2006 STAR-BULLETIN SURVEY WRAP-UP
Wary stock expert outwits peers for index-beating 19.9% return
FIM's Barry Hyman was surprised by the market's strength but is cautious due to investor "complacency"
Three out of four positive years for the Dow Jones industrial average. A strong fourth quarter in 2006. The Federal Reserve's pause in raising interest rates.
It appears the good times are rolling for U.S. stock investors.
But not so fast, cautions Barry Hyman, vice president-management team for the Maui branch of Michigan-based FIM Group Ltd.
Hyman, who achieved the best performance in the annual Star-Bulletin survey of best investment ideas in 2006 with an index-beating 19.5 percent return, hasn't changed his stance about the U.S. market despite his success.
"I see the market poised (in 2007) to disappoint investors who expect a repeat of the complacency seen in 2006," he said.
Hyman, whose performance in the fourth quarter was flat after leading at the three-quarter mark with a similar 19.5 percent gain, still had enough of a lead to hold on against five other local stock experts.
Hyman, who began the year with a hypothetical $20,000 portfolio, ended with $23,897.40. He was the only stock picker to beat the Dow, which ended the year up 19 percent, including reinvested dividends.
Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, was second with a 15.5 percent gain to $23,104.39. Norm Caris, who lives on Kauai and is managing director-institutional sales for Caris and Co., a national institutional research firm, was third with a 14.4 percent gain to $22,875.10. Alan Matsuda, a Hawaii Kai-based certified financial planner and registered investment adviser, was next with an 8.4 percent return to $21,680. Maui resident Irwin Yamamoto, editor and publisher of The Yamamoto Forecast, was fifth with a 4.9 percent gain to $20,973. And two-time defending champion Dwight Melton, co-founder of the Hawaii Stocks and Options Group, was last with a decline of 19.9 percent to $16,015.73.
Hyman, who changed some of his picks during the year, saw Florida insurer 21st Century Holding produce his best individual performance in the fourth quarter. Hyman added 21st Century to his portfolio at midyear and, after enjoying a 42.5 percent gain by the stock in the third quarter, sold half of his position. The remaining shares went up an additional 29.2 percent in the fourth quarter.
However, the iShares Lehman 1-3 Year Treasury Bond Fund, which Hyman held all year, managed just a 3.9 percent gain over 12 months.
"2006 was a great year for equity investors and a poor one for U.S. bond investors," Hyman said. "Bonds whipsawed over the year as interest rates rallied in the first half, then fell as the housing market grew worse in the second half. Stocks hiccuped in May, but then were strong, with very little volatility through the second half.
"I was surprised by the strong showing of the U.S. stock market given an inverted yield curve (short-term bond yields are higher than long-term bonds) and other indicators pointing to an economic slowdown."
Dole, enjoying his best year ever in the five-year-old contest, was the lone participant to stick with the same picks for the entire year. It's hardly a surprise why he kept the status quo as four of his picks scored gains and three of them had double-digit returns.
His best selection, Newport, a supplier of scientific and technical instruments, soared 54.7 percent.
"The largest source of business for this company is scientific research," Dole said. "It serves industries such as semiconductors, fiber-optics, photonics (the manipulation of light), lasers and so forth. Its earnings are on an upward trend."
Regarding Dole's other picks, defense giant Lockheed Martin jumped 47 percent; pharmaceutical behemoth Pfizer rose 15.2 percent and the Nasdaq100 index, which contains the largest non-financial securities on the Nasdaq, gained 7.1 percent. His only loser was Honolulu-based Alexander & Baldwin, which fell 16.5 percent.
Dole said the market exceeded his expectations last year but, in doing so, "took from any significant upside in 2007."
"In other words," he said, "the market might be ahead of itself. Energy and commodities continued to be strong. I don't expect this to continue."
