STAR-BULLETIN STOCK SURVEY
Melton rode momentum stocks to 23.7 percent gain at midyear
STORY SUMMARY »
Local stock expert Dwight Melton jumped aboard the stock market express during the first half of the year and rode the momentum to a 23.7 percent gain.
That put Melton, co-founder of the Hawaii Stocks and Options Group, in a commanding lead in the Star-Bulletin's sixth annual survey of best investment ideas.
Melton's investments were valued at $24,746.16 on June 30 after he and three other local stock experts began the year with a hypothetical $20,000 portfolio.
Rounding out the field are Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, with a 2.6 percent gain to $20,511.83; Norm Caris, a Kauai resident and managing director-institutional sales for Caris and Co., with a 2.4 percent gain to $20,488.38; and defending champion Barry Hyman, vice president-management team for the Maui branch of Michigan-based FIM Group Ltd., with a 10.9 percent loss to $17,819.06.
STAR-BULLETIN
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The major stock indexes have hit either all-time or multiyear highs during the last month.
And local stock expert Dwight Melton, who describes himself as a momentum investor, is going along for the ride.
Melton, a two-time champion in the Star-Bulletin's sixth annual survey of best investment ideas, brought up the rear in last year's contest after his growth picks failed to deliver.
But stocks have taken off again this year and Melton is reaping the benefits with a 23.7 percent gain through the first six months of 2007. Melton's investments were valued at $24,746.16 on June 30 after he and three other stock experts began the year with a hypothetical $20,000 portfolio.
Melton, co-founder of the Hawaii Stocks and Options Group, said the market can rise further this year but that it may need more supportive news for that favorable scenario to unfold.
"A number of reports point to a noticeable pickup in business strength recently, including upticks in job growth, manufacturing, retail sales and non-manufacturing activity," he said.
The other three experts in the contest were far off the pace. Richard Dole, chief executive of Honolulu investment adviser
Dole Capital LLC, was second with a 2.6 percent gain to $20,511.83.
Just behind Dole was Norm Caris, a Kauai resident and managing director-institutional sales for Caris and Co., whose picks were up 2.4 percent to $20,488.38. Defending champion Barry Hyman, vice president-management team for the Maui branch of Michigan-based FIM Group Ltd., was last with a 10.9 percent loss to $17,819.06.
Melton's best performer was apparel manufacturer Guess, which had a total return of 51.8 percent at midyear during a period in which it split its shares 2 for 1.
He also scored with Bolt Technology, which spiked 28.4 percent after he picked it up at the end of the first quarter. Bolt Technology develops and manufactures equipment used in the offshore seismic exploration for oil and gas. Melton's other high flier was iShares Mexico, an index fund that gained 20.3 percent through the first six months.
"I'm a momentum investor," he said. "My approach is very much based on market timing. Momentum investors swing for the fences. For them, 15 percent to 20 percent returns in a year are minimum requirements."
Melton's portfolio was the only one of any of the local experts that showed gains for all investments. His two other selections, iShares Singapore and iShares Malaysia, were up 10.3 percent and 9.0 percent, respectively. Both those picks were added to his portfolio after the first quarter under the rules of the contest that give the stock experts the opportunity to make changes every three months.
"Momentum investors typically hold a stock for a few months," Melton said. "They monitor their holdings frequently and sometimes sell much sooner. Momentum stocks get hammered when something goes wrong. Consequently, momentum investors must act quickly at the first sign of trouble. Momentum investing is not for everyone. It's risky, requires close attention and ironclad discipline."
Unlike Melton, Dole usually holds onto his picks through the duration of the Star-Bulletin contest. He also always chooses at least one local company. It's paid off so far this year for Dole, who saw Alexander & Baldwin jump 21 percent largely due to the strength of subsidiary Matson Navigation Co.'s ocean shipping operations to China. However, he also had a big loser in Newport, a supplier of scientific and technical instruments, which fell 26.1 percent. Among his other picks, the Nasdaq 100 tracking index rose 10.4 percent, defense contractor Lockheed Martin gained 3.0 percent and pharmaceutical giant Pfizer edged up 0.9 percent.
Dole said speculation is starting to creep into the market and he's surprised with stocks' overall strength this year.
