by Kyle Woodley | January 1, 2014 6:00 am
We screw up.
That’s the sorry, simple truth about anyone in financial media shelling out stock picks.
Like all humans, we’re fallible — problem is, unlike Mark May botching yet another week of picks on ESPN, or a bout of stuttering by your local sportscaster, any errors from us in the financial media can theoretically have a real impact on people. That’s because while investors might not be hanging on our every word, people do use the broader pool of knowledge and analysis out there to make investing decisions — decisions that affect their pocketbooks, their families, their retirements.
And that’s why a little transparency is in order.
When we get our stock picks right, we want to beat our chests and crow a little — everyone does on the big winners, after all. But on the flip side, we also have a responsibility to tell readers when we absolutely botched a call. It’s our job to get things right, and while no financial pundit will ever bat 1.000, well … some errors are big enough to warrant an explanation. After all, real people might have put real money on our advice.
So without further ado, here are our best and worst stock picks of the year.
And I’ll fall on the dagger first.
Deputy Managing Editor, InvestorPlace.com
I won’t linger on my good stock picks, as happy as I was about them.
For instance, Buffalo Wild Wings (BWLD) surged 95% after my bullish article in February following a disappointing earnings report — the result of sky-high wing prices. (Soon thereafter, I went long BWLD and enjoyed roughly 75% gains myself.) Meanwhile, General Electric (GE) is up about 19% to easily best the market since my late-May call. American Airlines (AAL, then AAMRQ) was my best call — the DoJ didn’t end up stopping the merger with US Airways (LCC), and AAMRQ multiplied several times over my $3 buy-in. Sadly, I was stopped out.
But man, one of my absolute worst calls came on one of the most high-profile stocks out there — Amazon (AMZN) — and I can’t stop kicking myself over it.
Early this year, I wrote a couple of pieces bemoaning the seemingly unrealistic trading of AMZN stock. AMZN then proceeded to do this:
What went wrong?
Truth be told, much of my original argument still holds true. AMZN is wildly overvalued, and investors are putting a lot of faith in the company’s numerous initiatives holding fast. But Amazon is putting some proof in the pudding, especially in the form of Amazon Web Services’ increased success, and its lineup of projects has become too much to ignore.
I said as much earlier this month, then turned tail and went bullish Amazon … so expect it to go to zero next year, because I clearly don’t get AMZN.
As of this writing, Kyle Woodley was long GE.
Feature Writer, InvestorPlace.com
It’s tough to make predictions, especially about the future, Yogi Berra is said to have said, and he only had to contend with six to seven months of baseball season.
When it comes to stock picks, time frames mean a lot. Are you looking for a quick score on a trade, or a long-term value play that will grow slowly over several years?
I tend to favor value investing. I like it when good stocks are beaten down. That’s when they’re cheap. By the same token, I don’t like stocks that are on a hot run — not for new money, anyway. But that means I miss out on plenty of upside, especially when momentum stocks are involved.
American Express (AXP) isn’t a momentum stock, but it sure had a head of steam in 2013. Back in May, AmEx was already up 19% on the year, touching record highs. The company had just hiked its dividend. And I said to stay away. AXP stock looked too pricey at those lofty levels; the easy money had already been made, I said.
Well, that was a mistake. Cost cuts, share repurchases and Street-beating results kept AmEx rising throughout the year. As we close out 2013, AXP stock is up 56%, beating the S&P 500 by a wide margin.
Sorry about that.
In defense of my buy-them-when-they’re-down strategy, I’ve been bullish on FedEx (FDX) all year. The stock was beaten down on earnings misses and profit warnings, and Wall Street sentiment was overly negative. That made FedEx look good to me back in March. Cost cuts, valuation, and stock buybacks all made FDX stock look attractive, I said.
FedEx continued to stumble for a couple of months after I gave it a buy call, but patience paid off. Like AXP, FDX stock is set to close the year with a 56% gain.
Editor, Macro Trend Investor
Sometimes, even the best-thought-out investment thesis turns out to be flat-out wrong.
My biggest blunder of 2013? Shorting Japanese bonds. In the June issue of Macro Trend Investor (formerly the Sizemore Investment Letter), I recommended readers buy shares of the PowerShares DB 3X Inverse Japan Government Bond ETN (JGBD), a leveraged ETN that bets against Japanese government bonds.
