Local stock expert sees market sputtering through ‘08
Melton's 0.4% decline outpaced three others in the Star-Bulletin contest at midyear
It's been a tough stock market to make money.
The high price of oil, the housing slump, low consumer confidence. No wonder the Dow Jones industrial average recently fell 20 percent from its closing peak into bear-market territory.
But for one local stock expert, Dwight Melton, it hasn't been too bad of a year considering the obstacles.
Melton, co-founder of the Hawaii Stocks and Options Group, posted just a 0.4 percent decline in his hypothetical $20,000 portfolio at the midyear point in the seventh annual Star-Bulletin survey of best investment ideas.
Riding the strength of oil and natural gas index funds, as well as his bet on Brazil, Melton finished the first six months with $19,911.49 and almost 17 percentage points ahead of his nearest competitor.
Barry Hyman, vice president-managing team for the Maui branch of Michigan-based FIM Group Ltd., was second with a 17.3 percent loss to $16,531.70. Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, was third with a decline of 20 percent to $15,990.17. And Norm Caris, who lives on Kauai and is managing director-institutional sales for Caris and Co., was last with a 23.6 percent drop to $15,290.
Melton said there is a "reasonable chance" the U.S. economy will sidestep a recession in 2008 because of a boost from this past year's multistep reduction in interest rates and the government's rebate program.
Still, he cautions that a material strengthening in the economy might not evolve until the second half of 2009. And that only will happen, he says, "if the troubled housing market manages to finally bottom out."
"Investors are indecisive, as they remain gripped by fears of recession and worries about inflation - the sort of stagflation combination that burdened the 1970s," Melton said.
"My expectation is that the recession concerns are justified, but that the inflation fears will fade as the economy sputters later this year. However, things rarely look promising at the trough of a market cycle."
Melton's energy plays paid off with the United States Oil Fund posting a 50 percent gain through midyear and the United States Natural Gas Fund, which he picked up after the first quarter, gaining 29.8 percent in the three months he owned it.
He also benefited from iShares Brazil, which rose 11.4 percent and UltraShort QQQ ProShares, a double-inverse Nasdaq-100 index fund, up 9.6 percent. Melton bought UltraShort QQQ ProShares after the first quarter.
But Melton, who chases performance more than any of the other stock experts in the contest, decided to sell iShares Brazil and UltraShort QQQ ProShares at midyear as well as his one laggard - iShares China - which was down 22.3 percent.
In their place, he picked up UltraShorts Financials ProShares, a double-inverse fund that benefits when financial stocks decline; Alpha Natural Resources, a coal-mining company that has received a buyout offer from iron ore company Cleveland-Cliff Inc.; and coal producer Massey Energy Co.
Hyman, who was leading the contest after the first quarter, stuck with his same picks during the first half of the year and was both rewarded and cursed.
His selection of UltraShort QQQ ProShares paid off with a 19 percent gain.
But his speculative pick of penny stock Transmedian Exploration, which conducts oil exploration and production, backfired with a 68 percent plunge to 63 cents. He also had losses from Mitsubishi UFJ Financial (off 5 percent), Toyota (down 10.3 percent) and RMR Asia Real Estate Fund (off 22.6 percent).
He's made one change in the third quarter by selling Mitsubishi UFJ Financial and picking up Nalco Holding Co., a provider of water treatment services.
Hyman is calling for the Federal Reserve to make a bold move and raise rates to show support for the U.S. dollar and take some of the speculative money out of commodities.
"My guess, though, is that the Fed stays on hold and keeps up the mixed message of remaining vigilant on inflation while keeping the helicopters ready to go should deflationary forces become visible," he said.
Dole, on the other hand, is calling for further Fed rate cuts.
"Inflation is a longer-term problem, but a lack of liquidity is a more serious near-term issue," he said.
Dole, who has stayed with his stock picks all year, was in the red with all of them.