"There has been considerable optimism in the market, and with market liquidity and private equity buyouts of companies using relatively cheap money, there has been demand for U.S. and international companies," he said. " I think that some of this demand has been highly speculative."
Dole said high oil prices likely will be a drag on the economy but that "the market can go anywhere this year, but with higher-than-average volatility."
Caris, who started the year by keeping 41 percent, or $8,243, of his $20,000 portfolio in cash, added two stocks -- Alon USA Energy and Novellus Systems -- after the first quarter and made two more changes at midyear. Alon USA, a refiner and marketer of petroleum products, rose 21.7 percent during the three months he owned it but Novellus, which makes semiconductor equipment, fell 11.4 percent during the same time.
His new picks are footwear retailer Payless ShoeSource, which he calls a "great turnaround story" due to management cost-cutting and more efficient operations, and Titanium Metals, a supplier of titanium products that are used for aerospace and industrial applications.
"There's strong global demand for titanium products," Caris said. "Stronger-than-expected demand and increasing orders at Boeing are a good example. Solid insider buying gives a further indication that prospects are good."
Ahead of Caris adding those stocks to his portfolio, Payless was down 3.9 percent through the first six months and Titanium Metals was up 8.1 percent. To buy those stocks, Caris sold optical supplier Oakley (up 41.6 percent) and semiconductor equipment maker LSI Logic (down 16.6 percent). He disposed of Oakley because the company agreed in June to be purchased at a 16 percent premium ($29.30 a share) by Luxottica Group SpA, which runs about 5,500 optical shops around the world. He dumped LSI Logic due to deteriorating business fundamentals and unforeseen difficulties after its acquisition of Agere Systems.
Caris' other holdover pick, Hawaiian Airlines parent Hawaiian Holdings, fell 26.1 percent as it continued to get pressure from the interisland airfare war and competition on its mainland routes.
The best sectors to be in right now are technology and energy, Caris said. He said new products like Windows Vista and the iPhone are a few of the applications that will drive technology spending, while worldwide energy consumption is fueling the global economic boom.
"Housing is still a sector to stay away from," Caris added. "The current environment in housing is terrible and appears to be getting worse. Mortgage defaults are still rising, supply of homes on the market is at multiyear highs, and increased credit restrictions are deterring new buyers. This is especially true in Hawaii, where real estate values have risen at one of the highest rates in the country."
Hyman, who had the best return of local stock experts last year with a 19.5 percent gain, has stuck with his original picks through the first six months while waiting for them to turn around. His only gainer was the iShares Lehman 1-3 Year Treasury Bond Fund, which eked out a 2.1 percent gain. Hyman is still underwater with Japanese megabank Mitsubishi UFJ Financial Group (down 11.1 percent); Ultrashort QQQ ProShares (down 14.9 percent), which is a double-inverse Nasdaq-100 index fund; and Tally-Ho Ventures (down 19.8 percent), a low-priced European niche financial services firm. Hyman said he's still optimistic on the long-term prospects of his one speculative pick, Tally-Ho, because management has been buying stock.
"During periods like the one we are in now, speculative investments can indeed outperform for a time," said Hyman, whose firm seeks out undervalued companies. "So-called growth stocks tend to do well when complacency is high and liquidity abundant as investors caught up in speculating ignore valuations."
Hyman said if bond yields move higher, then stocks are likely to face significant headwinds.
"If not," Hyman said, "the liquidity party could continue, leveraged deals could stay robust, and stocks may benefit more before the inevitable hangover sets in."
