At the end of 2008, I released my Top 10 Stocks for 2009 and the Top 10 Stocks to Avoid. The purpose of both lists was to offer ideas that investors could use to build a portfolio of long and short positions that could be held throughout the year.
The stocks in both reports have performed very well. So far in 2009, the long positions have generated a positive return of more than 7% as compared to a market that is broadly lower. The stocks to sell have in aggregate lost more than 23% in value.
The results combined have greatly exceeded my own expectations. Typically, I’m comfortable letting my winners win and my losers lose through the entirety of the year. That said, the market is far from typical these days. As such, I wanted to examine some of the biggest winners and losers to determine if locking in gains made any sense. To a certain degree, it may make sense to take action even though the year is only about two months old.
On the long side, the positive returns on the 10 top stocks in the report have been most impressive. The biggest gains so far have come from Tesoro (TSO), Transocean (RIG), Chesapeake (CHK) and Mosaic (MOS). The gains on these four range from 15% for CHK to 43% for TSO.
The market is very much in the grips of a bear that does not appear to be ending any time soon. There may be rallies within the current bear market, but the bias is for stocks to tread water at best. Therefore, any positive gains, especially double-digit gains, need to be closely monitored.
In this case, the big gainers have come from sectors that I believe will do well irrespective of the general direction of the market. Oil prices can be expected to increase during the year, and demand for fertilizer will coincide with strong global demand for agriculture. The gains are nice in these four stocks, but let your winners win here. As for the other selections, my opinion for the year has not changed. I would make no changes to this list.
On the short side, there have been even more impressive moves. On the short side, there have been even more impressive moves. All 10 of the stocks to avoid have lost value ranging from a loss of 4% on the low end to a loss of 61% on the high end.
The biggest losers have been in the airline sector and credit card space. Delta Airlines (DAL) is down 38% so far this year, and United Airlines (UAUA) is down 27%. Credit card company Capital One (COF) lost 61% of its value this year. Another big loser is Eastman Kodak (EK). Its shares are down nearly 37% so far this year.
Just like my top stocks, I would be tempted to let these losers continue to bleed. Hyper-trading is often a sure way to miss out on really juicy gains. That said, I expect the broader market to move in a very tight band of plus or minus 5%. That’s 5% for the entire year. If you shorted the 10 stocks on the list, you would be way ahead of the game.
At the moment, I’m of the opinion that stocks will rally in the short-term. Frankly, I’m surprised it hasn’t happened already. Fear in the market is fairly high, and as a contrarian, that fear should translate to gains.
As such, I fully expect most stocks to rally — including the stinkers on the stocks to avoid list. They may not gain as much, but it’s reasonable to assume that the biggest losers will recover some of their value over the next month or two.
With that I would take the opportunity to cover the four biggest losers mentioned above: Buy back DAL, UAUA, COF and EK. I would leave the remaining six stocks short. Doing so will leave you with a slight long bias to your 2009 stocks to buy and sell portfolio.
