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Local stock experts see tough road ahead

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The U.S. stock market couldn’t gain any traction in the first half of the year.

Hawaii investment experts didn’t fare any better.

Amid fears of a spreading European debt crisis, continued housing problems on the home front, and reverberations from the BP oil spill, the major indexes all hit the midyear point lower than they started in 2010.

Local stock pickers similarly struggled, with only one of four contest participants squeezing out a gain in the newly renamed Star-Advertiser’s ninth annual survey of best investment ideas.

The outlook for the remaining six months of 2010 doesn’t look much brighter, according to local stock expert Norm Caris, whose hypothetical $20,000 portfolio was up a scant 1.1 percent through the first six months.

"Stock prices show we have dodged another Depression, but toxic anti-business rhetoric and policy errors are still hurting the still-fragile recovery," said Caris, a Kauai resident and managing director for institutional sales for Caris and Co.

He said the current tax and spending policies of federal lawmakers are counterproductive for business, investors, and market confidence.

"The market will continue to fluctuate based on legislation and how the politics turn out in November," said Caris, whose portfolio hit the midyear point worth $20,214.20.

Still, he said stock prices have retreated to more sensitive levels and investors should be looking to increase their exposure.

2010 YEAR-END FORECASTS

Hawaii stock experts are mixed on how the major indexes will fare in 2010.

 

WHO DOW NASDAQ S&P 500
Norm Caris 10,000 2,000 1,050
Richard Dole 10,700 2,400 1,150
Barry Hyman 10,428.05 2,269.15 1,115.10
Dwight Melton 11,400 2,500 1,230
2009 close 10,428.05 2,269.15 1,115.10
June 30 close 9,774.02 2,109.24 1,030.71
2010 consensus 10,632.01 2,292.29 1,136.28

In the first six months, the Dow Jones industrial average posted a 5 percent loss, which includes reinvested dividends, while the Nasdaq composite index declined 6.6 percent and the Standard & Poor’s 500 index fell 6.7 percent.

Barry Hyman, vice president-managing team for the Maui branch of FIM Group Ltd., was the only other stock expert besides Caris to trump the indexes. Hyman’s portfolio lost 3.2 percent to $19,357.81.

Rounding out the contingent of experts were Richard Dole, chief executive officer of Honolulu investment adviser Dole Capital LLC, who lost 8.2 percent to $18,362.90; and Dwight Melton, co-founder of the Hawaii Stocks and Option Group, down 18.2 percent to $16,362.93.

Caris revamped much of his portfolio for the third quarter, including closing out his short position in Honolulu-based Alexander & Baldwin following a 7 percent gain through six months.

The short position enabled Caris to profit as the stock price dropped.

He also doubled down on his positions in both Hawaiian Holdings, parent of Hawaiian Airlines, and Intel, as well as added new companies in Collective Brands, which owns Payless ShoeSource stores, and semiconductor equipment maker Novellus.

Hyman, hurt in the second quarter by a 43.5 percent decline in investment management firm U.S. Global Investors, more than doubled his position in that company for the third quarter because he sees it as a bargain.

"They specialize in natural resources, like gold, as well as emerging markets, which hold much of the world’s natural resources," Hyman said. "At its current extremely depressed price, U.S. Global is even more undervalued relative to the price of gold and natural resources."

Hyman sold all his holdings in Barrick Gold after the stock posted a 19 percent return in the quarter, but said gold mining stocks remain undervalued relative to the price of gold.

"Investors afraid of the stock market are buying gold bullion, coins or exchange-traded funds, but the pricing of mining stocks have not kept pace," he said.

He added two stocks to his portfolio in the quarter. One was global telecom provider Vodaphone, which pays an approximate 7.5 percent dividend and has a consistent cash flow.

His other pick was Gaiam, a producer and marketer of lifestyle media and fitness accessories.

"While I am very cautious of many retail companies in the current environment, Gaiam is a well-managed niche company that I expect will do well despite the strapped consumer," Hyman said.

"Through subsidiaries like Real Goods, and relations with other outlets, they focus on the consumer movement to be more energy efficient, environmentally conscious and life-quality oriented."

Dole, who didn’t make any changes in his portfolio, said he hasn’t changed his market outlook since the beginning of the year.

At the end of the first quarter, he said the market had gotten ahead of itself based on a slow-growth environment and likely would be vulnerable to bad news.

"We certainly had a market correction, partly due to slower expected China growth and an unexpected oil spill driving down energy stocks," Dole said.

"I continue to believe that the market will be higher by the end of the year, but we will have corrections along the way. Price-sensitive stocks suffered more than the market as a whole in the recent market downturn."

Dole’s best performer in the quarter was Territorial Bancorp, the holding company for Honolulu-based Territorial Savings Bank, which slipped 0.2 percent.

Melton, who typically favors stocks with strong momentum, picked up a 7 percent gain from Apple in the second quarter but was stung by losses of more than 20 percent on his other three holdings, including a 32.1 percent decline by coal producer Alpha Natural Resources. Still, Melton decided not to make any changes for the third quarter in his portfolio.

"I’m cautious going forward," he said. "For openers, housing’s pressures are mounting on both the building and sales fronts in wake of the recent expiration of tax credits for homebuyers (even though those with signed contracts now have three additional months to complete their purchase).

"Housing is not all that is restraining the upturn, though. We’re also seeing reluctance by consumers to spend, lesser contributions from fiscal stimulus, and further weakness overseas, particularly in Europe."

 

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