More Than You Know is a book written by Michael Mauboussin, chief investment strategist at Legg Mason.
[1/31/07] Right now, as we speak, there are silent killers living in our brains, destroying our potential returns. No, it's not the plot to a sci-fi horror film. These sinister agents are decision-making biases, and they're chronically hurting your portfolio.
But have no fear. Help is on the way.
To learn which biases hurt investors the most, I asked Michael Mauboussin, chief investment strategist at Legg Mason and author of More Than You Know. In this interview, he tells us which ones to look out for, and he offers some simple tips to combat them.
[1/31/07] The Indianapolis 500 is touted as "The Greatest Spectacle in Racing." And there's a fascinating quote about what it takes to win the big race at the fabled Brickyard: "To finish first, you must first finish."
To me, that means winning is not just about going fast. It's also about survival, because 500 miles is a long haul.
I think this statement also applies to the stock market. You can have a great short-term run, but if you blow up along the way, you still lose. So what must we do to survive the investment race? I posed some questions to my friend Michael Mauboussin, chief investment strategist at Legg Mason (NYSE: LM) and author of More Than You Know, to find out.
[1/30/07] About skill and luck in investing.
[2/27/07] Mauboussin talks about guppies <! bloomberg link added 7/24/07, see value_investment_thoughts 6/17/06 ->
[4/14/07] Mauboussin on Strategy is a series of commentaries published on the Legg Mason site
[6/3/07] Here are three psychologically-difficult barriers great traders and investors must overcome: loss aversion, frequency versus magnitude, and the role of randomness. How individuals cope with these barriers provides good insight into their investing temperament.
[7/24/07] When you're a zebra being chased by a lion, there's no use thinking about next week. With humans, it's the same thing. A portfolio manager worries if a stock will work out in the next three days; he doesn't think if it will work out in the next three months or three years. <! value_investment_thoughts 6/17/06 ->
[8/6/08] More articles and commentary by Mauboussin
[3/11/13] Mauboussin has left Legg Mason
[3/4/14] an interview with Mouboussin
Tuesday, January 30, 2007
CAPM is CRAP
CAPM woefully under predicts the returns to low beta stocks, and massively overestimates the returns to high beta stocks. Over the long run there has been essentially no relationship between beta and return.
Sunday, January 28, 2007
2007 Market Outlook
[3/26/07] where do we stand heading into the second quarter? The median stock in our [Morningstars's] coverage universe is about 4% overvalued, in our opinion. Not too hot. Not too cold. For some historical perspective, the highest the median stock has ever gotten was 14% overvalued, back in December 2004. The lowest: 22% undervalued in October 2002. At current levels, we'd expect the typical stock to offer positive--but single-digit--returns to long-term investors.
[1/28/07] Coming off of double-digit market returns in 2006, we asked three respected industry experts for their thoughts on what may be in store for 2007. Read what Jeremy Siegel, finance professor at the University of Pennsylvania Wharton School of Business and author of Stocks for the Long Run and The Future for Investors; Robert Shiller, economics professor at the Yale University School of Management, chief economist at MacroMarkets LLC, and author of Irrational Exuberance; and Sam Stovall, chief market strategist for Standard & Poor's,® said.
Q. What's your outlook for the stock market in 2007?
Stovall: Our target for the S&P 500 is 1,510 by year-end 2007. On average, bull markets, as measured by the S&P 500 Index, last four and a half years. (The current bull market reached the four-year mark in October 2006). We have had six bull markets that entered a fifth year. The average gain has been 8%. Four of the six bull markets celebrated a fifth birthday. In addition, the market has never declined in the third year of a president's term since World War II, with an average gain of 18%.
Shiller: The stock market looks overvalued to me, in terms of the way I calculate P/E ratios. Corporate earnings are looking weaker and the market is still highly priced. I think there is some downward risk potential.
Siegel: My feeling is we'll have a healthy market. I don't think it's a runaway market and I don't think it's a crashing market. But I think we will have a healthy market since earnings are rising and interest rates look like they'll be stable. I don't see a recession in the cards for this year. Unless you get strongly rising interest rates, it's very hard to keep the stock market down under those circumstances.
[1/15/07] Six months ago, the stock market looked reasonably priced when compared with Morningstar's collective fair value estimates. Since then, the market has been on a tear. Between July 21, when the median fair value of our coverage universe bottomed, and Dec. 31 the Morningstar U.S. Market Index rose 15%. As a result, we're heading into 2007 with a fairly pessimistic view of the stock market.
