2009 in Review: U.S. Stocks
BENJ GALLANDER and BEN STADELMANN
In our previous column, we updated some of the Canadian stocks we wrote about in 2009. Now, here's a gander at companies that hail from U.S. exchanges.
In March, our topic was Marriott International. We opined that with the recession in full force, revenues decreasing, a heavy debt load, the stock trading at 3.5 times book and insiders racing for the exit while cashing in luxurious options, this stock was a better short than long. Oopsie. It has done about a double since then.
Last April we wrote an article on the moribund automotive industry and the lack of innovative solutions from North American managers. We opined that GM wasn't worth an investment at the $1.75 level and that it could go bankrupt any day. We didn't have long to wait; the company did succumb on June 1. We would have thought the shares would become worthless shortly thereafter, but in one of those weird twists, it didn't work out that way.
While we are no strangers to bizarre post-bankruptcy bounces; these are usually brief flares before the final denouement. But the shares are still trading on the pink sheets at 63 cents under the auspices of Motors Liquidation. At huge volumes, too, averaging over 7 million a day.
You'd have to have a screw loose to think these chits are worth that much, as the connection between the old and new GM has been severed. Going forward, it makes little difference how well the new GM does, because it is now owned by a consortium of U.S., Canadian and Ontario governments, unions and bond holders. Motors Liquidation is essentially an empty shell, sailing through the bankruptcy process. The chance that anything will be left over after all the claims are paid out is remote.
In May, the world of art was the theme, and we took a look at Sothebys, which at that time was suffering at $10.50 because wealthy people had become less willing to spend huge sums to add to their collections. Due to debt problems, the company didn't get added to the Contra portfolio, and it was suggested that readers could enjoy a less illustrious painting on their own walls instead.
Count that as a miss, as Sothebys has recovered to $24.30, a lovely gain of 131 percent in seven months. Your favourite artist would have to come to a sudden and untimely end to see that sort of appreciation. As for the rich, they are back to their Ferengi ways and doing just fine, thank you very much.
In June, we checked in with our portfolio holding Yahoo when it was trading at $15.80. This former Internet high flyer has become a deeply contrarian play, as people seem to love to hate Yahoo. Between losing market share to Google, the fiasco of spurning a buyout offer from Microsoft and a depressed advertising market, doubters have plenty of evidence on their side.
Nevertheless, our view is that Yahoo is still a valuable property with a strong balance sheet and revenues will recover as the economy improves. So far, the mending has been slow, and the stock seems to be mostly moving sideways, currently trading at $16.20. Our target price is $32.74.
A July article posed the question, "Is Material Sciences a plucky survivor or an enterprise in collapse?" One contrarian took the view that the point of maximum pessimism had been reached, which made this manufacturer of acoustical materials and coatings a good choice at 95 cents.
Fortunately, there have been signs of life in the automotive sector, a key market for Material Sciences, but revenues have a lot of ground to make up. Management has done a terrific job of cutting costs, and with the advantage of a pristine balance sheet, the company is well positioned for a rebound. The stock has rallied strongly to $1.90, a tidy double in six months.
Finally, we'd like to honk the horn for our Contra the Heard portfolio results. Sure, stock markets had a banner year in 2009 worldwide, but we bested the indexes by a wide margin. Our Canadian stocks were up 69.3 percent, while the U.S. side surged by 53.2 percent. The devaluation of the American dollar took a bite out of the final tally to the tune of 12 percent, but we are pleased with the overall portfolio gain of 47.4 percent. That brought our 15-year annualized track record to 16.6 percent.