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10 picks from the market's 10 hottest pickers
We hunted down the editors of newsletters with the best long-term records and asked for one stock each of them likes for 2004. Here are their choices.
By Michael Brush
An elite group of stock-pickers in 2003 rode rockets such as Deckers Outdoor (DECK, news, msgs) and Usana Health Sciences (USNA, news, msgs) to gains of more than 400%.
Their stock portfolios advanced 75% or more in 2003, trouncing 99% of all stock mutual fund managers for the year.
They have 10-year annual gains above 13.7%, which puts them ahead of 95% of all stock mutual fund managers, according to Morningstar. And it puts them ahead of the Dow Jones Industrial Average ($INDU) and the Standard & Poors 500 ($INX), up 10.6% and 8.9% a year respectively over the last decade.
Who are these guys? Obscure hedge fund managers you need big bucks to invest with?
No, theyre the brains behind the top U.S. market newsletters -- putting out stock picks and market calls for anyone who ponies up a few hundred dollars a year to subscribe.
As investors look toward 2004, who better to consult for a read on whats in store than the cream of the crop of market letter-writers? To identify 10 of the very best, we turned to Mark Hulbert of Hulbert Financial Digest, which tracks how well most market letters have performed over the years.
So as not to get seduced by some kid with a flash-in-the-pan system that wont work next year, we mainly looked for the best records over the past 10 years or more. And, to get a rich variety of newsletter writers who do well in different kinds of markets, we took the best four or five performers from both the past decade and the past 20 years.
This filter turned up stars like John Buckingham at The Prudent Speculator. His picks are up 24.9% per year on average during the past decade, putting him well ahead of the pack. But you also will see winners such as BI Research, Vickers Weekly Insider Report, The Oberweis Report and OTC Insight. Theyre all up around 14% per year, on average, for the past 10 years.
To avoid missing a hot new star, we also included the newsletter with the best three-year record -- a relative upstart called Coolcat Explosive Small Cap Growth Stock Report.
Here's a look at the 10 top newsletters and their outlooks for 2004; we've listed a single best investing idea for each.
But first, just one more note: Most of these market gurus also manage money in mutual funds or private accounts. So they immediately cry foul when asked for a single pick for the year. They point out that the way to win is to hold a diversified portfolio, not just one stock. Thats true. We cant reproduce their entire portfolios here, though, so the 10 picks listed below might not be a bad place to start investing in the new year.
| Top newsletters | | Rank | Returns | Newsletter | 1-yr. Cost | Pick for 2004 | | 20-year annualized* | | | | | 1 | 15.7% | The Prudent Speculator | $295 | American Software (AMSWA, news, msgs) | | 2 | 12.0% | The Value Line Investment Survey | $299 | Earthlink (ELNK, news, msgs)** | | 3 | 11.0% | The Chartist | $175 | Caterpillar (CAT, news, msgs) | | 4 | 10.3% | Gerald Appel's Systems & Forecasts | $225 | Ishares Trust Select Dow Jones Dividend Index (DVY, news, msgs) | | 5 | 10.3% | John Dessauer's Investor's World | $149 | IndyMac Bancorp (NDE, news, msgs) | | | | | | | 10-year annualized* | | | | | 1 | 24.9% | The Prudent Speculator | $295 | American Software (AMSWA, news, msgs) | | 2 | 14.5% | BI Research | $110 | Bioreliance (BREL, news, msgs) | | 3 | 14.3% | Vickers Weekly Insider Report | $165*** | Rydex Ursa Investors (RYURX) | | 4 | 13.9% | The Oberweis Report | $199 | Euronet Worldwide (EEFT, news, msgs) | | 5 | 13.8% | OTC Insight | $295 | Align Technology (ALGN, news, msgs) | | | | | | | 3-year annualized* | | | | | 1 | +45.6% | Coolcat Explosive Small Cap Growth Stock Report | $139.00 | deltathree (DDDC, news, msgs) | | | | | |
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*Rankings exclude mutual fund newsletters
**Selected by us from among several stocks suggested by Value Line
***Price of e-mail subscription. Hard copy subscription to Vickers Weekly Insider Report costs $350.
Source: Hulbert Financial Digest, surveyed newsletters
The Prudent Speculator
The Prudent Speculator, run by value investor John Buckingham, stands head and shoulders above all newsletters for the long haul. Ten-year annualized returns of 24.7% and 20-year gains of 15.7% a year beat competitors with ease. For 2003, Prudent Speculator picks were up about 100%.