In fact, the median stock is priced to return single digits over the next three to five years, in our view. If you threw a dart at our coverage list, your expected three-year return would be 8.8%, down from 10.5% four months earlier. The median stock in our coverage universe of 1,800 stocks trades at a 12% premium to our estimate of fair value.
Quality, blue-chip companies, which tend to be larger, appear relatively cheap. When we look at valuations weighted by market capitalization--which give greater weight to larger companies--the stock market appears more fairly valued. The S&P 500, a cap-weighted index, trades very close to our bottom-up measure of fair value. When we weight by capitalization, three out of our 12 sectors are currently undervalued: software, health care, and consumer services.
[1/28/07] Coming off of double-digit market returns in 2006, we asked three respected industry experts for their thoughts on what may be in store for 2007. Read what Jeremy Siegel, finance professor at the University of Pennsylvania Wharton School of Business and author of Stocks for the Long Run and The Future for Investors; Robert Shiller, economics professor at the Yale University School of Management, chief economist at MacroMarkets LLC, and author of Irrational Exuberance; and Sam Stovall, chief market strategist for Standard & Poor's,® said.
Q. What's your outlook for the stock market in 2007?
Stovall: Our target for the S&P 500 is 1,510 by year-end 2007. On average, bull markets, as measured by the S&P 500 Index, last four and a half years. (The current bull market reached the four-year mark in October 2006). We have had six bull markets that entered a fifth year. The average gain has been 8%. Four of the six bull markets celebrated a fifth birthday. In addition, the market has never declined in the third year of a president's term since World War II, with an average gain of 18%.
Shiller: The stock market looks overvalued to me, in terms of the way I calculate P/E ratios. Corporate earnings are looking weaker and the market is still highly priced. I think there is some downward risk potential.
Siegel: My feeling is we'll have a healthy market. I don't think it's a runaway market and I don't think it's a crashing market. But I think we will have a healthy market since earnings are rising and interest rates look like they'll be stable. I don't see a recession in the cards for this year. Unless you get strongly rising interest rates, it's very hard to keep the stock market down under those circumstances.
[1/15/07] Six months ago, the stock market looked reasonably priced when compared with Morningstar's collective fair value estimates. Since then, the market has been on a tear. Between July 21, when the median fair value of our coverage universe bottomed, and Dec. 31 the Morningstar U.S. Market Index rose 15%. As a result, we're heading into 2007 with a fairly pessimistic view of the stock market.
In fact, the median stock is priced to return single digits over the next three to five years, in our view. If you threw a dart at our coverage list, your expected three-year return would be 8.8%, down from 10.5% four months earlier. The median stock in our coverage universe of 1,800 stocks trades at a 12% premium to our estimate of fair value.
Quality, blue-chip companies, which tend to be larger, appear relatively cheap. When we look at valuations weighted by market capitalization--which give greater weight to larger companies--the stock market appears more fairly valued. The S&P 500, a cap-weighted index, trades very close to our bottom-up measure of fair value. When we weight by capitalization, three out of our 12 sectors are currently undervalued: software, health care, and consumer services.
Saturday, January 27, 2007
Mid-Caps
[1/27/07] For each asset class there are many arguments pro and con. But S&P Equity Strategy recommends that market participants take a good look at the mid-caps - those companies with market capitalizations of $1 billion to $4.5 billion. In addition to very competitive long-term returns, the S&P MidCap 400 index was up 0.8% this year through January 18 vs. a 0.6% gain for the S&P 500 and a 0.9% decline for the S&P SmallCap 600.
We think mid-caps represent the "sweet spot" of the U.S. equity market. Earnings growth is faster than among the large-caps, while volatility is lower, and valuations are more attractive than those of small-caps. In addition, while most institutional and retail investors already have sizable allocations in the large- and small-cap asset classes, mid-caps remain largely undiscovered, paving the way for strong money flows as this asset class draws greater investor interest.
We think mid-caps represent the "sweet spot" of the U.S. equity market. Earnings growth is faster than among the large-caps, while volatility is lower, and valuations are more attractive than those of small-caps. In addition, while most institutional and retail investors already have sizable allocations in the large- and small-cap asset classes, mid-caps remain largely undiscovered, paving the way for strong money flows as this asset class draws greater investor interest.