I ended up selling about six weeks later at a modest 2.6% loss, but it’s not the portfolio loss that made this my mea culpa for 2013, but rather the opportunity cost. I could have made a fortune in Japan by playing my cards differently.
Let’s flash back to May. Abenomics has been in effect for about five months, and Japan is starting to see its first flashes of inflation in years. The Fed’s initial tapering comments have turned world debt markets upside down, and Japan’s 10-year bond yield has soared from 0.6% to 1% in just weeks.
The moment I had been waiting for appeared to have finally arrived. The bond vigilantes had awoken from their long slumber and had at last come to rout the Japanese bond market.
It certainly took them long enough. Japan’s sovereign debts, at 250% of GDP, are the highest in the world, dwarfing those of the U.S. and Europe. And with annual budget deficits at close to 10% of GDP, Japan has been adding to that debt load at a speed that should be alarming to anyone who cared to look. As I wrote in February:
“Debt service now accounts for 43% of Japanese government revenues and quarter of all spending. Furthermore, more than half of all Japanese government spending is financed by new borrowing … It’s a debtor’s nightmare.”
The house of cards was kept up by Japan’s high domestic savings rate. But as Japan’s population has aged and a much larger percentage of Japanese citizens are now retired, the savings rate has plummeted. At less than 2%, the Japanese savings rate is now lower than that of “spendthrift” Americans.
With Japanese investors no longer in a position to soak up their government’s new bond issues, it left two potential buyers — the international bond market and the Bank of Japan. And at the time, the Bank of Japan already bought 70% of the new bonds issued by the Japanese government. As I wrote in the June issue of Macro Trend Investor
“The way I see it, there are two possibilities here. Either the 10-year sinks back into its long trading range and the day of reckoning is postponed for a while…or things get really choppy really fast.”
Well, as it would turn out, the day of reckoning was indeed postponed. Calm returned to the Japanese bond market, and yields sank back to 0.6%.
If I had it to do over again, I would have simply jumped on the macro bandwagon of going long Japanese equities and short the yen. An ETF that essentially follows this strategy — WisdomTree Japan Hedged Equity (DXJ) — is up 38% during the past 12 months.
Live and learn.
Editor, IPO Playbook
There was little to be disappointed about in 2013 — the market was so good, it was actually difficult to make lousy stock picks. But I still managed.
Perhaps the most cringe-worthy one was my bearishness on Yelp (YELP), which is up more than 240% for the year.
I looked at some of my analysis on the company — and a big worry I had was the competition. Google (GOOG) was continuing to invest in the space, plus there were other tough players such as Angie’s List (ANGI).
But I also was concerned about Facebook (FB), which launched its Graph Search earlier in the year. The idea was that it would lead to lucrative opportunities in the online/mobile local market. FB also would be able to leverage its massive scale and user data.
Of course, Graph Search has been fairly quiet, and overall, Yelp has illustrated the broader lesson that while competition is always a factor to be considered, it can be dealt with. In Yelp’s case, the company had the advantage of a laser-focus on its market, which allowed the company to capitalize on the huge opportunities with mobile.
One of my best wins of the year was Textura (TXTR). While the S-1 itself was pretty revealing, I also got a chance to talk to the company’s CEO, who has a solid vision for the company.
In just a matter of a few years, he built a cloud-based system for developers, contractors and subcontractors that featured construction payment management, electronic signatures, processing of legal documents, review and routing of project submittals, estimates, bidding and risk assessment.
I liked Textura because the construction industry is massive — with global revenues of more than $7 trillion — but also has seen little innovation. In short, it was a big opportunity to build a brand, snag top customers and rapidly generate strong revenues, and Textura has the edge with its aggressive patent strategy.
Since coming public in early June, TXTR stock has surged 163%.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
Sure, I was right in predicting Apple (AAPL) was going to face further erosion of both its smartphone and tablet market share this year — especially if it stuck with incremental upgrades. According to IDC, at the start of the year the iPhone had a 17.3% share of smartphones shipped, while the iPad had a 39.6% share of tablets. By Q3 2013 –Q4 stats won’t be available for a bit, but I doubt Apple’s going to see a miraculous recovery of lost ground– the iPhone was at 13.1% and the iPad had slipped to just 29.6% of tablets sold.
