OT -- As has been said any number of times, "Prediction is a hazardous hobby, especially about the future." Barrons' Tiernan Ray looks back on 2016. And he reminds us (at least, me) that CES begins this week. It isn't as big a deal as it used to be, but still, it offers a first look at what is coming in the year ahead.
Going With My Gut Was Not a Winning Strategy in 2016
My gut told readers to buy Amazon, Netflix, Alphabet, and Facebook. My brain said buy AMD and Nvidia. My gut was wrong.
By TIERNAN RAY
December 31, 2016
barrons.com
This column would have done better in 2016 if it had heeded the diligent reporting of its author about Nvidia and Advanced Micro Devices, which turned out to be two of the best stocks of the year, up 226% and 293%, respectively.
The bullish case for both was laid out in an October 2015 cover story (“ Watch Out Intel, Here Comes Facebook,” Oct. 31), which argued that both would benefit from their role in cloud computing, especially the emerging trend of a new kind of artificial intelligence.
That’s exactly what happened. But aside from a brief positive mention of Nvidia (ticker: NVDA) in mid-May, the column failed to hammer home the virtues of the two companies, and instead dithered with lots of other things. (For more on AMD’s [AMD] performance, see Follow-Up.)
THE BIG OUTLOOK column of 2015 predicted that 2016 would be the year of FANG2, meaning that the best-performing stocks of 2015— Facebook (FB), Amazon.com(AMZN), Netflix (NFLX), and Google, now Alphabet (GOOGL)—would continue to outperform.
Although this column turned negative on Netflix by July, a June column recommended Google and Amazon as the new equivalent of the dominant duo in PCs, Microsoft (MSFT) and Intel (INTC). And another opus, in July, made the case for the “Nifty Three” of Alphabet, Amazon, and Facebook, with the claim that “they continue to be the best at what they do in their respective fields, and that will continue to drive stock gains.” In fact, the average increase for the FANGs was only 7.75% this year, just a bit better than the 7.5% of the Nasdaq Composite Index, and below the 10% return of the Standard & Poor’s 500.
The lesson of that October cover story, only partly heeded in this column, was that 2016 would be the year of cloud-computing suppliers, rather than the cloud companies themselves.
And it wasn’t just Nvidia and AMD. The column recommended networker Arista Networks (ANET), up 24% for the year, and fiberoptic-component vendors Viavi Solutions (VIAV), Lumentum Holdings (LITE), and Finisar (FNSR), which rose a stunning 34%, 76%, and 108%, respectively.
Networker Ciena (CIEN) did very respectably, turning in consistently good results and rising 18%.
Another positive pick from that October cover story was later bungled by this column: out-of-favor memory-chip maker Micron Technology (MU). As things got worse in the DRAM market that Micron serves, the column blinked and lost confidence. With the stock hovering above $10 in April, we suggested merely that some people might be attracted by the sharp fall. Speculators who jumped on that $10 asking price saw the shares soar 55% for the year, to a recent $21.92.
THIS COLUMN’S SUCCESS was rather mixed when it came to being negative. Our view was overly skeptical about traditional tech names Cisco Systems (CSCO) and Hewlett Packard Enterprise (HPE), predicting in December that they would have “challenging” times in 2016.
While both continued to struggle with declining lines of business, their shares rose 11% and 52%, respectively, as investors sought large, dividend-paying names while overlooking business risks. This column corrected that mistake slightly in mid-February, writing that “Cisco is a bit boring, and boring, these days, suits nervous investors.”
Another negative call was more prescient, arguing in January that investors “may increasingly walk away from the cloud group,” meaning cloud application-software vendors such as salesforce.com (CRM) and Workday (WDAY), because of slowing growth and high stock multiples.
The topic was revisited in April, when I noted that older tech names such as Oracle(ORCL) and IBM (IBM) were reporting their own cloud-computing revenue numbers. “Will cloud names bounce back?” was the question asked of salesforce et al. “Probably not to the sky-high levels of the past.” Indeed, both did terribly in 2016, with salesforce down 12.7% and Workday falling 17%.
We continued to be negative about Twitter (TWTR) last year, arguing in March that hopes had faded for a return to glory under co-founder and CEO Jack Dorsey, and that the company’s best days might be over.
Despite President-elect Donald Trump making a daily diet of tweets all through the U.S. election season, Twitter didn’t see a rebound in user growth this year. It seems as if ad dollars are going to other venues, such as Snapchat. Twitter stock declined almost 30% for the year.
WE ALSO CONFESS to some vacillations, especially in the case of the biggest tech stock, Apple (AAPL).
This column waffled repeatedly because of the good-news, bad-news nature of the iPhone business. A column in January claimed the stock “should come out all right,” but that a “quixotic trading pattern” would persist. Another column, in February, said that under CEO Tim Cook’s able stewardship, the company should be “okay.”
A June piece claimed Apple was “too cheap at 8.3 times the lowest earnings estimate on the Street this year.” But then came another flip-flop, in late October, as it became clear that the iPhone is a kind of gilded cage for Apple shares. The final assessment: Apple “seems to need something larger, some grander vision” for the shares to keep delivering in years to come. The stock ended the year with a 10% gain, in line with the market, suggesting that investors were as ambivalent as this column.
On the big consumer-tech trend of the year, virtual reality, Tech Trader was unequivocally skeptical from the get-go, stating in late February that “VR may succeed some day, but big expectations are about to be hugely disappointed.”
VR was sent out of the labs before really being properly developed, and as such, it’s an immature product. The results this year look to be just as mediocre as anticipated in a follow-up story in April.
A recent report by research firm Canalys estimates that the big three VR providers—Facebook, Taiwan’s HTC (2498.Taiwan), and Sony (SNE)—were on track to sell just two million headsets between them in 2016, so I consider my caution vindicated. Sony, which may have sold the most of the three, has seen its shares rise nearly 14%, which is not bad, but hardly the kind of payoff you’d expect if VR had been a raging success.
The upshot is that nothing replaces good reporting, and the work done on Nvidia and AMD a year ago shows that. Gut feelings are great, but extensively researching a tech trend, and the companies supporting it, is worth a lot more.
TIERNAN RAY can be reached at: tiernan.ray@barrons.com, www.blogs.barrons.com/techtraderdaily or www.twitter.com/barronstechblog |
