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 (NYSE: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 (NYSE:BRK.A) (NYSE: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 (NYSE: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 (NYSE:VAR) (it now looks like I was too early in getting out) for a cancer play.
General Electric (NYSE: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 (NYSE: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 (NYSE: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 (NYSE: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