BEST INVESTMENT IDEAS OF 2007
Hawaii stock experts began the year with a $20,000 hypothetical portfolio:
DWIGHT MELTON
Hawaii Stocks and Options Group
POSITION: Co-founder
JUNE 30 RETURN: +23.7%
COMPANY |
TICKER |
SECTOR |
SHARES |
6/30 CLOSE |
6/30 TOTAL RETURN |
STARTING VALUE
|
Guess* |
GES |
Apparel manufacturer |
134* |
$48.04 |
+51.8% |
$6,449.77
|
Bolt Technology |
BTJ |
Oil field machinery |
122 |
$44.04 |
+28.4% |
$5,372.88
|
iShares Mexico |
EWW |
Index fund |
75 |
$61.65 |
+20.3% |
$4,623.75
|
iShares Singapore |
EWS |
Index fund |
289 |
$13.64 |
+10.3% |
$3,941.96
|
iShares Malaysia |
EWM |
Index fund |
366 |
$11.80 |
+9.0% |
$4,318.80
|
Cash** |
|
|
|
|
|
$39.00
|
Total |
|
|
|
|
|
$24,746.16 |
No portfolio changes
RICHARD DOLE
Dole Capital LLC
POSITION: Chief executive
JUNE 30 RETURN: +2.6%
COMPANY |
TICKER |
SECTOR |
SHARES |
6/30 CLOSE |
6/30 TOTAL RETURN |
STARTING VALUE
|
Alexander & Baldwin |
ALEX |
Ocean transportation / real estate |
75 |
$53.11 |
+21.0% |
$4,024.23
|
Nasdaq-100 Trust |
QQQQ |
Index fund |
100 |
$47.60 |
+10.4% |
$4,766.65
|
Lockheed Martin |
LMT |
Aerospace / defense |
25 |
$94.13 |
+3.0% |
$2,370.11
|
Pfizer |
PFE |
Medical / drugs |
150 |
$25.57 |
+0.9% |
$3,918.84
|
Newport |
NEWP |
Scientific and technical instruments |
150 |
$15.48 |
-26.1% |
$2,322.00
|
Cash** |
|
|
|
|
|
$3,110.00
|
Total |
|
|
|
|
|
$20,511.83 |
No portfolio changes
NORM CARIS
Caris and Co.
POSITION: Managing director for institutional sales
JUNE 30 RETURN: +2.4%
COMPANY |
TICKER |
SECTOR |
SHARES |
6/30 CLOSE |
6/30 TOTAL RETURN |
STARTING VALUE
|
Oakley |
OO |
Optical supplies |
200 |
$28.40 |
+41.6% |
$5,680.00
|
Alon USA Energy |
ALJ |
Oil refining/marketing |
100 |
$44.01 |
+21.7% |
$4,405.59
|
Novellus Systems |
NVLS |
Semiconductor equipment |
120 |
$28.37 |
-11.4% |
$2,828.04
|
LSI Logic |
LSI |
Semiconductor equipment |
425 |
$7.51 |
-16.6% |
$3,191.75
|
Hawaiian Holdings |
HA |
Airlines |
800 |
$3.62 |
-26.1% |
$2,896.00
|
Cash** |
|
|
|
|
|
$1,487.00
|
Total |
|
|
|
|
|
$20,488.38 |
Changes: Buying 100 shares of Payless ShoeSource (PSS) at $31.55 ($3,155.00) and 175 shares of Titanium Metals (TIE) at $31.90 ($5,582.50). Selling 425 shares of LSI Logic at $7.51 ($3,191.75) and 200 shares of Oakley (OO) at $28.40 ($5,680.00).
BARRY HYMAN
FIM Group Ltd.
POSITION: Vice president of management team
JUNE 30 RETURN: -10.9%
COMPANY |
TICKER |
SECTOR |
SHARES |
6/30 CLOSE |
6/30 TOTAL RETURN |
STARTING VALUE
|
iShares Lehman 1-3 Year Treasury Bond Fund |
SHY |
Index fund |
62 |
$80.16 |
+2.1% |
$5,060.11
|
Mitsubishi UFJ Financial Group |
MTU |
Banking |
401 |
$11.02 |
-11.1% |
$4,438.14
|
Ultrashort QQQ |
QID |
Double inverse Nasdaq-100 index fund |
91 |
$45.61 |
-14.9% |
$4,214.21
|
Tally-Ho Ventures |
TLYH |
Investment management |
4,716 |
$.85 |
-19.8% |
$4,008.60
|
Cash** |
|
|
|
|
|
$98.00
|
Total |
|
|
|
|
|
$17,819.06 |
No portfolio changes
* Shares split 2 for 1 on March 12, 2007; ** Cash will receive the highest rate listed by Bankrate.com, AmTrust Direct (5.23%), at the start of the quarter.
Note: Total return includes reinvested dividends