Grading the Investment U Gurus 2011: Marc Lichtenfeld

by Marc Lichtenfeld, Investment U Senior Analyst
Tuesday, December 20, 2011: Issue #1668

I’m excited when my kids bring home their report cards. They’re terrific students, work hard and always bring home good grades.

However, it’s always a little nerve-wracking to tabulate my own report card based on my market calls at the end of the year. The market isn’t nearly as forgiving as a second grade teacher.

But nevertheless, it’s an important exercise to see what I got right and what I got wrong… what I may have been a little “early” on.

So here goes:

In my January 14 column, I talked about the rising trend of healthcare information technology and said two of my favorite stocks in the space were AthenaHealth (Nasdaq: ATHN) and McKesson (NYSE: MCK). AthenaHealth rallied from $44 to $72 before retreating and then falling hard last week on an earnings warning. It’s still up about 10 percent from where I recommended it. McKesson went from about $74 to $87, but has also come back in trading just a few points over where it was in January. Considering the S&P is down about six percent since that date, the results aren’t too bad. Grade: B

The following week I was bullish on pharmacy benefits managers, particularly Express Scripts (Nasdaq: ESRX) and Medco Health Solutions (NYSE: MHS). Swing and a miss. Both stocks are down. The group never really got going. Long term, I think any company in healthcare that helps reduce costs should do well. But this year wasn’t that year. Grade: F

My columns recommending the sale of stocks did quite well in 2011, starting with my February 2 article recommending the sale of ISIS Pharmaceuticals (Nasdaq: ISIS). I’ve written about this company quite a bit, suggesting that its lead drug candidate for high cholesterol will get rejected by the FDA. The drug hasn’t been rejected yet, but the stock is down over 20 percent since my column ran. Grade: A-

In a February 17 article, I cautioned about getting suckered in by high yielding stocks of companies that might not be able to afford to keep paying their dividends. I highlighted Capstead Mortgage (NYSE: CMO), Old Republic International (NYSE: ORI) and Apollo Investment (Nasdaq: AINV) as potential dividend cutters.

None of them did. But Old Republic and Apollo fell sharply throughout the year, while Capstead is at about the same price. I’m more comfortable with Capstead’s dividend now, but still don’t think Old Republic and Apollo’s are sustainable. They’re simply not generating enough cash flow to continue paying their dividend at their current levels. Grade: B

In early March, I took the opposite approach and focused on three companies that were in a position to raise their dividends. Meredith Corp. (NYSE: MDP), Northrop Grumman (NYSE: NOC) and VF Corp. (NYSE: VFC) were highlighted.

Meredith raised its quarterly dividend from $0.25 to $0.38 in November, while Northrop also hiked its payout. Interestingly, neither stock performed all that well, both down a few points. VF Corp., on the other hand, didn’t raise its dividend, but its stock soared over 30 percent for the year. Grade: B-

One of my best calls of the year was on March 10, when I explained why shares of St. Joe (NYSE: JOE) would likely be cut in half. That’s exactly what happened. The stock closed at $26.87 that day and steadily fell until hitting a low of $12.72 in November. Grade: A+

On March 16, I suggested following millionaires into Apple (Nasdaq: AAPL), Bristol-Myers Squibb (NYSE: BMY) and Varian (NYSE: VAR). If you did, you’re up 15 percent and 42 percent on Apple and Bristol respectively and down two percent on Varian. During the same period, the S&P 500 is down four percent, so I’ll take a victory lap on that one. Grade: A-

In early April, I said stocks would outperform gold as panicky investors were overreacting and fleeing to the perceived safety of the metal. Even with gold’s recent decline, it strongly outperformed stocks for the remainder of the year. Grade: F

I redeemed myself in the metals a few weeks later. Although it wasn’t what silver bugs wanted to hear. I said silver was in a bubble and traders should take their profits now. Silver topped out the next day and is down 40 percent since then. As badly as I missed the gold trade, I nailed this one. Grade: A+

On May 3, I said the consumer staples stocks were undervalued. The group hasn’t done much all year. At the time, it was trading at less than 14 times earnings. Today the sector is trading above 15 times forward earnings. I don’t think it’s as undervalued now as I did then. Grade: C

I made a stinker of a call in June when I said that NXP Semiconductors (Nasdaq: NXPI) would be the leader in the mobile technology space. It just hasn’t become the dominant force I expected. Recommending a technology play right before the market swoon wasn’t great timing, either. The stock fell hard and never recovered: Grade: F

I got it right the next week though, when I suggested selling steel stocks, in particular Allegheny Technologies (NYSE: ATI). I thought the whole sector looked vulnerable, and Allegheny in particular was overvalued. Four months later, the stock was down 50 percent. Grade: A+

In early August, just as the market was starting its swoon, I recommended getting long Fastenal (Nasdaq: FAST). Despite a wealth of negative macroeconomic news, Fastenal was hiring, reporting strong sales and earnings. The stock is up 28 percent since then while the S&P is down two percent. Grade: A

Lastly, as panicky investors were dumping their stocks in August, I told readers to pick up shares of quality dividend payers like my favorite dividend aristocrat, Genuine Parts (NYSE: GPC). A dividend aristocrat is a company that has increased its dividend every year for the past 25 years or more. Genuine Parts has been doing it for 56 years. Genuine Parts is up 23 percent since the column ran. Not bad for a boring dividend play. In the same column, I recommended Abbott Laboratories (NYSE: ABT), which is up 17 percent. Grade: A

I’m not including any recommendations made within the last three months, as they need time to play out.

I knocked quite a few out of the park, while my wrong… early predictions were far fewer than my good ones. Sprinkle in a few other decent calls, and overall it was a pretty solid year.

When it comes to stock market predictions, it’s impossible to bring home straight A’s. But I constantly strive to constantly improve my game in order to pick more winners and keep the losers to a minimum.

I’ll have plenty more educated predictions and recommendations in 2012, so stay tuned.

Hope you have a great holiday and New Year.

Good Investing,

Marc Lichtenfeld