Caris, who had a 1.7 percent loss after three quarters, made up a lot of ground in the fourth quarter as his picks finally came around. Semiconductor equipment maker Novellus soared 42.7 percent for the year; optical supplier Oakley rose 37.8 percent; Hawaiian Holdings, parent of Hawaiian Airlines, jumped 22.8 percent; and Taiwan Semiconductor, which was added after the first quarter, had a nine-month return of 16.8 percent. His overall performance was dragged down by Sirius Satellite Radio, which Caris picked at the start of the year and then unloaded after it fell 24.3 percent in the first quarter.
"The market performed better than we had anticipated toward the end of the year," Caris said. "However, it was a stock picker's market, as evidenced by the underperformance seen in a large part of the hedge fund community."
Caris, whose firm covers Hawaiian and has a "buy" rating on the stock, said he continues to like the airline.
"Mark Dunkerley is a very successful, focused CEO," Caris said. "Hawaiian is a top nationwide on-time competitor with a strong brand name in Hawaii, and has significant leverage to lower energy prices. The company maintains a strong balance sheet and offers the best equipment serving Hawaii. Additionally, it is clear that the new competitor to the market, Mesa's go!, continues to be a flop."
Matsuda, who led the contest at midyear with a return of 8.3 percent, barely budged in the second half of the year after selling off his portfolio and going to all cash -- getting the highest rate (5.2 percent) listed by Bankrate.com -- in the final quarter. The move to cash backfired as the Dow jumped 7.4 percent, including dividends, during that three-month period.
"The market did so well in the fourth quarter because the Democrats' (election) victory demonstrated that most Americans want us to get out of Iraq soon," said Matsuda, who has declined to participate in the 2007 Star-Bulletin contest. "President Bush and the GOP misjudged this in a big way. Also, corporate earnings continue to be good for the most part, and 2006 merger activity was good with more mergers in process that have eased several major bankruptcy anxieties -- airlines, for example."
Yamamoto, who remained in cash the entire year, plans to short the market this year and also has declined to participate in this year's contest.
"The stock market was very lucky to escape 2006 with a false perception of a soft economic landing," Yamamoto said. "Despite the new record the Dow achieved and the multiyear highs of the other market indicies, the harsh reality is business growth is slowing down -- substantially. Historically speaking, equities mirror the health of the economy. Sooner or later, a weak business landscape translates to a lower market."
Yamamoto expects double-digit corporate earnings growth to be a thing of the past and that companies should consider themselves fortunate if they can experience single-digit growth in 2007.
"The housing industry is on the verge of collapse," Yamamoto said. "In my estimation, this real estate debacle is only in the top half of the second inning of a nine-inning ballgame. The bad news coming out of the housing sector will start to negatively impact the overall economy in 2007."
Melton, who in the contest has lived and died with growth momentum stocks, took it on the chin in 2006 after winning the contest the past two years. He dumped losing stocks during the year to pick up lost ground and ended the year with five different stocks in his portfolio than when he started. His best performer was pegged on a foreign country, iShares MSCI Brazil Fund, which rose 19.7 percent after he added it to his portfolio after the first quarter.
"2006 proved to be the best year for equities since 2003, with the Dow surpassing 12,000 for the first time ever, the S&P 500 index hitting a six-year high, and the tech-heavy Nasdaq recouping a portion of the sharp losses sustained early in the decade," Melton said.
"My crystal ball for 2006 had forecast another 12 months of solid economic growth, some stabilization in oil prices, a likely halt to Fed rate hikes, and a year of strong earnings growth."
Despite his positive outlook, though, Melton's early bets on energy, commodities and technology didn't pan out and he was forced to play catch-up during the rest of the year.
Best investment ideas of 2006
Hawaii stock experts began the year with a $20,000 hypothetical portfolio:
Barry Hyman
FIM Group Ltd.
