by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
Wednesday, January 2, 2013: Issue #1939
Editor’s Note: At Investment U, we recommend that all investors take an inventory of how their investment ideas faired over the previous year. Improvement comes with accountability to yourself as an investor. And in that light, Marc Lichtenfeld looks back at some of the calls and picks he made over the past year.
My Investment U Report Card
Investment U is filled with articles that are designed to make you a better investor. Hopefully, throughout the year, you learned some techniques, strategies and new ways of looking at the market.
Throughout the year, along with the columns that are more educational in nature, I have made predictions, both macro and about individual stocks and sectors.
I may not always be correct (as you’ll see below), but I do hold myself accountable for what I write.
Below is my self-graded report card on my specific predictions during 2012.
I wrote a lot about dividends during the year. On December 28, 2011, I authored my 2012 forecast about dividend stocks. In the article I said that in 2012, “The Crowded Trade” chatter would heat up, dividend stocks would outperform, master limited partnerships (MLPs) would become trendy and Apple (Nasdaq: AAPL) would declare a dividend.
The only one that wasn’t correct was on dividend stocks, since they did not outperform the overall market. Surprising, I know, considering how much people were talking about dividend stocks in 2012.
However, the SPDR S&P Dividend ETF (NYSE: SDY) returned 10% while the S&P 500 had a total return of 14%.
Apple, though, did in fact declare a dividend, MLPs became hot and dividends were all anyone could talk about during 2012. (Perhaps that’s because of my book, Get Rich with Dividends.)
On February 1, a few weeks after returning from the J.P. Morgan Healthcare Conference (I’m heading there again on Sunday), I predicted that the biotech and medical equipment sectors would outperform in 2012 and beyond.
Biotech stocks doubled the S&P 500′s performance, climbing 12%, while the S&P came in at 6%. However, medical equipment only logged a 4% rise. If you average the two sectors’ gains, they’re still above the returns from the broad market.
The Bubble That Never Was
Also, in February I said 2012 would see a bubble in MLPs. While they certainly became trendy, there was hardly a bubble. The Alerian MLP Index only gained 5.5% this year. Not exactly bubble-like figures. If tax rates on dividends go significantly higher this year, I wouldn’t be surprised to see a rush into MLPs because of their tax-deferred status. But as far as my prediction in 2012, it was a swing and a miss.
Rolling the Dice
Later in February I wrote about gaming stocks. I mentioned that S.T.A.R.S., which I use in the Oxford Systems Trader, had identified Las Vegas Sands (NYSE: LVS) as an attractive stock. (Subscribers to the service entered the position a month earlier at about $45.) I also suggested avoiding Wynn Resorts (Nasdaq: WYNN) due to infighting with a member of the board and Steve Wynn.
Las Vegas Sands was trading at about $53 when I wrote the article. It eventually hit a high of $62 before coming back down. (Oxford Systems Trader subscribers exited at $54 with a 20% gain in May.) The stock has been a laggard since.
Wynn was trading at around $110 at the time. And despite going up and down about 20 points in each direction, it is right back where it was. So it was smart to avoid it.
Let the Good Times Roll
I’m a big believer in listening to what the markets are telling us. In March, I said the markets were indicating an economic recovery. But with a raging bull market, record corporate profits and investor sentiment that was anything but bullish, I suggested stocks would keep on rising and the economy would continue to recover.
There is little doubt now that the economy did in fact recover. Unemployment fell from 8.3% at the time to 7.7%, and every early economic indicator is pointing in the right direction.
Later that month, I also declared that the bull market was not over. The market went on to rise over 6% from that point.
Two Stocks to Avoid
In May, I singled out two dividend stocks to avoid, Meridian Bioscience (Nasdaq: VIVO) and Portugal Telecom (NYSE: PT). Since the article appeared, the S&P 500 has been flat. Both stocks are as well. I was concerned that, should the companies hit any snags in their businesses, their dividends would not be safe.
Meridian increased its cash flow the last two quarters, lowering the threat level, although net income in each of the last two quarters was below the first quarter of the year. Portugal Telecom, on the other hand, still has a dangerously high payout ratio. That makes it susceptible to a dividend cut if cash flow slips.
Ready for a Rebound
A month later, I picked two stocks that were ready to rebound. Goldman Sachs (NYSE: GS) did just that, rocketing 32%. I argued that the stock was too cheap and the best in the business. On the other hand, Facebook (Nasdaq: FB) didn’t go anywhere.
To be fair, I suggested Facebook was a longer-term pick, but the stock is flat from when the article ran.
The S&P is up 9% since picking both stocks.
Forget Nate Silver
Those who closely followed the election and all the prognostications will remember Nate Silver, and his analysis of the electoral college. He predicted an Obama victory even while all of the polls called it dead even.
In August, I projected that the President would be re-elected because the smart money was signaling it.
As I mentioned earlier, I often use the market to figure out where the world is headed, not the other way around.
Turns out the smart money and I were right.
In early September, just a few weeks before the market topped out for the year, I identified two stocks I thought were candidates for short squeezes. A short squeeze is when a large percentage of a company’s float is sold short, and then those shorts are forced to buy back stock as the share price goes higher, forcing the price to go up even more.
The two stocks I mentioned were iStar Financial (NYSE: SFI) and Regal Entertainment Group (NYSE: RGC). iStar jumped 25% from that date and Regal climbed 18%, compared with the S&P 500 which was only up 3% at the top.
Invest in Israel
At the end of November, I mentioned that now would be a good time to consider buying Israeli stocks. You may recall that hostilities between the Israelis and Hamas had begun two weeks earlier. Historically, Israeli stocks outperformed the S&P 500 once military operations were underway.
The TA-100 Index, the 100 largest stocks on the Tel Aviv Stock Exchange, is down 4% since then, while the S&P is flat.
I still believe that the Israeli market will outperform the S&P over the next year. This is a long-term thesis, so I was tempted to give myself an incomplete, but the underperformance in the past month has been significant.
I hope 2013 brings you health, happiness and prosperity. I’ll do my best to help with the latter.
MarcMarc Lichtenfeld: How I Did in 2012,