Who in their right mind would suggest Research in Motion as their TOP PICK for 2012? There’s no shortage of controversy to be sure surrounding the company. Yesterday I sat with good friends, man and wife, and SHE (Rayla) thought it was a good time to buy the stock, and HE (George) disagreed. That’s what makes markets work isn’t it? Neither of them actually “owns” the stock, which makes the adjacent quote in the Toronto Globe & Mail (Jan. 4th, 2012) by yours truly particularly relevant. Here’s a snippet from the article, and my being included at all as one of the ‘best money minds’ can only be due to the fact that Nicolas was making much too merry when he wrote this during the holiday season, or now that he has his motorcycle license he hopes to borrow one of my Harleys.
Contestants, make your stock picks
From Wednesday’s Globe and Mail
We asked 13 of the country’s best money minds to choose one investment they see soaring in 2012
If you had to bet on only one stock for 2012, what would it be?
That’s the question we put to 13 investment professionals and personal finance specialists across Canada in our 16th annual stock-picking contest.
The contest is meant to explore what some of the country’s smartest money minds are thinking about the year ahead. Each contestant was asked to pick one stock, income trust, American depositary receipt or exchange-traded fund traded on a major exchange in Canada or the United States. The minimum market capitalization for Canadian securities was $100-million; for U.S. picks, $1-billion (U.S.).
The security that generates the highest percentage gain (based on total returns including dividends and distributions, and converted into Canadian currency in the case of U.S. picks) for the 2012 calendar year will be the winner.
skipping now to my brief contribution…
With a price-to-earnings ratio of about 3, RIM is one of Canada’s lowest-valued companies. Sentiment is so low that it would take only a little bit of good news to send the stock soaring.
“My philosophy has always been, when everyone has sold a stock, the only thing that can happen next is someone buys it,” said Mr. Spooner, also a blogger at maverickinvestors.com. “What’s the catalyst? I don’t care!”
A portfolio manager/analyst’s worst nightmare is having to pick “ONE” stock. Friends, relatives and complete strangers who’ve seen you on television will always ask this and to be honest I just can’t answer the question. I’ve been responsible for hundreds of millions of dollars over my career, and at times my investment performance has been off-the-charts stellar. Did I know which of the dozens of stocks I selected would turn out to be the big winners? NEVER! A handful of really big wins, the majority of them surprising even to the stock picker, usually accounted for 90% of the good returns. The flip side is also true. Like virtually all portfolio manager types (take my word for it, the ‘marketing’ hype never delves into bad periods of which there are lots) my own past performance numbers have suffered bouts of pure awfulness – again the culprits ruining the returns were a surprise nine times out of ten also.
Admittedly, having been an investor on and off in RIM since it was a private company, my faith has been challenged quite a few times over the years. Market share has waned in North America (iPhone frenzy) but I believe analysts are overlooking the smaller but rapidly growing penetration in foreign markets. I see three possibilities:
- A takeover
- Business improves (earnings)
- Massive failure
I’m concerned about #3, but it seems the stock is already priced as if the company were a failure (limited downside). The real risk is that the cutthroat element of the investment community (short-sellers, hedge funds, destructive institutional investors) manages to destroy the business for personal if ill-gotten gain.
As insurance for my ego, I sent along to Nicolas at the Globe an additional selection which wasn’t required, but made me feel better. As I mentioned above, I hate providing just one stock pick since any successful investment style depends on being correct a percentage of the time, not all the time. Here’s what I sent him:
I’m also a fan of stocks that are depressed because of a miserable investment climate, but would otherwise be gems. I have been touting the US market (and $US) since last November. I believe this is where the best opportunities in 2012 will continue to be. PKI (PerkinElmer, US) has been surprising analysts for the past four quarters (better than expected eps), and at $19 trades at a modest 11X earnings. Demographics in Europe and North America support burgeoning growth in health care, and medical equipment maker PerkinElmer is no exception. Off the radar screen, solid earnings and cashflow momentum and modest valuation – down 30% from its 52-week high….any portfolio manager should get a woody.
So if it turns out my RIM pick is a disaster, maybe I’ll have the other one turn out okay. And if RIM does turn into a disaster at least I’ll have company, since one of the other 13 ‘best money minds’ picked it as well. Now if you’re a fan of Will Farrell and his Ricky Bobby character, you’ll already have figured out that I can’t possibly win this contest. If “you’re not 1st, you’re last.” The best I can hope for is to be tied for first or last.