Position: Vice president of management team
2006 return: +19.5%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
21st Century Holding |
TCHC |
Property / casualty insurer |
181 |
$23.75 |
$4,316.86 |
+29.2%
|
iShares Lehman 1-3 Year |
SHY |
Index fund |
25 |
$79.96 |
$2,083.27 |
+3.9% Treasury Bond Fund
|
Cimarex Energy |
XEC |
Oil / natural gas |
168 |
$36.50 |
$6,138.06 |
+3.8%
|
Short MidCap 400 ProShares |
MYY |
Index fund |
57 |
$63.59 |
$3,736.23 |
-1.7%
|
Financial Industries |
FNIN |
Life / health insurance |
603 |
$7.60 |
$4,582.80 |
-8.4%
|
Action Products International |
APII |
Educational toys |
1,913 |
$1.53 |
$2,923.18 |
-13.2%
|
Cash |
|
|
|
|
$117.00 |
|
|
Total $23,897.40
|
Richard Dole
Dole Capital LLC
Position: Chief executive
2006 return: +15.5%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
Newport |
NEWP |
Scientific and technical instruments |
202 |
$20.95 |
$4,231.90 |
+54.7%
|
Lockheed Martin |
LMT |
Aerospace / defense |
50 |
$92.07 |
$4,676.16 |
+47.0%
|
Pfizer |
PFE |
Medical / drugs |
200 |
$25.90 |
$5,373.69 |
+15.2%
|
Nasdaq-100 Index Tracking Stock |
QQQQ |
Index fund |
100 |
$43.16 |
$4,329.55 |
+7.1%
|
Alexander & Baldwin |
ALEX |
Ocean transportation / real estate |
99 |
$44.34 |
$4,483.89 |
-11.7%
|
Cash |
|
|
|
|
$9.20 |
|
|
Total $23,104.39
|
Norm Caris
Caris and Co.
Position: Managing director for institutional sales
2006 return: +14.4%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
Novellus Systems |
NVLS |
Semiconductor equipment |
165 |
$34.42 |
$5,679.30 |
+42.7%
|
Oakley |
OO |
Optical supplies |
272 |
$20.06 |
$5,505.59 |
+37.8%
|
Hawaiian Holdings |
HA |
Airlines |
1,003 |
$4.90 |
$4,914.70 |
+22.8%
|
Taiwan Semiconductor** |
TSM |
Semiconductor equipment |
311.1 |
$10.93 |
$3,549.27 |
+16.8%
|
Unifi |
UFI |
Textile / apparel |
1,316 |
$2.45 |
$3,224.20 |
-19.4%
|
Cash |
|
|
|
|
$2.04 |
|
|
Total $22,875.10
|
Alan Matsuda
Job: Certified financial planner and registered investment adviser
2006 return: +8.4%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
E-Loan* |
---- |
Bank savings account |
---- |
5.12% |
$21,680.00 |
+1.3%
|
|
Total $21,348.22
|
Irwin Yamamoto
The Yamamoto Forecast
Position: Editor and publisher
2006 return: +4.9%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
E-Loan* |
---- |
Bank savings account |
---- |
5.12% |
$20,973.00 |
+1.3%
|
|
Total $20,216.65
|
Dwight Melton
Hawaii Stocks and Options Group
Position: Co-founder
2006 return: -19.9%
Company |
Ticker |
Sector |
shares |
12/31 close |
12/31 value |
total return
|
iShares MSCI Brazil |
EWZ |
Index fund |
86 |
$46.85 |
$4,112.58 |
+19.7%
|
Hansen Natural*** |
HANS |
Beverages / non-alcoholic |
132 |
$33.68 |
$4,445.76 |
+6.9%
|
OM Group |
OMG |
Chemicals |
35 |
$45.28 |
$1,584.80 |
+3.0%
|
CPI |
CPY |
Portrait studios |
77 |
$46.49 |
$3,592.79 |
-3.9%
|
Gymboree |
GYMB |
Children's clothing |
55 |
$38.16 |
$2,098.80 |
-9.5%
|
Cash |
|
|
|
|
$181.00 |
|
|
Total $16,015.73
|
* Return for fourth quarter. Cash accounts pay interest according to the highest rate listed on Bankrate.com. The cash is calculated on a compounded daily basis from the starting point of the period. The 12/31 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.
** Adjusted for 3.0% stock dividend paid on July 19, 2006; *** Adjusted for 4-for-1 stock split on July 7, 2006