Stocks That Climb When Market Tanks May Tempt You: John Dorfman
June 14 (Bloomberg) -- Andrew Beal, director of Pacific equities at Henderson Global Investors, talks with Bloomberg's Rishaad Salamat about his investment strategy for Asian stocks. Speaking from Singapore, Beal also discusses global economies and stocks, and China's property market. (Source: Bloomberg)
The stock market decline that began April 23 lasted six weeks -- if June 7 was the bottom, which we don’t know for sure yet, of course. It felt more like six years.
Holders of some stocks, though, have reason to smile. Surprisingly, about 30 percent of U.S. stocks have gained 10 percent or more for the year to date.
That’s true even though the total return on the Standard & Poor’s 500 Index, perhaps the best gauge of the overall U.S. stock market, is negative 1.2 percent for the year.
About 800 stocks with a market value of $250 million or more have scored gains of 10 percent or more for the year.
Prominent in the winner’s circle is SPDR Gold Trust, better known by its stock symbol GLD. It is an exchange-traded fund that owns gold bullion and intends to track the price performance of gold, minus fund expenses.
State Street Corp. created GLD in late 2004. Since then, it has posted gains every year, ranging from 5 percent in 2008 to 30 percent in 2007. So far this year GLD is up about 12 percent. No wonder I got an e-mail last week that said, “Forget about your (expletive deleted) stocks! Just buy gold.”
I rarely dabble in gold or gold stocks, because one can’t calculate a price-earnings or price-revenue ratio on gold bullion, and those ratios are usually high on gold mining stocks. Yet I must agree there is a fair chance that gold will do well the next several years.
Gold Strategy
Many investors are seeing their faith in paper currencies weakened as governments around the world run up big deficits. In my opinion, GLD is not a bad way to own gold because it is simple, direct, and doesn’t involve large costs for storage and insurance.
Speaking of gold, Newmont Mining Corp., the largest U.S. gold producer, is up about 19 percent year to date. Newmont, based in Greenwood Village, Colorado, doesn’t meet my valuation criteria. However, its ratios are more attractive than most gold-mining stocks.
Another big company in this favored group is DirecTV of El Segundo, California, the largest U.S. provider of satellite TV services. On May 6 it posted 59 cents a share in earnings, beating analysts’ average estimate of 46 cents, with good results in both the U.S. and Latin America. The shares are up about 15 percent this year.
I wouldn’t buy DirecTV stock. Debt is about 300 percent of equity, which raises the risk level. And DirecTV shares seem high-priced to me at 21 times earnings and 12 times book value.
No ‘Winner’s Curse’
Hershey Co. of Hershey, Pennsylvania, has risen about 42 percent this year. I believe that investors breathed a sigh of relief when Hershey let Kraft Foods Inc. of Northfield, Illinois, win the hand of Cadbury Plc. Investors had feared a bidding war, in which Hershey might overpay and suffer what’s known as the “winner’s curse.”
In addition, Hershey posted first-quarter earnings almost double last year’s, surprising analysts. It pushed through a price increase on about a third of its product line, and sold more candy bars nevertheless.
Would I bite? Not at 21 times earnings. Also, I don’t relish the company’s debt level, at more than 200 percent of equity.
More to my taste is Impax Laboratories Inc. of Hayward, California, which trades at only seven times earnings. Impax manufactures both proprietary and generic drugs. Public since 1995, the company posted a series of losses, then broke into the black in 2007. The stock is up about 53 percent this year.
Drugs, Satellites
Its earnings bounce around. Last year Impax earned 82 cents a share. This year it is headed for $3.13, analysts estimate. Their early guesses for 2011 call for $1.46 a share.
This month the company settled a patent dispute with Endo Pharmaceuticals Holdings Inc. and Penwest Pharmaceuticals Co. over a generic version of a medicine for Parkinson’s disease.
I also like GeoEye Inc. of Dulles, Virginia. It operates a satellite imaging service, taking pictures of earth from space. Google Inc. uses the company’s satellite images for its Google Maps and Google Earth services.
GeoEye shares are up about 14 percent this year and trade at 11 times earnings. The company posted record revenue in the first quarter. Consider this recommendation speculative, as the company’s debt is higher than I usually prefer.
SanDisk Corp., located in Milpitas, California, appears to be coming out of the recession nicely. In the first fiscal quarter, it posted revenue of about $1 billion, up from $659 million a year earlier.
Earnings were 99 cents a share, one of SanDisk’s best quarters. Shares are up about 54 percent this year.
Disclosure note: Personally and for clients, I own shares in Endo Pharmaceuticals. I have no long or short positions in any of the other stocks mentioned in this week’s column.
(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)
To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com.
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