Having a hard time making investment decisions?...
These days, you might consider throwing darts.
A portfolio of four stocks chosen by Wall Street Journal staffers flinging darts at the stock tables outperformed the selections of four investment professionals and the Dow Jones Industrial Average in this column's latest contest. The darts posted an average investment gain of 6.5% in the period from June 10 through Nov. 28, compared with a 3.5% average loss for the pros. The industrial average rose 3.8% during the same period.
But dart throwing isn't foolproof. The latest six-month period was the first time in seven rounds that the forces of chance beat the pros, and the first time since May that the darts were ahead of the industrial average. And the pros are still ahead of both the darts and the industrial average when results of the 90 contests since July 1990 are tallied.
The pros' top-performing pick in the latest contest, Wallace Computer Services Inc., rose 18.5% in less than six months. The Hillside, Ill., company produces business forms for corporations and also provides commercial printing and office supplies. It was the selection of Eugene H. Gardner, a portfolio manager with David L. Babson & Co., an investment-management firm in Cambridge, Mass.
Thomas H. Eichler, chief investment officer at Eichler Magnin Inc., a Los Angeles investment-management firm, was second with his recommendation of a short sale of Sears, Roebuck & Co. stock. In a short sale, an investor sells borrowed stock, betting that the price will fall by the time the loan has to be repaid. The amount of the decline translates into an investment gain. Sears stock fell 12.3% during the competition, representing a 12.3% gain for Mr. Eichler.
As is this column's custom, Messrs. Gardner and Eichler are returning for another round against the forces of chance. Joining their team for the coming six months will be David J. Leinweber, managing director of First Quadrant , an investment-management firm in Pasadena, Calif., and Richard Weinstein, director of research for First Colonial Securities Group, a brokerage firm, in Boca Raton, Fla.
Mr. Gardner, who also is a portfolio manager of Touchstone Emerging Growth Fund in Cincinnati, is going with Martin Marietta Materials Inc. for his second foray against the darts. The Raleigh, N.C., company makes crushed-rock aggregates used in construction of highways, and commercial and residential structures. "They own holes in the ground from which they extract rock," Mr. Gardner says. "It's a terrific business."
Martin Marietta, a spinoff from Lockheed Martin Inc., isn't widely followed by analysts, Mr. Gardner says. But it has "given Wall Street six straight upside surprises on [quarterly] earning estimates," he adds.
"It's a very, very well-managed company," he says. "Tremendous cash flow gives them enormous flexibility in making acquisitions and running the business." The stock closed yesterday in New York Stock Exchange composite trading at $35.625.
Mr. Eichler is recommending another short sale for his fifth contest against the darts. It's General Electric Co., the consumer and industrial products giant, which also has interests in financial services and broadcasting. "GE isn't the rock solid company it once was," he says. "Most of its earnings come from its financial business, which is cyclical and highly volatile."
Mr. Eichler repeated a prediction he made six months ago that "an epochal disaster awaits the U.S. stock market." GE's industrial products businesses are vulnerable to economic pressures and to competition from Asian countries whose currencies have been devalued, he adds, and a rapid slowdown in consumer spending will follow a market correction.
"This is the perfect short opportunity," he says. "The upside [risk] is negligible." GE stock closed in Big Board composite trading at $74.625.
For his first outing against the darts, Mr. Leinweber recommends Schlumberger Ltd., an oil-field services company based in New York. Based on "levels and trends in energy prices and consumer confidence, interest rates and exchange rates . . . this is historically one of the best circumstances for the oil industry," he says. His firm, First Quadrant , specializes in picking stocks through computer analysis of various factors, including past market trends and economic trends.
Schlumberger has been "the most technically innovative firm in this field for a long time" using artificial intelligence and data analysis to determine where to drill and how to drill, Mr. Leinweber says. He notes there have been multiple upward revisions in analysts' earnings expectations this year, and actual earnings have come in even higher. "We expect to see this pattern continue into 1998," he says.
Schlumberger closed at $85.50 in New York Stock Exchange composite trading.
Newcomer Mr. Weinstein's choice is Genome Therapeutics Corp. in Waltham, Mass. He calls it "a value buy in one of the most promising areas of drug therapy." The company specializes in identification and characterization of genes associated with disease.
Genome has agreements with three major pharmaceutical companies to develop drugs to treat asthma, fungal and staphylococcal infections and ulcers. Mr. Weinstein says the ulcer and staphylococcus drugs could be within two years of clinical trials, representing the "first two products to get that close to commercialization in this industry."
The company also appears close to signing a partner for developing an osteoporosis drug, Mr. Weinstein says. These agreements generate funds for research and development, he notes, and Genome would receive royalties from any products that reach the marketplace. Although Genome reported a loss for the fiscal year ended in August, Mr. Weinstein notes that it was profitable in fiscal 1995 and 1996.
The stock closed yesterday on the Nasdaq Stock Market at $7.125.
For the contest ending next May 29, the four pros will be competing against a dartboard portfolio consisting of Earthlink Network Inc., Ekco Group Inc., Jean Philippe Fragrances Inc. and Perceptron Inc.
The most recent results leave the pros ahead of the darts by a score of 54 to 36 in the 90 contests since current rules were adopted in July 1990. Compared with the industrial average, the score is 47 to 43 in favor of the pros.
In those 90 contests, the pros have posted an average six-month investment gain of 11.5%, compared with 5.4% for the darts and 7% for the Dow Jones Industrial Average.
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Contestants for the Coming Six Months
Eugene H. Gardner
David L. Babson & Co.
BUY: Martin Marietta Materials (MLM)
Thomas H. Eichler
Eichler Magnin Inc.
SELL SHORT: General Electric (GE)
David J. Leinweber
First Quadrant
BUY: Schlumberger (SLB)
Richard Weinstein
First Colonial Securities
BUY: Genome Therapeutics (GENE)
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Experts vs. Darts the Past Six Months
PERFORMANCE*
EXPERT RECOMMENDATION JUNE 10-NOV. 28, 1997
Eugene H. Gardner Buy: Wallace Computer +18.5%
AFFILIATION: David L. Babson
Thomas H. Eichler Sell Short: Sears +12.3
AFFILIATION: Eichler Magnin
Michael A. Connor Buy: Cybex - 0.6
AFFILIATION: C-B Partners
Richard Jandrain III Buy: Advanced Micro Devices -44.3
AFFILIATION: Banc One Investment Advisors
Experts as a group - 3.5
Dartboard Portfolio** + 6.5
Dow Jones Industrial Average + 3.8
*Capital gain or loss only. Calculations by IDD Information Services/Tradeline
**Four stocks picked by throw of darts: Emcor Group, up 32.2%: Atchison Casting, up 4.6%: Harbinger, down 4.0%: Total System Services, down 6.7% |
