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POSTED: Sunday, October 19, 2008

Everyone loves a bargain, and with stocks down more than 33 percent for the year, several local financial experts think it's time to go shopping.

With investors fleeing the market in droves, Norm Caris, managing director-institutional sales for Caris and Co., thinks prices have been reduced to such depressed levels that it's time to pick up some stocks on the cheap.

“;I think that we have reached a selling climax at this point and, in addition to the bailout package, there is a lot of positive stimulus being put in place that suggest higher prices for the stock market,”; said Caris, a Kauai resident whose hypothetical $20,000 portfolio rose 10.1 percent through three quarters. That performance put him in first place in the Star-Bulletin's seventh annual stock-picking contest.

“;Lower oil prices and a stronger dollar should also help,”; he added.

Caris, who went from worst to first in a period of three months, says investors can find bargains in tech, retail and airlines now.

“;Prices in those areas are very depressed and haven't yet factored in the major decline in the price of oil,”; he said.

Caris, who was down 23.6 percent at midyear, had a phenomenal quarter in which his five holdings collectively soared 44 percent in a down market to elevate his portfolio to $22,013.76 from $15,290 on June 30.

Both his third-quarter and year-to-date performances were impressive considering the Dow Jones industrial average during those periods had total returns of negative 3.7 percent and minus 16.6 percent, respectively.

Caris' peers in the contest struggled.

Barry Hyman, vice president-managing team for the Maui branch of Michigan-based FIM Group Ltd., was second with a 20.7 percent loss to $15,864.47.

Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, was third with a decline of 30.5 percent to $13,896.18.

And Dwight Melton, co-founder of the Hawaii Stocks and Options Group, went from first to worst—swapping places with Caris—as his picks imploded and he ended with a 40.7 percent loss to $11,857.92 at the nine-month mark. Just as remarkable as was Caris' turnaround, Melton's collapse was equally as astounding as his five selections tumbled 40.4 percent in the quarter after being down just 0.4 percent at midyear.

Caris' two stars this year have been textile producer Unifi and Hawaiian Holdings, the parent of Hawaiian Airlines. Unifi doubled to $4.84 while Hawaiian jumped 82 percent to $9.28. Last quarter, Unifi was up 92.1 percent and Hawaiian was up 33.5 percent.

If he hadn't started the year by picking Sharper Image, which eventually filed for bankruptcy and was reduced to pennies, Caris would be even further ahead. He dumped Sharper Image for a 99 percent loss at midyear.

Still, Caris can't complain. He's holding on to Unifi through the end of the year but sold Hawaiian after “;a great run to the upside.”;

Under the rules of the contest, participants are allowed to change their picks at the end of each quarter.

Caris, though, isn't getting out of the airline sector because he's picked up Continental Airlines, which he says is “;the best run major carrier in the country and is more resistant to secular softness experienced locally.”;

He also used proceeds from the sale of Hawaiian, Payless parent Collective Brands (up 5.3 percent) and Novellus Systems (off 28.8 percent) to buy Microsoft, which he says “;represents a great value at this level”; due to its strong balance sheet and steady revenue stream.

Caris says he remains bearish on Hawaii, particularly Alexander & Baldwin, due to its exposure to ocean shipping and the real estate market.

“;I believe we face a softening (U.S.) economy, and therefore there is a limit on the size of the rally that we will see in the near term,”; he said. “;Having said that, I think we will stabilize at higher levels than we see today.”;

Hyman, who through his investing style is patient because he looks for value stocks, said that “;for the patient investor with a multiyear time horizon and the ability to stomach short-term volatility, now is a great time to bargain hunt.”;

“;As long as you are willing to accept a bumpy ride along the way, there are great bargains to be had at present.”;

Sectors he likes are health care, information technology, alternative energy, water treatment, infrastructure and biotech.

Hyman, who has cautioned for years that the U.S. market was overvalued, has benefited from his selection of UltraShort QQQ ProShares, a short fund that corresponds to twice the inverse of the daily performance of the Nasdaq-100 index. With the Nasdaq falling, UltraShort QQQ ProShares chalked up a 45.8 percent gain.

At the end of the quarter, Hyman dumped shares of Toyota (off 18.1%) and oil producer Transmedian Exploration (off 84.8 percent) and used the proceeds to buy SPDR Gold Trust.

“;With the global recession deepening, discretionary spending on vehicles will be disappointing,”; Hyman said. “;Gold should benefit as investors anticipate a weaker U.S. dollar and face low opportunity costs as real risk-free rates remain negative.”;

Dole says that “;fear breeds opportunities,”; but he cautions that the market could be highly volatile over the remainder of the year and that the Standard & Poor's 500 index could drop another 50 percent from current levels before turning around.

“;There is no real refuge,”; he said. “;Stocks that have held relatively well up to now are also vulnerable. However, the market could reverse itself when we least expect it in anticipation of an economic recovery, most likely prompted by some resolution of the financial crisis.”;

Dole's picks are all down for the year, with Alexander & Baldwin the best performer with a negative return of 13.1 percent. He sold technical instrument company Newport (off 15.7 percent) at the end of the quarter and picked up Procter & Gamble to move to a more defensive sector.

Melton revamped his portfolio for the final three months of the year by selling four of his five holdings after seeing those four stocks plunge between 31 and 62 percent. His only winner, which he is selling, is United States Oil Fund (up 8.2 percent but well off its 50 percent gain at midyear). His only holdover is UltraShort Financials ProShares (down 35.4 percent), which rises when the financial stocks go down. For the stretch run, Melton added all short funds: ProShares UltraShort Basic Materials, ProShares UltraShort QQQ, ProShares UltraShort Emerging Markets and ProShares UltraShort S&P 500.

