STAR-BULLETIN SURVEY OF
BEST INVESTMENT IDEAS
Local stock experts remain cautious in 2006
Increased mortgage payments, high oil prices and rising interest rates may stifle the market
No one said picking investments was going to be easy in 2006.
Energy stocks, the no-brainers of last year, still appear to have a little gas left in their tank. Small caps, which many experts expected to drop off this year, continue to confound. And gold is at 25-year highs and keeps climbing.
Throw in rising interest rates and high oil prices and you've got what local financial expert Norm Caris calls "a stock picker's market."
Still, the major indexes rose more than most people anticipated during the first three months.
But some local stock experts see consumer spending slowing during the remainder of the year as adjustable mortgage rates are reset higher and the Federal Reserve's interest-rate-tightening campaign takes its toll.
"Fed rate hikes haven't had big impacts immediately, but as the months go by, it's dampening effects on stock prices will get stronger as the market 'connects the dots,' said Honolulu-based Alan Matsuda, a certified financial planner and registered investment adviser. "If the Fed rate hikes don't end this summer, we're in deep kim chee."
To be sure, there were plenty of headwinds during the first quarter of 2006, but all six local stock experts in the annual Star Bulletin investment survey managed to post gains in their hypothetical $20,000 portfolios.
First-quarter leader Richard Dole, the chief executive officer of Honolulu investment banker Dole Capital LLC, boosted his portfolio 7.8 percent to $21,557.86 after putting his money on some holdover picks from last year's contest.
Dwight Melton, the two-time defending contest champion and co-founder of the Hawaii Stocks and Options Group, found himself in fourth after his portfolio rose 4.7 percent to $20,949.66.
Among the other experts, Matsuda was second with a 6.7 percent gain to $21,348.22. Caris, who lives on Kauai and is managing director-institutional sales for Caris and Co., a national institutional research firm, was third with a 6.3 percent gain to $21,254.53. Barry Hyman, vice president-management team for the Maui branch of Michigan-based FIM Group Ltd., was fifth with a 1.1 percent gain to $20,217.86. And in sixth was contrarian and Maui-based investment adviser Irwin Yamamoto, who put his entire portfolio into a money-market account and gained 1.1 percent to $20,216.65.
Among the major indexes, the Nasdaq composite index had a total return, including dividends, of 6.4 percent while the Dow Jones industrial average and Standard & Poor's 500 index were both up 4.2 percent.
Melton, who revamped 80 percent of his portfolio for the second quarter, was confident he won't stay in fourth place for long.
"I should be back on top by the end of the second quarter with my current selections," said Melton, whose momentum-stock-picking style earned him a 72 percent return in 2005.
He dumped laggards Apple Computer (down 12.8 percent), Southwestern Energy (down 10.4 percent) and SanDisk (down 8.4 percent), as well as Helix Energy Solutions Group (up 5.6 percent), which changed its name from Cal Dive International.
In their place he chose iShares MSCI Brazil Index Fund to take advantage of the booming region; Hansen Natural, a beverage company that is the highest-rated stock in its industry group by Investor's Business Daily; Plexus, an electronic components firm that has been targeting new business that employs its underutilized operations in Penang, Malaysia; and Brightpoint, which handles wireless device distribution. The lone surviving stock in his portfolio is Joy Global (up 49.7 percent), which makes heavy equipment for the coal-mining industry.
Melton said Brightpoint, whose ticker symbol is aptly named CELL, is riding the booming business in mobile phones and their accessories.
"I believe this rapid growth will likely continue for the remainder of the year," Melton said. "Beginning in 2006, the introduction of third-generation cell-phone technologies will probably contribute to faster cell-phone replacement, as these technologies offer still higher speeds and more computer applications."
Dole, who finished last in 2004 and 2005, said the double whammy of higher interest rates and oil prices "makes it difficult to make money in this market."
"With a slow-growth economy, stocks with healthy dividends have an advantage over non-dividend-paying stocks and those whose dividends might be cut," Dole said. "Defense spending, government spending on internal security and infrastructure should help stocks of companies in that area."
Dole's top pick in the first quarter was Newport (up 39.3 percent), a scientific and technical instruments supplier that he held at the end of last year. Two other holdovers, defense giant Lockheed Martin (up 18.6 percent) and drug behemoth Pfizer (up 7.8 percent) also were brought over from last year's portfolio. But Honolulu-based Alexander & Baldwin, which he held during part of 2005, disappointed with an 11.7 percent decline.
"A&B lost ground partially because the Kakaako development appears less likely," Dole said. "There are also high risks in Matson's China venture and its real estate developments. Real estate risks include possible cancellations of presold units."
Dole said a wild card for A&B is sugar because international prices have moved up and are approaching the domestic prices because of reduced supply and energy demand for ethanol.
