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Supermodels' best and worst of 2005
Yes, I infuriated, entertained and stirred up trouble. Here are my favorite columns and companies of 2005, and the most notorious clunkers.
By Jon D. Markman
Over the past year, I have picked a fight with Warren Buffett; defended Big Oil, Big Pharma, Big Guns, Big Coffee, Big Water and Big Asbestos; battled for a new U.S. Navy destroyer; got chummy with chips; dug the ditch-diggers; shimmied into $200 jeans; and hit for the cycle. In the process, I infuriated a lot of people, helped the rich get richer and did my best to entertain, inform and stir up trouble.
This is the time of year when columnists wax nostalgic on their hits and misses of the year, for the sake of accountability, learning from mistakes and taking any excuse to take a second round of potshots at straw men. In that spirit, then, please join me on a review of Supermodels 2005. (This recap does not include my "12 surprises of 2005" or StockScouter picks, which will be the subject of separate columns.)
My favorite column this year was the one that led the greatest number of readers to cancel their free subscriptions: My mid-June indictment of billionaire investor Warren Buffett over his vanity campaign against the U.S. dollar, titled "How Buffett tripped over the dollar." In the piece, I simply stated that Buffett should stick to his stupendously lucky assembly of a crazy-quilt empire of furniture stores, candy makers, hamburger joints, manufactured homes and insurance firms, and leave the macroeconomic posturing to the currency-trading professionals. His nave political stance against American interests has led to little more than further losses for investors, as the buck has appreciated 15% this year against a basket of currencies. Berkshire Hathaway (BRK.A, news, msgs) shares have advanced but 1%. A few weeks ago, the company said it had reduced its foreign-currency holding to $16.5 billion, from $21.5 billion in the summer. Too bad, so sad. (Heres my own shout from the global macro sidelines: Next year, the dollar will reverse, and resume its slide, favoring his position.)
Recycled
Every year, I interview several new analysts and add them to my forecasting pantheon. In past years, its been Michael Belkin, Phil Erlanger, Paul Desmond, Robert Drach and Lakshman Achuthan. This year, its cycle specialist Tom McClellan. In my Jan. 26 column, Cycle analysts aim to call the market turns, he forecast a rally in late January, a cycle low in June, a top in August, ugliness in October and a rally in November-December. All good. When I checked in with McClellan in mid-October amid the gloom, he advised going all-in, with leverage by the end of the month, to exploit a November rally -- a great call. His cycle work now calls for new highs later this month and a fright show in the second year of President Bushs second term. The market isn't doing anything but what it's supposed to, the way it normally does it," he said.
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In that same column, astrologer ZM, who I can now tell you was Manfred Zimmel, an American-educated Austrian, said he expected 2005 to be dominated by Scorpio companies, by which he meant "dirty and hard" ones like oil driller Burlington Resources (BR, news, msgs), metal processor Oregon Steel Mills (OS, news, msgs), utility Exelon (EXC, news, msgs) and oilfield-services provider Hydril (HYDL, news, msgs). Those stocks are up 72%, 32%, 29% and 39%, respectively since. Zimmel plans to release his Amanita Forecast for 2006 later this week. In the meantime, you should note that the Bradley siderograph, a favorite tool of astro-forecasters, suggests one of the years three most important turning points is due Friday, give or take four days. In this case, because the markets are trending up, that would mean the start of a downturn. Just thought you might want to know.
Strong coffee
In more serious matters, I was happy to have explained the persistent appeal of Starbucks (SBUX, news, msgs) on Feb. 16 (Starbucks genius blends community, coffee) while it was undergoing one of its infrequent bear attacks. Shares have since enjoyed a double-shot with whip, rebounding 24% and hitting a new all-time high last week. Hundreds of readers responded to this article with tales of their own Starbucks obsessions. It is impressive that even in Seattle, where there are so many choices for great coffee from independent vendors at lower prices, people continue to queue up for 10 minutes or more under the sign of the green mermaid. It appears to have emerged as a brand for which there are few substitutes. If youre looking for a new entry point, target the $26-to-$28 range.
Asbestos, on fire
Back in January, I called your attention to the opportunity in companies that would benefit from a government-sponsored fund to help asbestos victims (No quick cure for asbestos stocks). The asbestos-complex stocks had flown after President Bush was re-elected on the belief that Republicans would fashion a friendly bill. But when I wrote, the stocks were consolidating their gains as it appeared the prospects for a bill were 50-50 at best. My own take was that their ascent would resume on any whiff of a possibility that a compromise was forthcoming, and it seems for the most part that has happened. The group of seven stocks listed are up 26.2% since my column, vs. 6.4% for the S&P 500 ($INX), led by a 128% move in McDermott (MDR, news, msgs), a 72% move in USG Corp. (USG, news, msgs) and a 52% move in Crown Holdings (CCK, news, msgs). McDermott still looks good, and inexpensive, as it approaches its 1998 high; Crown is extended but still cheap and may have a long way to go. Look for new rumblings favoring a bill in the first quarter of 2006 after the hearings on Supreme Court nominee Samuel Alito conclude.
Waterworld
Another column that made a nice splash was my big dive into water stocks (Invest in the coming global water shortage). This became a somewhat popular topic in the financial press later in the year, so I was glad to have raised the issue early. The group of stocks mentioned are up 26% since, vs. 5% for the market, led by Aqua America (WTR, news, msgs), up 58%; Consolidated Water (CWCO, news, msgs), up 38%; and American States Water (AWR, news, msgs), up 30%. Aqua is the big consolidator in the industry and continues to impress investors with steady earnings gains and acquisitions, though the shares are pretty pricey; Southwest Water (SWWC, news, msgs) shares, meanwhile, kept up their remarkable streak of no losing calendar years in the past decade. Both are near all-time highs, and would be best bought on 5%-10% pullbacks.
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