His least damaging pick was Honolulu-based Alexander & Baldwin (down 10.7 percent); followed by technical instrument company Newport (off 10.9 percent); Nasdaq-100 tracking stock PowerShares QQQ (off 11.7 percent); pharmaceutical giant Pfizer (down 20.8 percent) and real estate investment trust iStar Financial (off 46.4 percent).
Caris, despite trailing the field, had two winners in Hawaiian Airlines parent Hawaiian Holdings, up 36.3 percent, and textile producer Unifi, up 4.1 percent.
Those picks were more than offset, though, by declines in semiconductor equipment maker Novellus (down 23.1 percent); Collective Brands (off 33.1 percent), formerly known as Payless Shoesource; and Sharper Image (off 99 percent), which filed for Chapter 11 bankruptcy in February and received approval on May 30 to sell all of its assets to a group of liquidators.
With Sharper Image practically worthless now, Caris is replacing the company with semiconductor equipment maker Taiwan Semiconductor.
Caris said he sees the market turning around before the end of this year.
"I am broadly positive on the market in general, and believe it will be significantly higher by year end, predicated on the last bit of collapse in the financial stocks," he said.
Best investment ideas of 2008
Hawaii stock experts began the year with a $20,000 hypothetical portfolio:
Dwight Melton
Hawaii Stocks and Options Group
Position:
Co-founder
6/30 return:
-0.4%
[ click image to enlarge ]
Total $19,911.49
Portfolio changes: Buying 31 shares of UltraShort Financials ProShares (SKF) at $156.63 ($4,855.53), 25 shares of Alpha Natural Resources (ANR) at $104.29 ($2,607.25) and 28 shares of Massey Energy Co. (MEE) at $93.75 ($2,625.00). Selling 55 shares of iShares Brazil (EWZ) at $89.29 ($4,944.93) , 60 shares of UltraShort QQQ ProShares (QID) at $44.83 ($2,695.70) and 20 shares of iShares China (FXI) at $130.84 ($2,649.69).
Barry Hyman
FIM Group Ltd.
Position:
Vice president of management team
6/30 return:
-17.3%
[ click image to enlarge ]
Total $16,531.70
Portfolio changes: Buying 226 shares of Nalco Holding (NLC) at $21.15 ($4,779.90). Selling 428 shares of Mitsubishi UFJ Financial (MTU) at $8.80 ($3,794.29)
Richard Dole
Dole Capital LLC
Position:
Chief executive
6/30 return:
-20.0%
[ click image to enlarge ]
Total $15,990.17
Portfolio changes: None
Norm Caris
Caris and Co.
Position:
Managing director for institutional sales
6/30 return:
-23.6%
[ click image to enlarge ]
Total $15,290.00 Portfolio changes: Buying 49 shares of Taiwan Semiconductor (TSM) at $10.86 ($532.14). Selling 1,500 shares of Sharper Image (SHRPQ) at $.17 ($255.00).
* Cash will receive the highest rate listed by Bankrate.com, Countrywide Bank, FSB (3.48 percent) at the start of the quarter; ** Filed for Chapter 11 bankruptcy on Feb. 20, 2008. Note: Total-return figures, as well as stocks that are sold, include reinvested dividends
2008 year-end forecasts
Hawaii stock experts are mixed on whether the major indexes can increase this year.
COMPANY |
DOW |
NASDAQ |
S&P 500 |
Norm Caris |
13,500 |
2,700 |
1,475 Caris and Co. |
Richard Dole |
13,200 |
2,700 |
1,500 Dole Capital LLC |
Barry Hyman |
12,000 |
2,200 |
1,300 FIM Group Ltd. |
Dwight Melton |
14,860 |
2,970 |
1,650 Hawaii Stocks and Options Group |
2007 close |
13,264.82 |
2,652.28 |
1,468.36 |
June 30, 2008 |
11,350.01 |
2,292.98 |
1,280.00 |
2008 consensus |
13,390.00 |
2,642.50 |
1,481.25 |
|