When I wrote 6 Big Turnaround Hopes for 2012 last December, the last thing I expected was to get invited on CNBC to talk about my column. I am almost as surprised to be proven correct (at least so far).
Before throwing my hat in the ring to become Warren Buffet’s successor, I decided to take a closer look at my picks now and will revisit them throughout the year to determine whether I made a prescient call or just got lucky.
I have yet to stick my neck out further and actually buy shares in the companies I have chosen, though in some cases I wish I had — and I reserve the right to do so in the future. I think all of the following stocks are still buys except Sears Holdings.
Note: The 2011 performance is as of December 9, 2011. I calculated the 2012 performance as of Thursday’s close. Once again, here are my picks in alphabetical order:
American International Group (NYSE:AIG)
2011 performance: (-59.3%)
2012 performance (+23.44%)
Recent price: $28.57
Average 52-week price target : $30
P-E, trailing 12 months (TTM): 3.03
CNBC’s David Faber gave me a hard time about picking AIG, noting that many investors have gotten burned awaiting a rebound. He was right, of course. The beleaguered insurer had lost at least $1 billion in 10 out of the last 15 quarters. But that was then and this is now.
The company’s better-than-expected fourth quarter results gave investors reason for optimism, in addition to CEO Robert Benmosche’s statement that AIG has repaid the Federal Reserve Bank of New York back in full and has restructured its debt to Uncle Sam to create a “clear exit path” to return to private ownership over the next two years.
On Thursday, the Treasury Department announced plans to sell $6 billion worth of AIG shares.
Last year, I wrote that AIG got hammered because of a record number of natural disasters and would benefit from fewer this year. While technically that’s true, I later learned that investors expect these losses to be covered by reinsurance, so the losses aren’t a factor in their decision about whether to buy shares in a particular insurer.
2011 performance (-36.78%)
2012 performance (+12.36%)
Recent price: $9.79
Average 52-week price target: $11.61
P-E (TTM): 17.78
Alcoa’s fourth-quarter results were lousy, but investors expected them to be. CEO Klaus Kleinfeld, though, sees better times ahead and has stuck with his forecast of aluminum doubling until 2020. He also told CNBC that Alcoa ended 2011 with less debt and $1.9 billion more in cash. Moreover, Kleinfeld noted that his customers are feeling more confident in the strength of the economic recovery.
InvestorPlace Editor Jeff Reeves has called Alcoa the “best stock for 2012.” While I’m not sure I’d go that far, I agree that Alcoa has many positives.
As I noted previously, Alcoa will benefit from an expected rebound in the auto and construction businesses, both of which are huge buyers of metal. If the economy doesn’t falter too badly, Alcoa will do just fine.
General Motors (NYSE:GM)
2011 performance (-40.48%)
2012 performance (+24.42%)
Recent price: $25.42
Average 52-week target: $34.13
P-E (TTM): 5.56
CEO Dan Akerson is a tough man to please. Last year, he said GM”s performance in Europe and Latin America was “not sustainable and not acceptable.” Fourth-quarter results, which beat Wall Street expectatiioms, were not “good enough” for Akerson. That’s a signal that further cost cuts lay ahead.
Lately, though, things are looking up for the Detroit-based automaker. GM’s February sales were better than expected. Chevrolet sales increased a whopping 13%, fueled by the popularity of the Chevrolet Sonic and Chevrolet Cruze. Sales of the Chevrolet Volt plug-in hybrid have been disappointing overall, though they were very strong in February.
If auto sales rise as expected and Akerson can continue to cut costs, GM shares should remain a buy.
Goldman Sachs (NYSE:GS)
2011 performance (-37.48%)
2012 performance (+29.57%)
Recent price: $117.17
Average 52-week target: $134.13
P-E (TTM): 26
Goldman Sachs’ fourth-quarter results were dismal, with profits falling 53%. They were an improvement, however, over the third quarter, when Goldman reported its second-ever loss as a public company. Sadly, the only Goldman unit that did well in the last quarter was investing and trading for its own accounts.
Although Goldman taken some tough knocks, I stand by my earlier hypothesis that it should benefit from increases in mergers and acquisitions and public offerings. It did lose the top spot in the Facebook IPO, though, to JPMorgan Chase & Co. (NYSE:JPM).
2011 performance (-59.04 %)
2012 performance (+55.42%)
Recent price: $108.07
Average 52-week price target: $96.25
P-E (TTM): 25.98
Netflix CEO Reed Hastings ‘screw-ups have been written about extensively, so there’s no need to dwell on them here. What many people seemed to to forget is that Netflix, like all great companies, can learn from its mistakes.
Netflix stunned Wall Street in the fourth quarter when it reported having more than 20 million customers. Analysts were left dumbfounded when Hastings forecasted better-than-expected results in the current quarter because, as he told Bloomberg News: “As more people subscribe, it’s becoming easier to obtain rights from Hollywood studios to air films and television shows over the Internet.”
The shares are currently trading ahead of the average one-year price target, which indicates that Wall Street still doesn’t get Netflix,
Sears Holdings (NASDAQ:SHLD)
2011 performance: (-17.98%)
2012 performance (+143.22%)
Recent price: $73.90
Average 52-week target: $20
P-E (TTM): N/A
Eddie Lampert’s retail empire is just as big a mess now as it was last year, if not more so.
The only reason the shares are up is that investors expect the hedge fund billionaire to take the chain private. The question is, who would want it? Lampert left investors puzzled when he bought $16o million worth of Sears stock earlier this year.
Sears reported a $2.4 billion loss in the fourth quarter but managed to appease investors by announcing plans to sell some stores and spin off others. But Wall Street wants to see real growth.
Follow Jonathan Berr on Twitter @jdberr.