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miclane05 (95.12)

January 2011



looking ahead to 2011

January 07, 2011 – Comments (0) | RELATED TICKERS: MSFT , MCD , ATW

Its been 9 months since my last manifesto and the 11 stocks discussed back in April of 2010 have averaged a non-dividend adjusted 13.91% gain versus the S&P 500's 5.6% gain, for an 8.31% lead over the market. Obviously the gain is larger when accounting for the dividends, but i don't have time to add in all of that data. Specifically, the percentage gains break down as follows:

ATVI     + 4.4
ATW     (1.8)
BRK.B + .42
AKO.A + 32.7
FO      + 23.25
HAS    + 16.48
MPEL  + 36.27
NOV    + 50.4
PM      + 8.4
RST    (20.7)
WM     + 3.29

Sadly, my real-life holdings don't include all of these picks, but I suppose thats the purpose of emailing myself these comments. Moving forward, the biggest winner, NOV, still looks like a strong play. I'm holding current shares but would consider buying more only if I saw a strong market pullback. Staying within the oil sector, at current valuations, I'm redoubling my interest in ATW, which has yet to bounce back from the BP spill but should see increased profits and earnings as demand increases and oil continues to rise. Of all the picks, this one's negative performance has been most surprising.

I'm maintaining original thesis behind BRK.B., PM, MPEL, and WM, but remaining picky on each's purchase price and not buying if higher than average P/E.

I am moving ATVI into the "cautiously optomistic" category as I hold shares and wait for the next two quarters, and place AKO.A, HAS, and FO on temporary hold after solid one year runs over 50% each and with FO spinning off its golf club and bathroom fucett divisions to focus solely on alcohol. Also looking to see how HAS negotiates its licensing agreements going forward, as its reliant on third parties to capitalize on much of its IP value.

That leaves RST, which I am abandoning with full awareness that I might regret this decision. While doubling down after hard hits account for a majority of my long term gains, the exudus of executives at RST this past summer is concerning. The "I just want to leave and spend more time with my family" press releases are unconvincing. More importantly, the product is expensive and requires significant labor by the customer to be effective. I don't see any barriers to entry and am not convinced that XYZ Corp couldn't put a better product on the market next month. Finally, anyone outside the U.S. under the age of 40 already speaks multiple languages, and the percentages only increase inversely by age. In only 9 months, I struly cannot understand why I got so caught up with RST. Its rare that I abandon a company after such little time, either i did not have enough confidence with my original pick, or the summer's resignations brought too much doubt. Either way, there are too many other great plays out there.

New additions:

McDonalds (MCD)
Lockhead Martin (LMT)
Nucor Steel (NUE)
Microsoft (MSFT)
AeroVironment (AVAV)

First, weapons and fast food were missing from my "evil companies" 2009 and 2010 picks but now MCD and LMT appear to be poorly valued considering their history and dividend yields. First, U.S. investors aren't looking past the cyclical healthy food phase here at home and focusing on MCD's growth abroad. Or maybe its the anticipated spike in food prices that's scarying everyone off but, if thats the case, i'm betting MCD's can come up with a cheap and filling meal faster than competitors buying into the same food supply market. At $74 and change, i'm sold.

As for LMT, sure, our deficit is out of control and defense spending is a favorite target over the harder SS or medicare reform, but have you seen pictures of the new Chinese Stealth Jet? LMT is trading as historical lows and our air dominance is what lets us sleep soundly at night. On that note, what about micro-cap AVAV. Not only do they produce unmanned (drone) aircraft, which everyone loves, but they're an innovator of electric technologies and produce charging docks for Nissan's electric vehicles. Considering the stability of the other picks, a $600 Million corp with backing from the pentagon and auto manufacturers is worth the potential reward.

Sure, businesses have been hesistant to spend money as we meander out of recession, but that can only last so long. We're starting to see continued employment growth, and consumer spending, and once the gears start turning, businesses will turn to america's favorite steel, NUE. While all the focus is on renewable energy, cloud computing, and fancy consumer technology, steel will remain in demand and Nucor's growing dividend can keep me happy while I wait watch production increase and revenues flow.

That leaves my top pick, Microsoft- that company everyone talked about 10 or 15 years ago before the iPod, iTunes, iPhone, iTouch, iPad, and iDestruction came and conquered all. While nobody was paying attention, they started growing a dividend yield, remain a software leader in many areas and just created a gaming platform that will revolutionize the industry and make the Nintendo Wii look like an old Atari. Not only did MSFT just sell 8 million units in 2 months, but the market still hasn't grasped that the Kinect is not simply a video game controller add-on- its a new way to play games, and play dvds and music on your tv, oh, and share your photos, and chat with your friends and family, and more. Ever see a futuristic movie where people are presenting information to each other by waving their hands and moving entire screens of data? thats the Kinect. Its 30% smaller than Apple, the market expects 1/3 as much growth, and its pays and is increasing its dividend. Where do i sign up?  [more]

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