve also hit a few out of the park.
Jim: Overall, I think we didn’t do badly, particularly when you consider that the Nasdaq composite index is down 38% for 2000 and the Standard and Poor’s 500 is down 11%.
But, of course, you and I frequently disagree on stocks. And I’ll start our review by pointing out that I cleaned your clock on the “dot-coms.” They crashed and burned as a group. You were willing to take a flier on a few of them, and you paid the price.
Mike: Yes, I went thumbs-up, and therefore belly-up, on companies like Razorfish, WebMD and Phone.com, which is now known as OpenWave. Though I was also properly, and profitably, skeptical of companies like NetZero.
Jim: I’ll give you your due in a moment. In those particular cases, you were smart enough to agree with me.
Mike: Well, in some stocks we both saw qualities that wound up paying off well. Let’s start with Qualcomm, the wireless technology company, which we liked in September at a price of $58. It has gained 46% since then.
Jim: That was a classic case of a stock that had got beaten to a pulp. It was evident, to us anyway, that this was still a company with good prospects. We both saw it as a screaming buy.
Mike: Conversely, some stocks we agreed were radioactive, and we were right. We turned thumbs-down on electronics retailer Circuit City in August and it has lost 62% since.
Jim: I’m not sure what they’re going to do at Circuit City to turn things around. They’re getting hammered not only by the slowdown in consumer spending, but by their own internal problems.
Another one we called correctly was Inktomi, the big Internet software company that drives a lot of search-engine technology. We advised avoiding that one in early September, noting its stratospheric valuation. It has since lost 81%.
Mike: On the other hand, there were cases when we went hand-in-hand to the precipice and jumped. Like Imax, which I guess dazzled us with the brightness of its giant movie screens. We recommended Imax in June; it has lost 86% of its value since.
Jim: And how about Xerox? In October, it was trading for a little more than $10 a share. We recommended the stock on the grounds that it could hardly go lower, given Xerox’s brand name, its installed base of customers and the fact that it was already cheap enough to be a good acquisition target.
Mike: But the acquirer has yet to show up.
Jim: Now the stock has dropped to about $5 and change. I’m still astonished that, with a market capitalization now of something around $3.4 billion, somebody hasn’t come around and made an offer to buy them. But it could still happen.
Mike: This could be, for all we know, the greatest contrarian investment play in history.
Jim: Now, here’s one we expected to implode, and it did: Pep Boys, the auto parts retailer that is just getting killed by the competition. It’s down more than 50% since we discussed it in June.
At this point, since I’m still in the Christmas spirit, I’m going to let you take the first whack at naming some of the stocks that you called right and I called wrong.
Mike: Let’s go back almost a year.
Jim: That far? I thought this was a semiannual review.
Mike: I’m just getting started. In the “oh ye of little faith” category, let’s recall Tyco International.
In the wake of allegations of accounting problems, you thought “where there’s smoke, there’s fire.” I recalled JFK’s dictum that sometimes where there’s smoke, there’s only a smoke-making machine. I recommended Tyco, arguing it had been unfairly beaten down because of some partially specious accusations of accounting finagling. It has gained 43% since--because it was fundamentally a good company.
Jim: Yeah, I was wrong and Tyco continues to be a good performer.
Mike: How about my call on Quaker Oats?
Jim: That was dumb luck!
Mike: No, I foresaw everything that was going to happen.
Jim: Sure you did.
Mike: Anyway, Quaker Oats recently became the target of a bidding war, which PepsiCo eventually won. I recommended it in May, saying it had great growth prospects and was reasonably priced. You were hands-off. The stock is up 43% since.
Jim: One I’m going to actually hand you on a silver platter, because I’m feeling so benevolent today, is Sara Lee, which I didn’t like in July and you did. It has posted a 31% gain since then.
Mike: Sara Lee is one of the old reliables, a very well-run company with a very broad product line and very capable management. The stock had struggled through 1998 and 1999. I figured that given the investment environment, investors were about to rediscover it.
Jim: Now I will just very briefly mention Fannie Mae.
Mike: Has a day passed that you haven’t mentioned Fannie Mae to me?
Jim: You cast the vote, pal. No point now in claiming it was only a dimpled chad. Fannie Mae, of course, is the huge mortgage financing company. As I recall, the primary reason you didn’t want to recommend the stock in September was the growing political cloud over this outfit and its cousin, Freddie Mac. Some in Congress were questioning whether these firms should continue to get what’s seen by many as favorable government treatment, vis-a-vis banks and other competitors.
