My Take on Fortune's Best Stocks for 2008

I was talking to a friend a few days ago and he mentioned that CNN Money had just published Fortune Magazine's list of the best stock picks for 2008. He asked what my thoughts were, so I took a quick look at the list and jotted down my immediate responses, which I forwarded to him. Perhaps others could also benefit at looking at the other side of the coin for many of the Fortune list's companies. Please keep in mind that I did not do in depth research on any of these stocks and that such research would be warranted before making any actual buy and sell decisions.

Annaly (NLY) – This company used to be on my watch list. It is a rather volatile stock that is in the current at-risk business (Fannie Mae (FNM) and Freddie Mac (FRE) are private companies), whose stock appreciated while all of the financials depreciated – so it is a bigger gamble than I am willing to take.

Berkshire Hathaway (BRK.A) (BRK.B)– Warren Buffet is getting old, there is no succession plan, major holders are reducing their positions, and the stock is valued at 2x competitive insurance companies. I have owned this stock since 2001, will most likely be selling on a pop this year and will be looking to jump back on board after Buffet’s departure.

Dick's Sporting Goods (DKS) – Don’t believe their growth story in sporting goods retailing in light of major competition from established players like Big 5, REI and Sports Authority, as well as loads of Internet discounters and especially in light of the current economic uncertainties. And if Dick’s disappoints with slowed growth it will get cut in half – guaranteed.

Electronic Arts (ERTS) – Everybody likes ERTS these days and the stock is priced accordingly. Keep in mind that fads change rather quickly and if ERTS misses the next big fad, as they have in the past, the stock will go down. Upside is roughly balanced with downside on this one and it is trading at a rather expensive multiple – I am on the sidelines here.

Genentech (DNA) – Richly priced despite recent slump in stock price. I don’t expect any miracles from this company. Would not bet on this stock, but would rather look for interesting niche plays in pharmaceuticals like King (KG) (which I just bought) and/or wait for an opportunity to get back into Varian (VAR) (it now looks like I was too early in getting out) for a cancer play.

General Electric (GE) – I have wanted to get into GE for a long time now, but it was too expensive. We are finally getting very close to my entry target buy price of around $35. GE is a company with a very large moat on many of their businesses. My only concern would be GE Capital and I will need to review the current status of that division before jumping in.

Jacobs Engineering (JEC) – This idea assumes that commercial construction will continue to grow at a very fast pace, which could be true, but is more likely not to be so without large public works projects. Company’s prospects will heavily depend will depend on who people think will get elected (think Roosevelt J). I am staying away.

Merrill Lynch (MER) – This is an interesting idea in financials, so if you think that Merrill is done putting off balance sheet crap back on the books, this will do tremendously well, however if they also hold credit card based CDOs, than the other shoe is yet to drop. I would need to be sure that this is not the case before buying in and as a private investor I have virtually no way of doing this. There are much safer bets in financials these days.

Petrobras (PBR) – I like their story – it is incredibly well known by now, and this stock most likely has further to climb before correcting down 20% when Ken Heebner dumps it. It’s a momentum play at this point and you have to be ready to jump ship very quickly.

St. Joe (JOE) – Interesting story, good possibilities. Benefits may actually outweigh the risks on this one. I would need to do much more research to say anything definite.

All opinions were formed on Sunday, January 6th and are based on Friday, January 4th closing prices.

Disclosure: Author has a long position in BRK.B

Comments

[vt marketin...:]

GE hasn't moved in two years. It was $35 two years ago, and $35 in July 07.

2008 Jan 08 01:38 PM

[helplessobs...:]

St. Joe peaked out at 80 and now is in the low 30s and it still has 800K acres of Florida land bought in the 1920s at $2.00 per acre. Over priced then, underpriced now.

2008 Jan 08 10:41 PM

[User 137986:]

How does Mr.Berzon know that there is no succession plan in Berkshire Hathaway?

2008 Jan 09 07:13 PM

[ajax2000:]

What are Mr Berzon's favorites for 2008 ? If any.

2008 Jan 10 09:42 AM

[User 127339:]

Mr Berzon doesn't appear to do his homework based on the majority of his comments.

2008 Jan 10 11:41 PM

[Jake Berzon:]

There has not been a succession plan announced for Berkshire Hathaway as of the date that I did research on the company is the longer and more accurate statement.

I have no list for 2008, I simply look for opportunities to buy stocks in the companies that go "on sale" and than sell them, once they are trading at a fair price. You can easily see what my current favorites are simply by watching what I have bought and have not yet sold. As of this writing my personal portfolio consists of the following: BRC, CHN, CI, DD, ECA, EWJ, GCH, GLD, HELE, HW, JNJ, KCP, LUV, LVWD, NOVN, PDS, PNR, TRID, VLO, VVUS, WMT, BRKB, MOGA.

I would take exception to the comment that I do not do my homework and as proof to the contrary point out that while the performance of my portfolio significantly exceeded S&P500 last year, it has also held up exceptionally well as the market descended from it's October peak. If anyone is curious about the specifics, I'll be glad to email them.

2008 Jan 11 11:51 AM

[Dan Jacome:]

DKS is down 4 buckies since we initiated on late December, but it is not fair to conclude that competitors will crush this best of breed. There is more "systematic" risk impacting DKS right now than "operational/unsystema... risk - we'll soon find out if DKS mgmt can pony up to the task of reporting good numbers as the rest of the names stumble, like HIBB today.

The risk is more "multiple compression" than "EPS disaster," we think.

2008 Jan 14 10:48 PM

[Esward Gold...:]

Take a look at the performance of this Fortune Stocks recommendations:

www.gainerstoday.com/U...

2008 Jan 20 06:48 AM

[Jake Berzon:]

A reference date of 12/14 (when these companies were originally recommended) vs. 1/4 (when I looked to see if they were still attractively priced) makes a big difference.

2008 Jan 23 09:34 PM

[Esward Gold...:]

Investor's Guide 2008 and Fortune The best stocks for 2008 was published on December 14:

money.cnn.com/2007/12/.../

2008 Jan 28 05:32 PM

[vkv:]

Mr. Berzon, I am not intimately familiar with the majority of these stocks, but a few I do know. I really take exception with your pick of JOE. Just because it was once valued at $80 and is now down in the $30’s doesn’t make it a good deal.

A finite percentage of their land is in desirable locations of undesirable Florida. The majority is swampland and close to worthless (5k an acre). They will continue to post losses for quarters if not years to come. And you do the readers of Fortune a disservice by assuming the stock is a bargain because it is down. I am fairly certain that you personally have never set foot on a JOE property, and I have no reservations in assuming that you haven’t set foot on any of their undeveloped land. If you had, you couldn’t include them in a list that includes BRK, DNA, GE, and ERTS. That is why I will never purchase another issue of Fortune because in the case of JOE, you most certainly did not do your homework. Take exception all you like as you did with previous writers, but you’ll be proven wrong.

2008 Jan 29 12:23 AM

[vkv:]

I apologize. I thought you authored the article. Those comments should have been directed to Jon Birger, writer for Fortune magazine. Again, my apologies.

2008 Jan 29 12:32 AM