First of all, in Larry’s defense, th is is not a completely fair exercise. After all, it was in 2008 that our present woes, which couldn’t have been foreseen in any comprehensive manner, begin to erupt. I intend to remind our readers that an analysis of the performance of a stock or a horse, will never comprehend every variable affecting it. In the end, the best one can hope to accomplish is increasing the odds of making a correct decision.
I stumbled across an interview with him that took place in late November 2007. During the interview, Robbins named 5 stocks he identified as being among his “top picks” for 2008. They were Microsoft Corporation (MSFT), International Business Machines Corp. (IBM), Fifth Third Bancorp (FITB), Gap, Inc. (GPS) and Cigna Corp (CI).
We’ll look at these late 2007 picks focusing on the stock price then, one year later, and today. To make the exercise objective, I have selected a competing company to act as a “control,” and we’ll see how they matched up. Finally, I will take a fresh look at these picks and decide if they merit our consideration today.
Microsoft Corporation (MSFT) closed at $30.75 per share on November 29, 2007. By November 28, 2008, the stock closed at $18.85 and today it trades at about $25.04. This represents a -22.80% change from the 2007 share price. Our control, Apple, Inc. (AAPL), closed at $184.29 per share on November 29, 2007. By November 28, 2008, the stock closed at $92.67 and today it trades at about $363.67, which represents a 49.32% change from 2007.
International Business Machines Corp. (IBM) closed at $99.95 on November 29, 2007, at $77.20 on November 28, 2008 and today it closed at about $182.31.This is a 45.18% change from the 2007 closing price. The control, Hewlett-Packard Company (HPQ) closed at $49.28 on November 29, 2007, at $34.29 on November 28, 2008, and today it closed at about $25.39, which represents a -94.09% change from 2007.
Fifth Third Bancorp (FITB) closed at $26.20 on November 29, 2007, at $9.29 on November 28, 2008, and today it closed at about $11.52, which is a -127.43% change from 2007. Our control, PNC Financial Services Group, Inc. (PNC) closed at $66.06 on November 29, 2007, at $50.22 on November 28, 2008, and today it closed at about $49.07. This is a -34.62% change from 2007.
Gap, Inc. (GPS) closed at $18.34 on November 29, 2007, at $12.23 on November 28, 2008, and today it closed at about $18.31. This is a -0.16% change from the 2007 close. The control, American Eagle Outfitters, Inc. (AEO) closed at $18.85 on November 29, 2007, at $8.48 on November 28, 2008, and today it closed at about $12.89, which is a -46.24% change from 2007.
Cigna Corp (CI) closed at $51.98 on November 29, 2007, at $12.05 on November 28, 2008, and today it closed at about $41.60, which is also a -33.87% change from the 2007 share price. Our control, Aetna, Inc. (AET), closed at $54.81 on November 29, 2007, at $21.51 on November 28, 2008, and today it closed at about $37.89, which is a -44.65% change.
For our purposes here, I am going to define a winning stock as one experiencing a positive percentage change (appreciation) in value. As you can see, all Larry’s stocks were losers in the first year and only 2 of the 5 were winners 3 years later. In the control group, all the stocks were also losers in the first year.
However, the control group had only one winner at the end of 3 years. It is also worth noting that Larry’s picks had a more robust recovery overall as compared to the control group. Whether or not this reflects favorably on Larry’s ability is for you to decide.
All this demonstrates what most of us already know. Even the most successful investors, from the venerable Warren Buffett to the respected Lawrence M. Robbins, are not always right -- but many times, they are not entirely wrong, either.
Would you select Larry’s picks in today’s market? Let’s look at each of them based upon 4 crucial fundamentals and see what we would decide. MSFT, has a price/earnings ratio of 8.83 suggesting a good value, a price/earnings growth ratio of 0.91 suggests excellent appreciation prospects, a return on equity of 44.26% tells me the company is well managed and a current ratio of 2.95 certainly implies financial soundness. I’d toss this one into the shopping cart.
IBM, with a price/earnings ratio of 13.95, a price/earnings growth ratio of 1.20, a return on equity of 69.84% and a current ratio of 1.26 also shows value, growth, quality management and a sound financial footing. It goes into the cart too!
FITB, with its ultra low price/earnings ratio of 9.22, decent price/earnings growth ratio of 1.36, and return on equity of 9.77 (average for this sector) suggests this one is also in the cart. By way of explanation, bank balance sheets do not support the calculation of a current ratio.
GPS has a favorable price/earnings ratio of 10.14, an acceptable price/earnings growth ratio of 1.50, an impressive return on equity of 27.99% and a commendable current ratio of 1.84. OK, also in the shopping cart.
Last up, CI, with a stunning price/earnings ratio of 7.45, an enviable price/earnings growth ratio of 0.78, a solid return on equity of 21.06% and a current ratio of 0.91 is also headed for my shopping cart.
Am I repeating errors of the past or making sound decisions based upon facts? You decide.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.