Related Resources See how more of Jim's Future Fantastic picks are doing Jubak's Journal Recent articles: • China: the dragon that isnt, 7/15/2005 • 5 infrastructure boom bets, 7/13/2005 • Let China buy Unocal, 7/12/2005 More... | Jubak's Journal 10 stodgy stocks with fantastic futures The newest members of my Future Fantastic 50 portfolio are agents of change bringing important new ideas to fields like energy, infrastructure, data and marketing. By Jim Jubak Whatever happened to the future? It sure seems a lot less exciting than it used to. Remember way back in the run up to the bursting of the Nasdaq stock bubble in March 2000? Sure, some of those companies turned out to be shamelessly hyped. Some had cooked their books, or worse. And some were the equivalent of pyramid schemes. But the bubble wouldn't have lasted as long as it did, nor inflated as far as it did, if there hadn't been some reality to the visions of the future that danced in our heads. The Internet really did revolutionize business, entertainment, retailing and communication. The wireless phone did produce massive changes in behavior. Biotechnology companies did produce extraordinary new drugs to fight cancer and other diseases. And companies like Cisco Systems The excitement of those stocks, I'd be the first to admit, was a key motivation in launching the Future Fantastic 50 portfolio in July 1999. The idea, as I wrote in my July 30, 1999, column ("Votes are in! See the Future Fantastic 50 stocks"), was to come up with a list of stocks that would pass this simple test: If you were to look at this list five years in the future, you'd say about each entry: "Boy, I wish I'd have bought that five years ago, and I'd sure be willing to hold it for another five years." How did they fare? And now? It's hard to gaze across the stock market and feel anything like that sense of excitement about the next 10 years. Change hasn't slowed much, but the nature of that change and the character of the companies that embody it have. Looking out over the next 10 years -- as I do for the annual revisions of my Future Fantastic 50 portfolio -- the agents of change are energy providers and infrastructure builders, data collectors and data manipulators, and mass marketers and market extenders. There's no way that those companies are as sexy as those in the class of 2000. I mean, come on now, Chicago Bridge and Iron Related news and commentary on MSN Money So, this year's update for the Future Fantastic 50, like last year's revision, emphasizes traditionally stodgy industries that, over the next five to 10 years, will revolutionize parts of the global economy. That worked well last year. From July 20, 2004, to this July 14, the Future 50 portfolio gained 21.8%, far ahead of the 12.3% gain for the Nasdaq and the 10.5% gain for the S&P 500. It's the second straight year that the Future 50 has beaten those two indexes. (Last year, it was a 12.9% gain for the Future 50, a return of 10.2% for the Nasdaq and a return of 11.1% for the S&P 500.) 10 stocks leaving the Future 50 Since its start six years ago, this portfolio is down 19.6%, which essentially matches the 19% drop in the Nasdaq but trails the 8% loss on the S&P 500, largely because of the dividends paid by the stocks that make up that index. The annual revisions of the Future 50 are designed to produce about 20% portfolio turnover. Every year I look for five stocks to move out of this very aggressive portfolio and into the more conservative blue-chip 50 Best Stocks in the World portfolio when I revise that list in September. This year, I'll transfer Adobe Systems And every year I look for five stocks to drop from the list, either because they've been acquired or because the company hasn't lived up to its business promise. This year in this group I'm dropping MBNA The replacements My 10 replacements for the Future 50 are: In energy and infrastructure: Evergreen Solar In data collection and data manipulation: First Marblehead In mass marketing and market extension: Accor Remember this That's 10 new stocks for the Future 50 portfolio for 2005-2006. We'll see how this revision stacks up in July 2006. Please keep this in mind, though, as you do your own due diligence on this list: Inclusion in this portfolio indicates that I think the stock is a good long-term investment. It is not, however, a recommendation to buy the stock at its current price. Even great stocks can get too expensive from time to time. The key is to identify stocks on this list that you'd like to own for the long term and track them until you see a decent buying opportunity. I indicate those stocks that I believe are trading at such buying-opportunity prices by giving them a "buy" rating for new money. I try to update these ratings as I can, but I almost never meet my goal of revising them every quarter. The maximum number of "buy" rated stocks at any one time is 10. My eight buy-rated stocks as of July 19 are: Accor, Affymetrix And, a final caveat: The stocks in this portfolio are very volatile and these stocks are best suited for aggressive investors. Even then, they should be owned as the edge surrounding a more conservative core portfolio. All that said, into the future! New developments on past columns 6 stocks for a second half growth rally OK, I'm a little more convinced. In my July 8 column, I wrote that the stock-market trend seemed to be moving in favor of growth stocks, but that I wanted to see more data before moving my picks in that direction. We've got a little more data now; it continues to favor growth over value. The June industrial production numbers, Friday, were up a strong 0.9%, well above the expected 0.4% increase. Manufacturing production climbed 0.4% (utility output was up 5.3%). Industrial production is now up 3.9% over the last year. So, I'm going to take profits in one of my value stocks and buy a growth stock to replace it. That's not a huge move, but step by step . Changes to Jubak's Picks Sell Engineered Support Systems This value stock has lost all momentum in the aftermath of the company's June 1 profit warning for fiscal 2005, which ends in October. The stock has held up well after an initial drop because investors trust that the news was a one-time problem and that this well-managed company will deliver 2005 earnings as projected. But that's also the problem: I don't see a good chance for Engineered Support Systems Buy Alcatel I wouldn't call this a daring move toward growth since Alcatel And the company delivered a solid down payment on that projected growth when it announced preliminary second-quarter earnings on July 12. (Final earnings will be reported on July 28.) Revenue climbed 8% from the same period in 2004 and earnings per share either ticked up slightly or stayed steady depending on the final size of a one-time capital gain. Revenue grew across almost all the company's business segments --Internet routing, optical transmission, business networking and mobile communications -- which is great news for future earnings. Thanks to what some criticized as draconian cost-cutting and downsizing, Alcatel's earnings are highly leveraged to any sales growth. They are leveraged more so than many competitors who better weathered the post-2000 downturn in telecommunications and Internet gear. As of July 19, I'm adding the French Alcatel to Jubak's Picks with a December target price of $16 a share. Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Canadian Nature Resource, RF Micro Devices, and Whole Foods Market. He doesn't own short positions in any stock mentioned in this column. | ||||||||||||||||
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