“;The stock market appears likely to continue its precipitous declines, and the trend may continue well into next year,”; Melton said. “;With that in mind, short-selling, or betting against the market, has emerged as a winning strategy.”;

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BEST INVESTMENT IDEAS OF 2008

Hawaii stock experts began the year with a $20,000 hypothetical portfolio:

Norm Caris
Caris and Co.
Position:
Managing director for institutional sales
9/30 return:
+10.1%

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Company	Ticker	Sector	9/30 Close	Shares	9/30 Total return	9/30 value
Unifi	UFI	Textile / apparel	$4.84	1,600	+100.0%	$7,744.00
Hawaiian Holdings	HA	Airlines	$9.28	750	+82.0%	$6,960.00
Collective Brands	PSS	Footwear retailer	$18.31	200	+5.3%	$3,662.00
Taiwan Semiconductor*	TSM	Semiconductor equipment	$9.37	49	-9.4%	$481.76
Novellus Systems	NVLS	Semiconductor equipment	$19.64	150	-28.8%	$2,946.00
Cash**						$220.00
Total						$22,013.76

Portfolio changes: Buying 400 shares of Continental Airlines (CAL) at $16.68 ($6,672.00) and 266 shares of Microsoft (MSFT) at $26.69 ($7,099.54). Selling 750 shares of Hawaiian Holdings (HA) at $9.28 ($6,960.00), 150 shares of Novellus (NVLS) at $19.64 ($2,946.00) and 200 shares of Collective Brands (PSS) at $18.31 ($3,662.00).

 

Barry Hyman
FIM Group Ltd.
Position:
Vice president of management team
9/30 return:
-20.7%

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Company	Ticker	Sector	9/30 Close	Shares	9/30 Total return	9/30 value
UltraShort QQQ ProShares	QID	Double inverse Nasdaq-100 index	$54.72	105	+45.8%	$5,813.77
Nalco Holding	NLC	Water treatment systems	$18.54	226	-12.2%	$4,196.52
Toyota Motor	TM	Automobile	$85.80	37	-18.1%	$3,216.79
RMR Asia Real Estate Fund	RAF	Asia real estate	$7.60	265	-49.6%	$2,014.00
Transmedian Exploration	TMY	Oil exploration and production	$.30	2,030	-84.8%	$609.00
Cash**						$14.39
Total						$15,864.47

Portfolio changes: Buying: 45 shares of SPDR Gold Trust (GLD) at $85.07 ($3,828.15). Selling 37 shares of Toyota Motor (TM) at $85.80 ($3,216.79) and 2,030 shares of Transmedian Exploration (TMY) at $.30 ($609.00).

 

Richard Dole
Dole Capital LLC
Position:
Chief executive
9/30 return:
-30.5%

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Company	Ticker	Sector	9/30 Close	Shares	9/30 Total return	9/30 value
Alexander & Baldwin***	AXB	Ocean transportation / real estate	$44.03	75	-13.1%	$3,367.94
Pfizer	PFE	Medical / drugs	$18.44	200	-15.0%	$3,862.92
Newport	NEWP	Scientific and technical instruments	$10.78	300	-15.7%	$3,234.00
PowerShares QQQ	QQQQ	Index fund	$38.91	70	-23.9%	$2,729.52
iStar Financial	SFI	Real Estate Investment Trust	$2.60	150	-88.6%	$444.80
Cash**						$257.00
Total						$13,896.18

Portfolio changes: Buying 50 shares of Procter & Gamble (PG) at $69.69 ($3,484.50). Selling 300 shares of Newport (NEWP) at $10.78 ($3,234.00).

 

Dwight Melton
Hawaii Stocks and Options Group
Position:
Co-founder
9/30 return:
-40.7%

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Company	Ticker	Sector	9/30 Close	Shares	9/30 Total return	9/30 value
United States Oil Fund	USO	Commodity-oil	$82.01	50	+8.2%	$4,100.50
United States Natural Gas Fund	UNG	Commodity-natural gas	$33.32	61	-31.3%	$2,032.52
UltraShort Financials ProShares	SKF	Double inverse financials index	$100.99	31	-35.4%	$3,136.13
Alpha Natural Resources	ANR	Coal production	$51.43	25	-50.7%	$1,285.75
Massey Energy	MEE	Coal production	$35.67	28	-61.9%	$1,000.02
Cash**						$303.00
Total						$11,857.92

Portfolio changes: Buying 77 shares of ProShares UltraShort Basic Materials (SMN) at $53.25 ($4,100.25); 37 shares of ProShares UltraShort QQQ (QID) at $54.72 ($2,024.64); 13 shares of ProShares UltraShort Emerging Markets (EEV) at $97.05 ($1,261.65); and 14 shares of ProShares UltraShort S&P 500 (SDS) at $70.30 ($984.20). Selling 50 shares of United States Oil Fund (USO) at $82.01 ($4,100.50); 61 shares of United States Natural Gas Fund (UNG) at $33.32 ($2,032.52); 25 shares of Alpha Natural Resources (ANR) at $51.43 ($1,285.75); and 28 shares of Massey Energy (MEE) at $35.67 ($1,000.02)

 

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
Sept. 30, 2008	10,850.66	2,091.88	1,166.36
2008 consensus	13,390.00	2,642.50	1,481.25