Thursday, January 18, 2007
Magic Numbers and Relative Valuations
Many people seem to believe there are some "magic numbers" out
there that equate to stock-picking success.
Two things in particular that I hear over and over again
relates to P/E Ratios and Price/Book Values.
For some reason, many people believe that P/E Ratios of 20 or
less and Price/Book Values of 1 or less are these so-called
"magic numbers".
Unfortunately, statistics prove otherwise.
Looking at the best-performing stocks of 2006, only 41%
started with P/E's (using 12-month EPS Actuals) of under 20
while the other 59% were over 20. ("Best-performing" is
qualified by stocks that were trading at $5 or higher at the
beginning of the year, traded on average of 50,000 shares a
day and that have increased in price by 50% or greater by the
end of the year.)
This may or may not sound like a big deal. But, if you limited
yourself to only those stocks with P/Es under 20, your screen
would have excluded nearly 60% of the best-performing stocks
from your radar screen. And that is a big deal.
True, there were/are stocks in there with P/Es under 20, but
you would've missed a lot of fantastic winners if you excluded
those over 20.
As for the Price/Book Value, the median P/B was 2.9 at the
beginning of the period and nearly 4 (that's right, 4!) by the
end. Percentage wise, only 2% of the stocks had P/Bs of less
than 1 at the start. Which means, using the `magic number' of
1 for a P/B value would have excluded nearly every top
performer of 2006.
So if you're determined to look for stocks with `low'
valuations (P/E, P/B), try looking for `low' valuations as
compared to their Industries.
Why? Because 68% of the stocks on that list of winners had
P/Es under the average for their Industry and over 62% had
P/Bs under the average for their Industry. This means the
majority of the best companies would have made it through a
relative valuation screen, giving you a chance to buy them.
-- Kevin Matras, Zacks.com
there that equate to stock-picking success.
Two things in particular that I hear over and over again
relates to P/E Ratios and Price/Book Values.
For some reason, many people believe that P/E Ratios of 20 or
less and Price/Book Values of 1 or less are these so-called
"magic numbers".
Unfortunately, statistics prove otherwise.
Looking at the best-performing stocks of 2006, only 41%
started with P/E's (using 12-month EPS Actuals) of under 20
while the other 59% were over 20. ("Best-performing" is
qualified by stocks that were trading at $5 or higher at the
beginning of the year, traded on average of 50,000 shares a
day and that have increased in price by 50% or greater by the
end of the year.)
This may or may not sound like a big deal. But, if you limited
yourself to only those stocks with P/Es under 20, your screen
would have excluded nearly 60% of the best-performing stocks
from your radar screen. And that is a big deal.
True, there were/are stocks in there with P/Es under 20, but
you would've missed a lot of fantastic winners if you excluded
those over 20.
As for the Price/Book Value, the median P/B was 2.9 at the
beginning of the period and nearly 4 (that's right, 4!) by the
end. Percentage wise, only 2% of the stocks had P/Bs of less
than 1 at the start. Which means, using the `magic number' of
1 for a P/B value would have excluded nearly every top
performer of 2006.
So if you're determined to look for stocks with `low'
valuations (P/E, P/B), try looking for `low' valuations as
compared to their Industries.
Why? Because 68% of the stocks on that list of winners had
P/Es under the average for their Industry and over 62% had
P/Bs under the average for their Industry. This means the
majority of the best companies would have made it through a
relative valuation screen, giving you a chance to buy them.
-- Kevin Matras, Zacks.com
Monday, January 15, 2007
Long-term sustainable growth rate
A company grows based on how much it reinvests and the quality of its investments. Companies that pay out dividends have less capital left over to reinvest; therefore, their long-term sustainable growth rate is expected to be less than the return on equity. As the payout ratio increases, the chance for price appreciation decreases, along with the diminishing expected growth rate:
Expected Long-Term Sustainable Growth Rate = (1 - Payout Ratio) * (Return on Equity)
Expected Long-Term Sustainable Growth Rate = (1 - Payout Ratio) * (Return on Equity)
Thursday, January 11, 2007
The Robot Portfolio
[1/11/07] After seven consecutive years of beating the market, the Robot Portfolio underperformed the Standard & Poor's 500 Index in 2006. It was close. The Robot, helped by gains in U.S. Steel Corp. (54 percent), Ashland Inc. (43 percent) and Gold Kist Inc. (41 percent), posted a 13 percent return. The S&P 500 was three points better, at 16 percent. All figures are total returns, including capital gains or losses as well as dividends.
