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Catching a Falling Financial Knife

Baron's Top 10 Stock Picks- A Lesson on Sheepherding

Companies / Investing 2009 Mar 11, 2009 - 03:17 AM GMT

By: Mike_Stathis

Companies

Best Financial Markets Analysis ArticleThe following piece is a response to SA Editor, Racheal Granby's wrap-up of a recent Barron's article titled "Ten Stocks to Hold Long-Term."

Granby writes, "With the Dow off more than 50% from its October 2007 peak, there's rarely been a better time for long-term investors to pick up stocks on the cheap. Barron's puts together a list of ten great stocks to hold for five years or longer."


1) Coca-Cola Femsa ( KOF ): The world's second-largest Coca-Cola bottler is down nearly 60% from its 52-week high, closing at $27.67 on Friday. But the company is well-run and continues to grow. It had a healthy $650M of cash as of late February, and bulls think double-digit growth could return by the end of 2010.

My Commentary: I wouldn't touch it unless the dividend was much higher. It makes no sense in this market.

2) Microsoft ( MSFT ): At a recent $15.27, the company's P/E ratio is less than nine based on estimates for this year's earnings. Microsoft is 'a gigantic cash machine' and its dividend yield of 3% beats last week's quote for 10-year Treasury bonds.

My Commentary: I might pick it up in the single digits. Obviously the author has no idea the trouble MSFT is in.

3) ACE Limited ( ACE ): One of the largest global players in the property-casualty field, ACE "is very strong financially, and they have weathered the current environment quite well with a strong balance sheet," says Institutional Capital's Jerry Senser. ACE stands to gain AIG marketshare and talent, and Senser sees high-single-digit growth next year.

My Commentary: Property Casualty? No thanks. Good luck with this one. This sector simply has too much risk.

4) Wynn Resorts ( WYNN ) : Despite a heavy debt load, the company carries $1.1B in cash, providing it some breathing room. Under the assumption that the world will go on and people will still want entertainment, there's plenty of upside potential for Wynn's casinos and resorts.

My Commentary: Do I really need to say anything? Come on.

5) EMC Corp. ( EMC ): The company is well-positioned to take advantage of the growing corporate need to store and protect data. Although the recession will hurt, EMC's profit outlook seems reasonable; analysts expect EPS of $0.91, up from $0.77 in 2008.

My Commentary: I might pick some up at $7 but I certainly wouldn't rate it as a top 10.

6) Cerner ( CERN ): The firm builds and runs data systems, many used to store medical records - a field that could see tremendous growth. Jeff Coons, of Manning & Napier Advisors, thinks the stock is worth $50+ vs. its recent $36.72.

My Commentary: Did the Barron's author ask Coons how much his firm holds? “Could see tremendous growth” doesn't sound like a top 10 great stock to me. How about you? Come back and have a look when it goes to $20.

7) WellPoint ( WLP ): The managed-care company has roughly half its health-insurance business in administering plans for businesses, rather than taking underwriting risk. As a result, earnings are more predictable than some of its peers. Shares could produce annual returns in the mid-to-high teens for the next few years.

My Commentary: It's clear this guy is only pushing the stock because Buffett bought it. I like UNH much more on valuation. But what Buffett does is irrelevant. In fact, if you followed Buffett last year, you're can't be too happy.

8) Google ( GOOG ): Investors who worry about advertising during a recession should accept that to the extent companies are advertising, they're doing so online. Google stands to benefit from the long-term trend of ads moving to the internet. Another plus: Google has zero debt.

My Commentary: GOOG might be a good one once it falls below $100. If you buy it higher than that you are a sucker. Ad revenues are falling like a rock and GOOG isn't diversified as of yet.

9) eBay ( EBAY ): The firm has lots of cash and a strong brand name. The company is also doing everything it can to minimize counterfeit problems, and has strong competitive advantages.

My Commentary: Even the sheep realize this one is a dog. eBay will soon start paying a cash dividend to compensate for its indefinite slower growth.

10) CVS Caremark ( CVS ): The company expanded its retail pharmacy business with its acquisition of Longs Drug Stores for $2.9B. CVS's pharmacy-benefit management business should get a boost from companies' increased efforts to control health care costs.

My Commentary: You're a little late here. The PBMs are going to get hit hard with healthcare reform. This is going to collapse the ridiculous mark-ups charged by pharmacies, that is unless healthcare lobbyists have their way with Obama.

So what's the lesson of this piece? First, Barron's is a complete WASTE OF TIME. Second, you'll notice that Barron's gets quoted by other sites because it's read by a lot of people. This generates the illusion of validity. In reality, it creates a sheep mentality. Of course, that's just my opinion. Always remember this. Journalists are just that. At best, they are skilled in journalism. In reality, it's very hard to find truly skilled journalists. It's even harder to find journalists who aren't driven by misaligned agendas. They have no idea about investments so they rely on others. The problem is that journalists rely on financial professional that have their own agendas, like fund managers, analysts, etc.

Ultimately, journalists covering the economy or the stock market focus on material in a way that encourages the financial industry to spend more money buying ads. The end result is that they rarely deliver value to their audience. So you're better off not wasting time on what they write. The same applies to the Wall Street Journal, Forbes, Fortune and all of the others. I've never subscribed to any financial publications, yet I've managed to do pretty well over the years. If you want to be a successful investor you need to detach yourself from the sheep mentality generated by the media.

Maybe you don't agree. If so, it's likely you don't understand how the media works. If you don't recognize their games by now, either you haven't been paying attention, or else you're certain to remain a sheep indefinitely. If so, don't feel bad because virtually all of Wall Street professionals are sheep as well. The only difference is that they are higher up on the food chain. So they make money regardless, usually at your expense.

Coming in a week (hopefully) is my new website, www.avaresearch.com. Be sure to bookmark it. I will be opening up subscriptions for non-professional investors on a limited, first-come basis.

2

By Mike Stathis
mike@apexva.com

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher. These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.

Requests to the Publisher for permission or further information should be sent to info@apexva.com

Books Published
"America's Financial Apocalypse" (Condensed Version)  http://www.amazon.com/...

"Cashing in on the Real Estate Bubble"  http://www.amazon.com/...

"The Startup Company Bible for Entrepreneurs"   http://www.amazon.com...

Disclaimer: All investment commentaries and recommendations herein have been presented for educational purposes, are generic and not meant to serve as individual investment advice, and should not be taken as such. Readers should consult their registered financial representative to determine the suitability of all investment strategies discussed. Without a consideration of each investor's financial profile. The investment strategies herein do not apply to 401(k), IRA or any other tax-deferred retirement accounts due to the limitations of these investment vehicles.

Mike Stathis Archive

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Catching a Falling Financial Knife