At the time, I said I didn’t care about Fannie Mae’s political problems so much as I did that interest rates were coming down. Lo and behold, the stock is up more than 50% since then.
Mike: Since we’re hurting each other, I will mention again Vitesse Semiconductor, which we discussed in February. You warned our readers to avoid this maker of specialty semiconductor chips. . . .
Jim: Based in Camarillo, by the way.
Mike: I liked it and still do. It has gained 22% in nine months.
Jim: I suppose we can’t get out of this discussion without mentioning a certain doughnut company. This may go down as our worst “don’t buy” recommendation ever.
Mike: Well, of course, my position is that the jury is still out on Krispy Kreme.
Jim: You could say that about every stock. I think Krispy Kreme doughnuts, for as much as it stings, is a classic example of where you might think you know a few things about the stock market . . .
Mike: . . . But you don’t know nothing.
Jim: This is a stock that was $41 a share when we reviewed it in April.
Mike: We thought it was grotesquely overpriced and that the potential of this company was ridiculously overestimated.
Jim: We still think that--even more so now. We have no choice because it has nearly doubled in price. The stock got to more than $100 a share at one point. It has since dropped back to around $70--still way up from when we discussed it.
Mike: It’s a humbling experience, if not a fattening one. But we move on, and six months from now we’ll revisit some of the things we’ve said since.
Jim: I’m going to make a prediction here. Now that we have a president, and given how badly the technology sector has gotten beaten up, I think 2001 is going to be a great year for a lot of stocks, particularly in the tech and telecom sectors.
Mike: I’m writing that down.
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Write or e-mail with a stock you would like to see discussed in this column. Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Hiltzik (michael
.hiltzik@latimes.com) covers technology and entertainment and is the author of the book “Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age” (HarperBusiness). Either can also be reached at Business Section, 202 W. 1st St., Los Angeles, CA 90012.
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Taking Stock: Revisiting
Some of This Year’s Picks and Pans
Here’s how some of the stocks reviewed in Stock Exchange this year have performed since being discussed. The stocks on which columnist James Peltz and Michael Hiltzik agreed are in bold. Prices are adjusted for any splits after being reviewed. Year-to-date, the Standard & Poor’s 500 index is down 11%, and the Nasdaq composite index is down 38%.
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Stock Ticker Peltz’s Hiltzik’s Date of Price on Symbol call call column column day close Biogen BGEN Don’t buy Don’t buy 2/15/00 $101.25 Merck MRK Buy Buy 3/14/00 57.00 Krispy Kreme KREM Don’t buy Don’t buy 4/25/00 41.00 Quaker Oats OAT Don’t buy Buy 5/02/00 67.81 Sara Lee SLE Don’t buy Buy 7/11/00 18.75 DaimlerChrysler DCX Don’t buy Don’t buy 8/08/00 53.25 Agilent Tech A Buy Buy 8/15/00 43.56 Circuit City CC Don’t buy Don’t buy 8/22/00 26.19 Verizon VZ Buy Buy 8/22/00 42.81 Fannie Mae FNM Buy Don’t buy 9/05/00 52.88 Inktomi INKT Don’t buy Don’t buy 9/05/00 130.75 Qualcomm QCOM Buy Buy 9/12/00 58.13 CMGI CMGI Don’t buy Buy 9/26/00 32.88 Xerox XRX Buy Buy 10/10/00 10.44 General Mills GIS Don’t buy Buy 10/17/00 37.13 Liberate Tech LBRT Don’t buy Buy 10/17/00 25.19
Stock Fri. Pctg. Symbol change Biogen $60.06 -41% Merck 90.50 +59 Krispy Kreme 70.00 +71 Quaker Oats 97.13 +43 Sara Lee 24.56 +31 DaimlerChrysler 40.38 -24 Agilent Tech 54.69 +26 Circuit City 10.06 -62 Verizon 48.13 +12 Fannie Mae 81.88 +55 Inktomi 24.94 -81 Qualcomm 85.00 +46 CMGI 6.88 -79 Xerox 5.06 -52 General Mills 42.50 +15 Liberate Tech 14.50 -42
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Sources: Times research, Bloomberg News