This year's ten-stock portfolio contains five homebuilders. The ten stocks for 2007 are Encore Wire, Meritage Homes, Lennar, Ryland Group, MDC Holdings, Champion Enterprises, Building Materials, Georgia Gulf, Overseas Shipholding, Valero Energy.
[1/13/06] Shai passes on this story about the Robot Portfolio that has beaten the S&P 500 for the seventh consecutive year. This year, it outperformed it 29.2% to 4.9%.
This year's ten-stock portfolio contains five homebuilders. The ten stocks for 2007 are Encore Wire, Meritage Homes, Lennar, Ryland Group, MDC Holdings, Champion Enterprises, Building Materials, Georgia Gulf, Overseas Shipholding, Valero Energy.
[1/13/06] Shai passes on this story about the Robot Portfolio that has beaten the S&P 500 for the seventh consecutive year. This year, it outperformed it 29.2% to 4.9%.
Wednesday, January 10, 2007
What the Dow is worth today
[1/10/07] Morningstar calculated (as of 12/29/06) the fair value of the Dow Jones Industrial Average to be 12,922 as compared to the actual value of 12,463. So it was 3.6% undervalued (compared to 9% three months prior).
[9/22/06] Back around Christmas of last year, [Morningstar] estimated the fair value of the Dow Jones Industrial Average to be 11,694 when it was trading at 10,837.
Since Dec. 19, the market prices of 23 of the Dow stocks went up compared to only seven decliners. The top three gainers over this time frame were General Motors (51%), Merck (MRK) (30%), and AT&T (T) (29%). The worst three performers were Intel (INTC) (-24%), Home Depot (HD) (-13%), and 3M Company (MMM) (-5%). Consistent with how the Dow index is measured, none of the figures above includes the effects of dividends; they are simply the changes in stock prices from Dec. 19, 2005, to Sept. 20, 2006.
As of the close of business on Sept. 20, [Morningstar] estimated the Dow's fair value to be 12,623, about 8.7% higher than its actual closing price of 11,613 on that day. In other words, we think the Dow as a whole is roughly 9% undervalued today. It's worth noting that the market closing price on this date was within 100 points of the Dow's all-time high set in early May of this year.
Morningstar's current list of five-star stocks are MMM, AA, KO, XOM, HD, JNJ, JPM, MSFT, WMT.
[9/22/06] Back around Christmas of last year, [Morningstar] estimated the fair value of the Dow Jones Industrial Average to be 11,694 when it was trading at 10,837.
Since Dec. 19, the market prices of 23 of the Dow stocks went up compared to only seven decliners. The top three gainers over this time frame were General Motors (51%), Merck (MRK) (30%), and AT&T (T) (29%). The worst three performers were Intel (INTC) (-24%), Home Depot (HD) (-13%), and 3M Company (MMM) (-5%). Consistent with how the Dow index is measured, none of the figures above includes the effects of dividends; they are simply the changes in stock prices from Dec. 19, 2005, to Sept. 20, 2006.
As of the close of business on Sept. 20, [Morningstar] estimated the Dow's fair value to be 12,623, about 8.7% higher than its actual closing price of 11,613 on that day. In other words, we think the Dow as a whole is roughly 9% undervalued today. It's worth noting that the market closing price on this date was within 100 points of the Dow's all-time high set in early May of this year.
Morningstar's current list of five-star stocks are MMM, AA, KO, XOM, HD, JNJ, JPM, MSFT, WMT.
Despised Stocks
Wall Street Analysts Stumble on 2006 Stock Tips: John Dorfman
By John Dorfman
Jan. 9 (Bloomberg) -- The four stocks that Wall Street analysts most despised at the beginning of 2006 posted an average 21 percent return for the year.
The four stocks they most loved returned only 2.4 percent, which was far worse than the return of almost 16 percent on the Standard & Poor's 500 Index.
In short, the despised stocks walloped the favored ones. Is that a freak result?
No, it is not.
For nine years, I have been studying the annual performance of the four stocks that analysts most unanimously recommend, and the performance of four stocks on which they issue an unusually large number of ``sell'' recommendations.
The analysts' darlings lost 3.7 percent a year, on average. The stocks they hated declined 0.2 percent.
