Note: This is a recap of performance for the stocks picked at the beginning of 2009. Picks for 2010 will be posted January first.
To paraphrase a hedge fund manager that I follow closely, “Nothing has happened this year the way I expected it to.” While this statement does little to instill confidence in this money manager, William posted returns north of 20% for the year in his long-short fund which remains fairly neutral as far as market exposure is concerned. The point is that although 2009 was a year of major shifts in market direction, policy decisions, and investment risk; it was still possible to adjust trading style along the way to account for the changes and book significant profits.
My four picks for 2009 did not turn out to be very profitable despite a significant market rally from March through December. Thankfully, portfolios managed for Sound Counsel Investment Advisers were able to trade actively throughout the year and performed much better than the 2009 recommendations. As I choose growth opportunities for the portfolios I manage, I am careful to use stop points in order to exit losing trades, while letting winners continue to compound gains. Often we use covered calls to manage some of the risk, and the advent of inverse ETFs has also been helpful in managing downside risks for entire markets as well as individual sectors.
So without further adieu, here is some commentary on the four picks for 2009. Stay tuned for the 2010 picks which will be posted January 1.
- JA Solar Holdings (JASO)
While Alternative certainly received its fair share of headlines this year, the solar industry was plagued with rising inventory levels and falling prices for solar products. On top of the supply dynamics, many countries which had implemented strong solar energy tax incentives had to pull back on the stimulus measures due to financial strain. As a result, many solar companies experienced a difficult period and those with excessive leverage were especially hard hit. At the time of writing, it looks like JASO will finish the year with a gain of 30.5% which is certainly healthy, but the majority of the gains came in the last few weeks of the year. JASO could continue to post additional gains in the coming year, but there are still significant uncertainties surrounding the alternative energy market. - AECOM Technology Corp (ACM)
AECOM is an international construction management company which is expected to benefit from global stimulus projects aimed at improving infrastructure projects such as bridges, roads, power plants and other developments. Since AECOM has a well diversified client base, it was expected that the company would grow earnings (which occurred quite nicely) and see its stock price rise as a result (which unfortunately did not occur). Much of the stimulus spending took longer than expected to reach the market, and investors have placed a lower multiple (paying a smaller price for every dollar that the company earns). The lower multiple is likely due to a perception that the company will not continue to grow quickly after the stimulus projects are completed. At this point AECOM still looks like a great investment with little debt and a low earnings multiple, but it has taken longer than expected for the stock to bounce. Currently it looks like ACM will finish 2009 with a loss of 1.2% – not a very healthy showing considering the strength of the market. - TBS International (TBSI)
At the end of 2008, it looked like shipping companies were primed for a significant rebound. The financial crisis had sent many of the more leveraged players into the abyss, but companies with longer-term charters and reasonable debt levels were showing signs of improvement. The wildcard in this industry was whether the day rates for dry bulk shipping would improve over the coming year. Unfortunately, shipping has continued to be a challenging area for the economy, and since TBSI does not pay a dividend, it has been especially unattractive to investors. The stock is down 27.2% for the year which is extremely disappointing. Looking into the coming year, there is little evidence that this company will offer investors much hope of improving profits so I would not recommend an investment in this stock and have kept clients out of this name for some time. - China Medical Technologies (CMED)
China Medical is another disappointing story as the stock is now down 30.2% for the year. Midway through 2009, CMED had traded higher as the company’s rapid growth caught investor’s attention and the diagnostic company was expanding its base of customers. However, a management change along with significant debt has caused investors to lose confidence. At the current price, CMED is looking like a very solid value, but I am not invested right now because I want to know for sure that the business metrics are solid. If management were to issue healthy guidance for the coming year (ending March 2011), I would consider working back into the stock, but for now it appears to hold excessive risk.
We have many risks and many opportunities in front of us as we enter this new decade. Flexibility and damage control will be important skills to employ as the markets face the risk of inflation, mounting sovereign debt, and significant fluctuations in currency rates. I would welcome the chance to help you develop a comprehensive plan for your investments in the coming year. Please email me if you would like more information on Sound Counsel’s investment strategies.
Wishing you a happy New Year!
Other Bloggers 2009 Results
Four Stocks for the New Year (A 2009 Recap)