What does the leading newsletter writer see for 2004? Buckingham expects a strong first half for stocks, followed by volatility around the autumn elections. At the end of the year, he sees the Dow up about 10%.
As for individual stocks, a winning trick of Buckinghams is to look for viable companies with lots of cash, low valuation and decent dividends to protect against downside. Then he takes a position and waits for the turnaround. A favorite pick for 2004: business-management software company American Software (AMSWA, news, msgs), sporting $4 per share in cash, a price-to-earnings ratio of about 22 at $6.40 per share and a dividend yield of around 3%.
More on 2004s economic outlook
OTC Insight
OTC Insight editor Jim Collins picks stocks by using a screen he first developed back in 1967. The screen looks for companies with good fundamentals such as powerful sales and earnings growth. He also wants strong relative stock performance, and a decent amount of gains relative to volatility. This system served him exceptionally well in 2003, when his newsletter picks advanced 110%.
Collins is bullish on stocks, believing the Nasdaq could gain an addtional 15% in 2004. The thing that really drives an index is earnings, and what we have seen is just one upward revision after another, he says. His top pick for 2004: Align Technology (ALGN, news, msgs), the maker of the Invisalign teeth-straightening system. Invisalign is a removable, nearly invisible system that straightens teeth faster and less painfully than traditional braces.
The Oberweis Report
With his father running for the Republican nomination for the U.S. Senate in Illinois, Jim Oberweis Jr. has a lot more responsibilities these days at Oberweis Securities, which has three mutual funds besides publishing the Oberweis Report. But it hasnt hurt his performance. The newsletter picks gained more than 100% in value last year. (The Oberweis Micro-Cap Fund (OBMCX) was up 106% in 2003 as of Dec. 26. The Oberweis Mid-Cap Fund (OBMDX) was up 53%. And the Oberweis Emerging Growth Fund (OBEGX) was up 66%.)
Oberweis looks for small and lightly followed companies that have explosive growth. We believe if we find companies in the early stages before Wall Street is aware of them, it allows us to come in at more attractive valuations, he says.
Oberweis is fairly bullish on 2004. Within our subset of small, rapidly growing companies, we are finding more opportunities now than we have found in the last couple of years, he says. But because of the fairly rich valuation for the market overall, he expects stock gains in general will be modestly positive. A top pick for 2004: Euronet Worldwide (EEFT, news, msgs). This is a U.S. company that installs and operates bank ATM networks in Europe. It also sells equipment that lets prepaid cell phone users top off the minutes on their phones.
Coolcat Explosive Small Cap Growth Stock Report
If you thought your bubble-days dream of quitting your day job to trade stocks is gone, think again. Coolcat editor Kevin Kennedy did just that a few years back when the market was hot. His stock-picking system worked so well that he turned it into a newsletter.
Kennedy focuses on tiny stocks with a tradable float of 15 million shares at most. He looks for stocks that break out of trading patterns on big volume. Then he recommends buying those stocks on pullbacks, so long as fundamentals look OK. With this system, his newsletter has produced 45% annualized gains over the past three years.
Though Kennedy usually doesnt make big-picture calls, he speculates the market will rally through April or May and then trade sideways ahead of the election. He thinks the Nasdaq will finish with a 10% to 20% gain for the year. Were pretty bullish because we are fully invested, he says. A top pick for 2004: deltathree (DDDC, news, msgs), a small company that sells inexpensive long-distance phone service based on voice-over-Internet-protocol technology. (This is a topic Ive covered before; see "Who'll be the Internet's Ma Bell?)
BI Research
Editor Tom Bishop picks stocks by using a system he developed in the 1980s. The system apparently still works, because his newsletter picks advanced by about 77% in 2003. Bishops system ranks stocks by weighing a blend of fundamentals, financial strength, relative strength and valuation.
Bishop doesnt usually make broad market calls. When pressed, however, he at least offers that he thinks the stock market will advance in 2004. We are in recovery mode, a lot of the signs are pointing that way, he says.
A top pick for the year: BioReliance (BREL, news, msgs), which runs tests for drug companies developing pharmaceuticals based on biologics. I like outsourcers that can do complicated things for companies quicker and better than the companies can do it for themselves, Bishop says.
John Dessauer's Investor's World
John Dessauer is a value investor who likes to see strong cash flow and a solid balance sheet, especially at companies where management is in the early stages of a turnaround. This strategy has put Dessauer on the top five list of newsletters for 20-year returns. His average return over that period: 10.3%.