Both groups of stocks did worse than the S&P 500, which returned 7.4 percent a year, on average, during the period of the study: 1998 through 2006.
Analysts are tastemakers in the investment world. They set the frame of investors' expectations, provide much of the information on which the public invests, and move stocks with their ``buy'' and ``sell'' recommendations.
Yet as my little study shows, they are far from infallible.
I don't begrudge Wall Street analysts their successes when they have them. I simply say that you should make an independent decision when you invest. Analysts generally can't foretell the future any more than you can.
Underdogs Win
When 2006 began, five analysts had published opinions on the stock of Martha Stewart Living Omnimedia Inc., and four of those opinions were ``sell'' recommendations.
Based in New York, the company publishes magazines, licenses merchandise, and produces television shows, all promoting a stylish, elegant lifestyle.
It was easy to see why the analysts were negative at the start of last year. Founder Martha Stewart had just served five months in prison for obstruction of justice, and was barred from running the company in the future. It had posted losses in eight of the past 10 quarters.
So what did Martha Stewart stock do? It rose 29 percent in 2006, even though red ink continued to flow. Investors liked the rising revenue of the company, which they expect will turn profitable in 2007.
An even bigger gain that analysts didn't foresee was that of CBOT Holdings Inc., parent company to the Chicago Board of Trade. It was up 62 percent last year, even though five analysts out of seven slapped a ``sell'' rating on it.
CBOT Is Overvalued
Truth to tell, I would have agreed with those analysts. I think CBOT stock was overvalued then, and is even more so now at 56 times earnings, 12 times book value (assets minus liabilities per share) and 14 times revenue.
The analysts were right about Sycamore Networks Inc., which fell 13 percent. The other stock they hated a year ago was Washington Federal Inc., which turned out to be a modest gainer in 2006, up 6 percent.
And what about the stocks they loved a year ago?
SI International Inc., which was unanimously recommended by 11 analysts, rose 6.1 percent but didn't do as well as the S&P 500. The Reston, Virginia-based company provides information technology to the federal government.
Petrohawk Energy Corp., beloved by eight out of eight analysts, dropped 13 percent. The Houston-based company explores for and produces oil and gas.
Another loser was Sunterra Corp., a timeshare-vacation company with headquarters in Las Vegas. It declined 15 percent even though all seven analysts who followed it recommended it.
Best Performer
TAL International Group Inc. was the best performer among the adored stocks. The Purchase, New York-based company leases large freight containers that can be moved by ship, rail or truck. Last year, it jumped 29 percent in price, and returned 32 percent including dividends.
For the past nine years, I have gotten key data for this study from Zacks Investment Research Inc. in Chicago. This year, I was unable to find the information on its Web site, so I am taking a new tack.
Using Bloomberg data, I looked at analysts' recommendations on the 30 stocks that make up the Dow Jones Industrial Average. Bloomberg publishes average ratings for each stock, on a scale where five equals a ``strong buy,'' three is a ``hold,'' and one is a ``sell.''
Altria Group Inc., a New York-based company that owns Kraft Foods and is the largest U.S. cigarette producer, is analysts' favorite stock among the 30. Its average rating is 4.64.
Altria, AIG
There are many things to like about Altria, among them a dividend yield of almost 4 percent, and a return on equity last year of more than 31 percent. However, the stock has quadrupled since the end of 1999, and I think it is now fairly valued.
American International Group Inc., United Technologies Corp., General Electric Co. and Honeywell International Inc. also get high analyst ratings, ranging from 4.30 to 4.62. Of these, I prefer AIG, which sells for only 15 times earnings.
Analysts don't like General Motors Corp. (2.22), yet I wouldn't be surprised to see it do well in the year ahead. Merck & Co. and Intel Corp. get lukewarm grades (3.57 and 3.58). I like them but don't love them after recent run-ups.
Disclosure note: I own shares of Merck personally, and Intel for one or two clients.
(John Dorfman, president of Thunderstorm Capital in Boston, is a Bloomberg News columnist. The opinions expressed are his own. His firm or its clients may own or trade investments discussed in this column.)
By John Dorfman
Jan. 9 (Bloomberg) -- The four stocks that Wall Street analysts most despised at the beginning of 2006 posted an average 21 percent return for the year.
The four stocks they most loved returned only 2.4 percent, which was far worse than the return of almost 16 percent on the Standard & Poor's 500 Index.
In short, the despised stocks walloped the favored ones. Is that a freak result?