Matsuda, who returned to the contest in 2006 after a year's absence, is using some of his excess cash to buy 100 shares of Seaspan, which owns container ships for the China trade and paid a dividend yield of 7.8 percent at the start of the second quarter. Matsuda, who left more than $3,000 in cash in his portfolio during the first quarter, saw his investment in streetTRACKS Gold Trust top his portfolio with a 12.6 percent gain.
"Stocks rose in the first quarter much more than people expected -- nearly 5 percent for the S&P 500 compared to 4.9 percent for the entire year in 2005," Matsuda said.
"For the remainder of '06, it won't be so rosy due to the immense borrowing that will take place to finance the fearsomely large federal deficit and the frightful effects of General Motors teetering on bankruptcy with its ripple effect."
Hyman, who has taken a defensive position in U.S.-listed stocks, said the best opportunities are foreign-listed securities that don't trade as American Depositary Receipts in the United States.
Since the contest rules prohibit such picks, he fashioned a portfolio that could hold up in case of a flat or down stock market.
Like Matsuda, Hyman's best pick was streetTRACKS Gold Trust, which tracks the price of gold bullion.
"The behavior of gold, up 13 percent so far this year, and the long end of the yield curve up only 50 basis points despite a 375-basis-point move in the fed funds rate, suggest that the level of stock market complacency is unwarranted," Hyman said. "We have low expectations for the performance of the broad U.S. stock markets during the rest of the year."
Caris had two double-digit gainers in the first quarter as Hawaiian Airlines parent Hawaiian Holdings rose 30.6 percent and Oakley, an optical supplier that makes high-performance sunglasses and goggles, advanced 15.9 percent. But Caris is dumping Sirius Satellite after a 24.3 percent loss and replacing it with Taiwan Semiconductor, the world's largest maker of customized chips.
"Taiwan Semiconductor has a big dividend (2.8 percent) and excellent prospects based on a strong management team, solid order growth, and good industry fundamentals going into the second half of the year," Caris said. "The explosion of personal electronic devices has created an opportunity in stocks that are highly leveraged to chip demand."
Still, Caris isn't optimistic for the overall outlook for stocks during the remainder of the year.
"The Fed rate hikes thus far have served to keep pressure on stocks, but as the Fed continues, which I believe it will do, it will continue to keep pressure on the broader equities market,' Caris said.
"When the Fed stops raising rates, other concerns -- a very likely decline in the housing market, for example -- will likely overshadow equities."
Melton acknowledges that there's a lot of uncertainty surrounding what the Fed will do with interest rates in the upcoming months but, unlike Caris, he sees stocks poised to jump.
"As soon as Wall Street senses that the Fed is done raising rates, I expect that there will be a big celebration and the stock market will rally," Melton said.
Yamamoto, editor and publisher of The Yamamoto Forecast, is maintaining his all-cash position and switching his entire portfolio from UmbrellaBank.com to American Partners Bank, which offers the nation's highest-yielding money-market account rate at 4.6 percent, according to Bankrate.com.
"In December 2005, I told Timer Digest that the first quarter of 2006 would be the best quarter of the new year," Yamamoto said.
"I've not changed my stance, except for a few token gestures at higher levels, it's as good as it is going to get for the equities. As the year progresses, stocks are a high-risk proposition."
2006 year-end forecasts
Hawaii stock experts are mixed on whether the major indexes can increase this year.
|
DOW |
Nasdaq |
S&P 500 |
Company |
Norm Caris |
11,253.38 |
2,210.59 |
1,310.70 |
Caris and Co. |
Richard Dole |
11,500.00 |
2,525.00 |
1,275.00 |
Dole Capital LLC |
Barry Hyman |
10,400.00 |
2,200.00 |
1,225.00 |
FIM Group Ltd. |
Alan Matsuda |
11,575.00 |
2,350.00 |
1,370.00 |
Certified Financial Planner |
Dwight Melton |
12,300.00 |
2,500.00 |
1,400.00 |
Hawaii Stocks and Options Group |
Irwin Yamamoto |
10,050.00 |
2,031.63 |
1,179.63 |
The Yamamoto Forecast |
March 31, 2006 close |
11,109.32 |
2,339.79 |
1,294.83 |
2006 consensus |
11,179.73 |
2,302.87 |
1,293.39 |
2005 close |
10,783.01 |
2,175.44 |
1,211.92 |
Star-Bulletin
|
Best investment ideas of 2006
Hawaii stock experts began the year with a $20,000 hypothetical portfolio:
|
RICHARD DOLE
Dole Capital LLC
Position:
Chief executive
Year-to-date return:
+7.8%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
Newport |
NEWP |
Scientific and technical instruments |
202 |
$18.86 |
$3,809.72 |
+39.3% |
Lockheed Martin |
LMT |
Aerospace / defense |
50 |
$75.13 |
$3,771.72 |
+18.6% |
Pfizer |
PFE |
Medical / drugs |
200 |
$24.92 |
$5,029.36 |
+7.8% |
Nasdaq-100 Index Tracking Stock |
QQQQ |
Index fund |
100 |
$41.93 |
$4,195.74 |
+3.8% |
Alexander & Baldwin |
ALEX |
Ocean transportation / real estate |
99 |
$47.68 |
$4,742.22 |
-11.7% |
Cash |
|
|
|
|
$9.10 |
|
Total $21,557.86
|
ALAN MATSUDA
Job:
Certified financial planner and registered investment adviser
Year-to-date return:
+6.7%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
StreetTRACKS Gold Trust |
GLD |
Commodity |
100 |
$58.10 |
$5,810.00 |
+12.6% |
Scudder Global Commodities Stock Fund |
GCS |
Commodities |
400 |
$16.04 |
$6,415.95 |
+6.9% |
iShares MSCI South Korea Index Fund |
EWY |
Index fund |
130 |
$46.65 |
$6,064.50 |
+4.2% |
Cash |
|
|
|
|
$3,057.77 |
|
Total $21,348.22
Changes: Buy 100 shares of Seaspan (SSW) at $21.17
|
NORM CARIS
Caris and Co.
