Monday, December 31, 2007

ValuePlays: Best and Worst Calls of 2007

It is the end of the year and it is time to take credit for the prophetic like calls I have made and then take my lumps for the, well, "was he drinking?" ones.


1- Starbucks (SBUX). On Feb 8th, with shares at $33, I wrote, "The switch to premium coffee is clearly working for McDonald's. In the last couple conference calls they have given huge credit to their coffee for both their increase in sales and customer counts. Contrast this to Starbucks' call in which they intimated their profit increases were mainly due to price increases on coffee and by selling customers more products once inside, not by increased customer counts. Translation, they are losing people to McDonalds (MCD)."

Since then Starbucks shares have cratered, down 40% and McDonalds shares are up 40% to all-time highs.

2- Oil (USO). On Jan. 30th, I wrote with oil at its lowest point since the index was created, "If you are long term (years) you are really only looking at supply and demand, as long as it does not change from its current long term trend, the price must go up." Since then the price has risen roughly 70%.

3- Harley Davidson (HOG): On Feb.7th with shares at $70 I wrote, "It will get cheaper". The initial price point was set at $60 and was then was reduce over the summer to under $45, where shares sit today, a 35% decline.

I have a feeling I will end up buying Harley shares around $40 in the not too distant future.

4- Dow Chemical: On 12/7 I wrote: "How about using the very same strategy they have been using for the past year? Selling chunk of this business to outsiders and placing them into the Joint Venture (JV) category. This would provide Dow billions of dollars instantly to be deployed in buying some specialty chemical makers without impairing the balance sheet."

The next week Dow did just that.

5- Ethanol: In January I said that 2007 & 08 will be a battle for the hearts of the FOS's (fly over states) for politicians and that battle would be fought with ethanol. Each party would battle to bring the largest biofuel mandate to that area and the #1 benefactor would be Archer Daniels Midland (ADM). Sure enough the 2007 Energy Bill featured massive biofuel increases. ADM? Up 50% since January.


1- Google (GOOG). On Feb. 2nd, I wrote with shares of Google at $500 "I repeat my prior statement. Google is a great company with great product, it's stock is just overpriced."

Since then shares have risen 35% to $685. I still think it is overpriced, maybe next year we will be able to move this one to the "best call column". Who knows...

2- Apple (AAPL). On May 16th, with shares at $110, I wrote "the introduction of the iPhone will be the first miscue for the company and send it's shares, priced for perfection tumbling."

Shares since then have risen 63% to $185. Here was the flaw, iPod and especially Mac sales have exploded and with it, the profitability of the company. iPhone sales have been "lukewarm" or "spectacularly average"? It surely has not been a flop but it has not been a smash hit either. The real winner in the iPhone rollout was AT&T (T), the sole carrier of the product. In all fairness to myself I did also say the phone at $599 was way over priced and apparently Apple agreed (or sluggish sales indicated) as the price was dropped 33% to $399 almost immediately after roll-out and $100 refunds given to early buyers. In my initial May post I did say "drop the price to $299 and you'll have something". Apple met me more than half way.

With Verizon (VZ) and Research in Motion (RIMM) the Blackberry maker coming out with touch screen phones in '08, it will be interesting to see how iPhone sales are effected.

The Jury is Still Out

1- Citigroup (C): Down 30% since first purchase.

2- Sears Holdings (SHLD): Ditto Citigroup

3- Owens Corning (OC): Down 30% since purchase

These do not go into the "worst" category for the simple reason I still hold them and as a value investor, you buy stocks when they are down, you are either right or wrong a year or two down the road, not in a few months. If these are still where they are now at thing time next year, we will have to move them into the "worst" category if for no other reason, the thought process behind the purchases and when they were made was flawed.

Please feel free to email or comment on any other ones you can think of and I will be happy to expand on any of them. I sure there are others but these are the ones off the top of my head...

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