Tuesday, January 15, 2008

Taking Stock of 2007

I did better in my stock picks than my baseball picks last year. I hit a couple homers with Helmerich & Payne (HP, 64% gain) and Western Digital (WDC, 79% gain) and a few doubles with Coca Cola (KO, 27%) and Ternium (TX, 41%). Surprisingly, all these gains were from value and not growth stocks.

I did have a couple stinkers but really don't want to rehash them, although I'm still bullish on Marvel (MVL). You can check all my winners and losers below (or here).

2008 is looking like it will be a much tougher environment for investors. At the start of the year I scaled back my investment in Helmerich & Payne (HP). While I probably should have sat on the money I wanted to get it back in the market. My bright idea was to invest in two value stocks with attractive dividend yields. I would lock in the yields now and have some price appreciation upside if and when the markets return to normal.

So I bought Leggett & Platt (LEG) at 16.31 (6.13% yield) and General Electric (GE) at 35.40 (3.5% yield). Of course both stocks are down since I bought them, 2.8% and 2.5% respectively.

I'm not worried about GE, their dividend is solid, and they should whether a possible recession better than most companies. But I have a tinge of buyers remorse with Leggett. I've read that they've raised their dividend annually for something like the past 34 years (yay!). But they get nearly half their revenues by making home furnishing components (boo!). They should have a big enough cash flow cushion to keep their dividend in place, even with the housing mess, but at this point it seems like an unnecessary risk to take. Anyway, we'll see how my theory works out by the end of the 2008.

My big winner of 2007, Western Digital (WDC), started off 2007 with a nosedive. It lost 20% before recovering a bit the past couple of days. It's still down over $5 a share (16%) and closed at 25.27 today. That price is a bargain! They have already announced that earnings for the fourth quarter should come in around a $1 share, meaning that is has a PE of 25 for this just the past quarter alone. They are also bullish for 2008 so I I don't see how they stay below $30/share for long. The stock simply got caught in a market route and should bounce back.