Even though he has a value bent, Dessauer sees more gains ahead for the broad market indexes despite the big advances in 2003. The reason? I believe 2004 will be a banner year for corporate profits, he says. Business is lean and mean, so you are at that part of the cycle where any increase in demand has disproportionate effect on the bottom line.
Dessauers top pick: IndyMac Bancorp (NDE, news, msgs), which offers home mortgages. This is a controversial selection, because many investors expect interest rates to rise in 2004, cooling off the housing and mortgage markets. But Dessauer thinks inflation is so low, interest rates actually will go back to where they were last June. Meanwhile, he says, IndyMac is so efficient at processing mortgages, it will gain market share during the year.
The Value Line Investment Survey
Strictly speaking, Value Line Investment Survey isnt a newsletter, but more of giant research service that rates 1,700 companies, offering regular updates on them as well as the economy and the market. No.1-ranked stocks returned an impressive 12% per year over the past two decades, and 38% last year. At any given moment, there are 100 stocks ranked No. 1.
Value line stock research director Steve Sanborn suspects the huge market move in 2003 already has priced in most of the healthy economic gains expected for 2004. The market has moved up so much in the last couple of months that we really think it has gotten ahead of itself, he says.
But Value Lines stock-picking system, which basically seeks growth stocks that are outperforming, still points to good potential returns for two sectors. First, housing stocks such as Lennar (LEN, news, msgs), D.R. Horton (DHI, news, msgs), and Centex (CTX, news, msgs) have decent backlogs and good valuations. And sales are growing nicely at Internet-based vendors like Amazon (AMZN, news, msgs), 1-800-Flowers.com (FLWS, news, msgs) and Earthlink (ELNK, news, msgs). Value Lines Sanborn wont let himself be pinned down on a single pick for the year, so well do it for him. Well skirt the home builders because of the chance that the housing market may be in a bubble. Instead, well nominate Earthlink because it has the most compelling upward earnings estimate revisions in the Internet group.
The Chartist
As the name of his newsletter suggests, Chartist editor Dan Sullivan uses technical analysis to pick stocks for his readers. He especially likes relative strength. Using this system, hes up 11% a year on average over the past two decades.
Sullivan expects choppy trading, but he thinks the market will trade higher at least through June based on an indicator he uses called the 90% rule. Ever since 1971, whenever 90% of the New York Stock Exchange stocks have traded above their 10-week moving averages, the market always has been higher twelve months out. The last signal tripped in June, so that suggests gains at least through the first half of 2004.
A top pick for 2004: Caterpillar (CAT, news, msgs), which makes farm and construction equipment. It is a perfect staircase pattern, and its industry group is very strong, says Sullivan. A staircase pattern is positive because it suggests enough investors are still bullish on the stock that they step in and buy during corrections. The stock was up more than 83% in 2003 and has been trading at multi-year highs. This means everybody has a profit, and no one is under any pressure to sell, says Sullivan.
Gerald Appel's Systems & Forecasts
This newsletter picks exchange traded funds (ETFs) that have relatively low volatility and solid relative strength. ETFs arent stocks. Rather, theyre fixed baskets of stocks that represent sectors or indices. (Well include an ETF here, for a little diversification.) The Appel newsletter hits the top-five list for 20-year returns, with 10.3% annualized gains in that time frame.
Marvin Appel, co-editor of the newsletter, expects moderate gains for stocks next year and a continued shift from speculative names to blue chip stocks. Thats one reason his top pick is the Ishares Trust Select Dow Jones Dividend Index (DVY, news, msgs), the ETF representing the Dow Jones Select Dividend Index. This ETF, as the name implies, is made up of 50 of the markets highest dividend-yielding stocks. The focus on dividends could offer protection in a downturn, and investors should continue to seek such stocks since recent tax law changes give better tax treatment for dividends. The ETF was launched on Nov. 7 and was up 5.3% so far.
Vickers Weekly Insider Report
This newsletter has posted a healthy 14.3% annualized gain over the past 10 years by picking stocks where insiders -- or top managers and directors -- are buying heavily. Because of the avalanche of insider selling in recent months, Vickers editor David Coleman is bearish. I dont really feel comfortable picking and going long stocks, because there is an impending correction on the horizon, he says.
Instead, hes advising readers to buy shares of Rydex Ursa Investors (RYURX), a fund that uses futures, options and short selling in a way that makes it move up when the S&P 500 sinks.
The fund was down 23% for 2003 as of Dec. 26. But it generated returns of 17.5% in 2000, 16.3% in 2001 and 22.2% in 2002.
Insiders dont unload boatloads of shares across the board if they believe stock prices are sorely undervalued, cautions Coleman.
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