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Some Of My Pans Should Have Been Picks


Along with anyone else who sleeps more soundly amid a rising stock market, I found 2003 truly refreshing. Plenty of my picks, notably Agilent Technologies (A), Carnival (CUK), Citigroup (C), Energizer Holdings (ENR), and McDonald's (MCD), saw far steeper gains than I had dared dream. Yet, as always, the year also brought a few nightmares.

That's why, continuing an annual custom, I've gone back to look at columns at least a year old to find those that time and events proved wrong. Given the market trend, you will not be surprised that each blooper came on a bearish call.

Alcon Laboratories (ACL). Very often, discrete businesses that are carved out of big conglomerates and launched as independent public companies reward shareholders handsomely. I just didn't think that general rule would apply to Alcon, a maker of ophthalmic drugs and supplies in which Nestl? sold stock in March, 2002. The deal came to market at $33 a share, a price I figured was too steep relative to less-indebted rivals. Yet Alcon's price has only gotten richer: Shares now trade near $60. Beneath the stock's rise were surprising gains in sales and profits, driven in part by a new glaucoma drug, Travatan. In 2004, earnings growth figures to slow, as Wall Street analysts on average see a 14% rise.

JetBlue Airways (JBLU). Yes, when I cast a cold eye on JetBlue after its April, 2002, initial public offering, I noted the loyalty of its customers, who love its leather seats and other nice touches. No, I didn't give JetBlue enough credit, arguing that the costs of expansion meant the stock would likely "leave you feeling blue." Instead, I wound up feeling airsick: From a split-adjusted $20, the stock swiftly dipped under $14 but then took off to a high last autumn above $47. The upstart airline's friendly service and fast growth remain admirable. But investors have been spooked by JetBlue's recent revelation of narrower operating margins as 2003 drew to a close. Even after a steep descent below $27, the stock still goes for a high-flying 25 times 2004's estimated profit.

Panera Bread (PNRA). Despite the tasty food and good value that diners receive at this fast-growing chain of bakery-caf?s, back in June, 2002, I figured its shareholders were courting indigestion. At a split-adjusted $35 a share, it was trading at 50 times 2002 earnings, too much for a restaurant chain whose growth was bound to slow. The stock did, in fact, soon sink 32%, but then perked up again, nearly touching $48 last fall. As I expected, growth did decelerate; what I missed was that some investors would still be willing to pay more than 45 times earnings for a 37% rate of profit growth in 2003. Lately, Panera is trading above $39, or 30 times next year's estimated profits. One fresh worry: The craze for low-carb diets will dampen America's appetite for baked goods.

Chicago Mercantile Exchange Holdings (CME). In December, 2002, this mosh pit full of futures traders went public at $35 a share. To me, it looked like a money pit, given its weakening prices and conflicted board of directors, most of whose day jobs were as traders and brokers -- the Merc's fee-paying clientele. Good reasons, but I was still badly wrong on the stock. It immediately leaped $10, peaked in July above $79, and now goes for near $78. Through 2003's first three quarters, revenue jumped nearly 21%, while earnings soared 48%. Underlying the gains were record trading volumes. A cloud that refused to dissipate, however, was the Merc's faulty governance policies, spotlighted as the New York Stock Exchange suffered its own crisis. By November, the Merc had instituted a raft of reforms.

That much is heartening. Yet as stocks keep rising, spotting new buys only gets harder. The message in that trend? Insomnia ahead. By Robert Barker


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