No, it is not.
For nine years, I have been studying the annual performance of the four stocks that analysts most unanimously recommend, and the performance of four stocks on which they issue an unusually large number of ``sell'' recommendations.
The analysts' darlings lost 3.7 percent a year, on average. The stocks they hated declined 0.2 percent.
Both groups of stocks did worse than the S&P 500, which returned 7.4 percent a year, on average, during the period of the study: 1998 through 2006.
Analysts are tastemakers in the investment world. They set the frame of investors' expectations, provide much of the information on which the public invests, and move stocks with their ``buy'' and ``sell'' recommendations.
Yet as my little study shows, they are far from infallible.
I don't begrudge Wall Street analysts their successes when they have them. I simply say that you should make an independent decision when you invest. Analysts generally can't foretell the future any more than you can.
Underdogs Win
When 2006 began, five analysts had published opinions on the stock of Martha Stewart Living Omnimedia Inc., and four of those opinions were ``sell'' recommendations.
Based in New York, the company publishes magazines, licenses merchandise, and produces television shows, all promoting a stylish, elegant lifestyle.
It was easy to see why the analysts were negative at the start of last year. Founder Martha Stewart had just served five months in prison for obstruction of justice, and was barred from running the company in the future. It had posted losses in eight of the past 10 quarters.
So what did Martha Stewart stock do? It rose 29 percent in 2006, even though red ink continued to flow. Investors liked the rising revenue of the company, which they expect will turn profitable in 2007.
An even bigger gain that analysts didn't foresee was that of CBOT Holdings Inc., parent company to the Chicago Board of Trade. It was up 62 percent last year, even though five analysts out of seven slapped a ``sell'' rating on it.
CBOT Is Overvalued
Truth to tell, I would have agreed with those analysts. I think CBOT stock was overvalued then, and is even more so now at 56 times earnings, 12 times book value (assets minus liabilities per share) and 14 times revenue.
The analysts were right about Sycamore Networks Inc., which fell 13 percent. The other stock they hated a year ago was Washington Federal Inc., which turned out to be a modest gainer in 2006, up 6 percent.
And what about the stocks they loved a year ago?
SI International Inc., which was unanimously recommended by 11 analysts, rose 6.1 percent but didn't do as well as the S&P 500. The Reston, Virginia-based company provides information technology to the federal government.
Petrohawk Energy Corp., beloved by eight out of eight analysts, dropped 13 percent. The Houston-based company explores for and produces oil and gas.
Another loser was Sunterra Corp., a timeshare-vacation company with headquarters in Las Vegas. It declined 15 percent even though all seven analysts who followed it recommended it.
Best Performer
TAL International Group Inc. was the best performer among the adored stocks. The Purchase, New York-based company leases large freight containers that can be moved by ship, rail or truck. Last year, it jumped 29 percent in price, and returned 32 percent including dividends.
For the past nine years, I have gotten key data for this study from Zacks Investment Research Inc. in Chicago. This year, I was unable to find the information on its Web site, so I am taking a new tack.
Using Bloomberg data, I looked at analysts' recommendations on the 30 stocks that make up the Dow Jones Industrial Average. Bloomberg publishes average ratings for each stock, on a scale where five equals a ``strong buy,'' three is a ``hold,'' and one is a ``sell.''
Altria Group Inc., a New York-based company that owns Kraft Foods and is the largest U.S. cigarette producer, is analysts' favorite stock among the 30. Its average rating is 4.64.
Altria, AIG
There are many things to like about Altria, among them a dividend yield of almost 4 percent, and a return on equity last year of more than 31 percent. However, the stock has quadrupled since the end of 1999, and I think it is now fairly valued.
American International Group Inc., United Technologies Corp., General Electric Co. and Honeywell International Inc. also get high analyst ratings, ranging from 4.30 to 4.62. Of these, I prefer AIG, which sells for only 15 times earnings.
Analysts don't like General Motors Corp. (2.22), yet I wouldn't be surprised to see it do well in the year ahead. Merck & Co. and Intel Corp. get lukewarm grades (3.57 and 3.58). I like them but don't love them after recent run-ups.
Disclosure note: I own shares of Merck personally, and Intel for one or two clients.
(John Dorfman, president of Thunderstorm Capital in Boston, is a Bloomberg News columnist. The opinions expressed are his own. His firm or its clients may own or trade investments discussed in this column.)