Position:
Managing director for institutional sales
Year-to-date return:
+6.3%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
Hawaiian Holdings |
HA |
Airlines |
1,003 |
$5.21 |
$5,225.63 |
+30.6% |
Oakley |
OO |
Optical supplies |
272 |
$17.02 |
$4,629.44 |
+15.9% |
Unifi |
UFI |
Textile / apparel |
1,316 |
$3.34 |
$4,395.44 |
+9.9% |
Novellus Systems |
NVLS |
Semiconductor equipment |
165 |
$24.00 |
$3,960.00 |
-0.5% |
Sirius Satellite Radio |
SIRI |
Radio |
600 |
$5.07 |
$3,042.00 |
-24.3% |
Cash |
|
|
|
|
$2.02 |
|
Total $21,254.53
Changes: Buy 302 shares of Taiwan Semiconductor (TSM) at $10.06; sell Sirius Satellite
|
DWIGHT MELTON
Hawaii Stocks and Options Group
Position:
Co-founder
Year-to-date return:
+4.7%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
Joy Global |
JOYG |
Machinery / construction and mining |
100 |
$59.77 |
$5,989.42 |
+49.7% |
Helix Energy Solutions Group* |
CDIS |
Oil / field services |
111 |
$37.90 |
$4,206.90 |
+5.6% |
SanDisk |
SNDK |
Computers / memory devices |
64 |
$57.52 |
$3,681.28 |
-8.4% |
Southwestern Energy |
SWN |
Oil exploration / production |
112 |
$32.19 |
$3,605.28 |
-10.4% |
Apple Computer |
AAPL |
Computers / portable music |
55 |
$62.72 |
$3,449.60 |
-12.8% |
Cash |
|
|
|
|
$17.18 |
|
Total $20,949.66
Changes: Buy 86 shares of iShares MSCI Brazil (EWZ) at $39.95, 33 shares of Hansen Natural (HANS) at $126.05, 95 shares of Plexus (PLXS) at $37.57, 118 shares of Brightpoint (CELL) at $31.06; sell Helix Energy, SanDisk, Southwestern Energy, Apple Computer.
|
BARRY HYMAN
FIM Group Ltd.
Position:
Vice president of management team
Year-to-date return:
+1.1%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
StreetTRACKS Gold Trust |
GLD |
Commodity |
77 |
$58.10 |
$4,473.70 |
+12.6% |
Financial Industries |
FNIN |
Life / health insurance |
603 |
$8.50 |
$5,125.50 |
+2.4% |
iShares Lehman 1-3 Year |
SHY |
Index fund |
25 |
$79.99 |
$2,012.93 |
+0.4% Treasury Bond Fund |
Western Asset / Claymore U.S. Treasury |
WIW |
Government agency |
337 |
$11.50 |
$3,929.57 |
-1.8% Inflation Protected Security Fund |
Liberty Global |
LBTYK |
Broadcast services / programming |
236 |
$19.75 |
$4,661.00 |
-6.8% |
Cash $15.16
Total $20,217.86
|
IRWIN YAMAMOTO
The Yamamoto Forecast
Position:
Editor and publisher
Year-to-date return:
+1.1%
|
COMPANY |
TICKER |
SECTOR |
SHARES |
3/31 CLOSE |
3/31 VALUE |
TOTAL RETURN |
UmbrellaBank.com ** |
--- |
Bank money market account |
--- |
4.59% |
$20,216.65 |
+1.1% |
Total $20,216.65
Changes: Buy American Partners Bank at 4.6%; sell UmbrellaBank.com
* Changed name from Cal Dive International
** According to Bankrate.com and calculated on a compounded daily basis from the starting point of the period. The 3/31 close represents where the interest rate stood at the end of the quarter. Cash in other investors' accounts also received the highest rate listed by Bankrate.com