But boy, I was wrong about 3D printing.
I thought 2013 might be the year 3D printing took off in a big way — and on the stock level, it absolutely did. 3D Systems (DDD) will finish with 160%-plus gains in 2013. ExOne (XONE) also will record a doubler-plus, and Stratays (SSYS) should finish up 67%. Voxeljet (VJET) is “only” up 20% after its first day of trading in October, but at nearly $40 as of this writing, it has more than tripled from its $13 IPO price.
However, 3D printing’s blossoming at the consumer level hasn’t been as stellar as I thought it would be.
With 3D Systems landing its 3D printers in big box stores like Staples (SPLS) and all the fuss at CES, it looked like momentum was building. There have been some interesting developments like Stratasys buying Makerbot, but outside of its industrial applications, 3D printing remains a hobbyist activity at the consumer level.
I’m chalking this one up to bad timing. I still think 3D printing is going to blow up in a big way, but it might take another year or two for industry consolidation, retail pricing, patent scuffles and other obstacles to be resolved.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
I had a mixed bag of winning and losing calls in 2013.
One big winner was the bullish article I wrote on Opko Health (OPK) and its extensive insider buying on March 4, 2013. Philip Frost, the billionaire CEO of Opko, was buying up thousands of shares almost on a daily basis. The price of OPK stock then was $6.99, and the closing price today was $11.63 — a gain of 75% in less than a year. Frost has continued to use every single stock pullback as a buying opportunity, and despite a large number of shorts on the stock, it has done quite well this year.
Another big winner was the bullish article on Jan. 15 of two new IPO REITs that invest in single-family homes. One was Silver Bay Realty Trust (SBY), but I was only neutral on their prospects. The one I was really bullish on was Altisource Portfolio Solutions (ASPS), which is up 67% since then (vs. a 24% loss for SBY). I believe I called it right because I knew the market for single-family home rentals was still strong, and because Altisource had a much better business model from the start than Silver Bay.
Unfortunately, this year there were also a few calls that I got wrong.
I wrote an article about extensive insider selling at Texas Instruments (TXN), and said that the selling could be a very bearish sign for that stock. TXN was $33.35 at the time, and just continued a steady climb higher throughout the year. Either the insiders were dead wrong about their own company, or I was wrong about what the selling meant. I think it was me with egg on my face.
Another call I got wrong this year was telling investors to hold off on buying Tesla Motors (TSLA) in mid-May at $92.25 per share. I said it was better to wait for a pullback since the stock had already run from $35 and was thus wildly overbought. Thereafter, TSLA stock ran up to $190 before that pull back ever came. Today’s closing price was $141.60 — a gain of 53% from the day of my article.
Sometimes you just can’t expect a runaway train to derail just because you want to buy it at a better price. Tesla is the classic momentum stock if ever there was one.
As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.
My job as financial commentator is to help readers make educated decisions so they can profit from those decisions. It’s pretty black and white.
Well, about three weeks into Twitter (TWTR) trading as a public company, I was asked about the pros and cons of buying the social media stock. On Nov. 27 (the date of the article) it was trading just shy of $41, $15 higher than its IPO price. I recommended that investors wait until it drops below $30, closer to its $26 pricing.
We all know what happened after that. It went on a 78% tear before hitting the wall Dec. 27. I still believe Twitter is overvalued, but I should have been open to suggesting investors use some fun money (that which you’ll never need) as an early Christmas present to themselves. I hate it when I miss those big moves. For that, I’m sorry.
Target (TGT) also disappointed me — I thought TGT stock was going to fly to new highs thanks to its foray into Canada. Unfortunately, between messing up almost everything about its expansion north of the border and the end-of-the-year credit card breach, it has been a terrible year for everyone in Minneapolis.
One thing I was happy about was my “5 Top Russell 3000 Stocks to Buy in 2013.” None managed to double a second consecutive year, but Patrick Industries (PATK) came close, finishing 2013 up 94%. Combined, my five picks averaged a total return (through December 27) in 2013 of 43.3%, 11.4 percentage points higher than the S&P 500. I’m most proud of these picks because none of them hit the skids a year after delivering tremendous returns for their shareholders. That’s not easy.
The best day in investment journalism is when you help someone make a profitable decision.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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