Two years ago this month (2016) I began my column’s annual January recommendations of individual stocks. I promised a report on their results a year later and then I would update my choices for the following year.
I recommended twelve stocks with mixed success in 2016. My favorite six choices only returned 7 percent two years ago (compared to the S&P 500’s 10 percent); however, my second six picks averaged an excellent 40 percent, thanks mostly to chip-maker Nividia (NVDA) — 2016’s number-one S&P 500 performer that soared 224 percent.
Because my four tech choices averaged a stunning 65 percent two years ago while my 8 non-tech picks returned a lousy 1 percent, I decided last year, in my January column, to pick only six tech stocks and one all-tech mutual fund.
How did I do? Luckily, the best results in 2017 came from technology companies. The average tech mutual fund stock jumped 37 percent last year, 15 percent better than the S&P 500’s 22 percent rise, counting dividends. (Second best was health care, returning 27 percent.) My six tech picks and one all-tech mutual fund did incredibly well — averaging 45 percent.
The six tech stocks Sue and I owned last January and that I profiled in my column and their 2017 returns are listed below (in order from best to worst):
- Nvidia (NVDA) — 82 percent Price Global Tech fund (PRGTX) — 47 percent
- Amazon (AMZN) — 56 percent Alphabet (Google, GOOG) — 36 percent
- Facebook (FB) — 53 percent IBM (IBM) — minus 4 percent
- Apple (AAPL) — 48 percent
We still own — what I call the fabulous four — and they are now the largest individual-stock positions in our portfolio: Amazon, Apple, Facebook and Nvidia. They are all still strongly recommended, particularly Apple (AAPL), which is far cheaper and lower risk than the other three.
Apple sells at a 19 average market multiple (P/E) whereas P/E’s for Facebook (34), Nvidia (58) and Amazon (327) are much higher. (Amazon’s P/E is always ridiculously high given that it eschews profits to reinvest in its businesses, as its purchase of Whole Foods last year demonstrated.)
Apple is the only one of the four that pays a dividend (1.5 percent) and it will probably bring home from overseas more than $100 billion at the special 15.5 percent reparation tax rate this year. (Last year it would have paid a 35 percent corporate tax rate.) Experts predict much of that windfall will go to increasing the buyback of its shares and raising its dividend.
We no longer own or recommend IBM or Alphabet, our two lowest-return recommended stocks last year. IBM just reported its first revenue growth in six years while Alphabet recently paid a $2.7 billion fine to the European commission for illegal monopolistic practices.
Price Global Technology (PRGTX) is still my favorite mutual fund. It has averaged 27 percent for 5 years, and despite the crash in 2008-09, 17 percent for 10 years. Unfortunately, it is closed to new investors, except at Scottrade, where it can be purchased without fees for only $100. For readers that don’t have a Scottrade account, consider Fidelity Select Technology (FSPTX) that was up 50 percent last year and has a 21 percent average for 5 years and 13 percent for a decade.
My four new picks for this year are Blackrock (BLK), owner of the iShares’ ETF’s, Shopify (SHOP), a Canadian e-commerce company, Vail (MTN), the world’s largest owner of ski resorts, and WYNN (WYNN), a casino company.
I’m no fan of bank stocks, so Blackrock (BLK), MasterCard (MA) and Visa (V) are the only financial stocks Sue and I own. I had a hard time deciding on which one to recommend but finally gave Blackrock the edge because of all the new money pouring into exchange-traded funds (ETFs). Last year a record $466 billion of net new money poured into ETF’s, a 61 percent increase over 2016. Blackrock’s iShares, the largest ETF family, has more than one trillion dollars invested!
Up 38 percent last year, BLK is selling at 20x earnings and pays a 1.9 percent dividend. It receives the highest possible rating from both Thomson-Reuters (10) and Market Edge (long).
Shopify (SHOP) is a top pick from both the Motley Fool group and Henry Ellenbogen, who manages the Price New Horizon fund (closed to new investors), a small-cap fund that is in the top one percent for 10 years, averaging 15 percent a year. (His fund gained 32 percent last year.)
Not counting Amazon, Shopify has about 10 percent of U.S. e-commerce and its platform is used by more than 500,000 businesses in 175 countries. Ellenbogen claims it is currently growing its business 70 percent a year. Shopify jumped 136 percent last year and gets a rating of 8 (out of 10) from Thomson Reuters and Market Edge’s best “long” rating. Pouring its revenues into expanding its business, it is not currently profitable. Therefore, it has no P/E rating.
Vail Resorts (MTN) owns ski resorts in Colorado and Utah and recently purchased Whistler in Canada. Another Ellenbogen pick, Vail offers a ski season pass for $800. It sold 740,000 season passes by Thanksgiving. Vail’s summer business is growing, too — it has installed state-of-the art zip lines at all its resorts.
An expensive stock that gained 34 percent last year, it sells at 39x earnings. Vail pays a 1.8 percent dividend and gets a four-star (out of five) rating from S&P Global. I think its unique business and continuing growth justifies a P/E that is about twice the market average.
My final pick is Wynn (WYNN), the casino company that gets about two-thirds of its profits from Macau, where Chinese gambling revenues are six times higher than Las Vegas. However, I own Wynn because it is building a billion-dollar-plus casino complex in Boston that opens June 2019. It will have the only casino in the Boston area!
Wynn skyrocketed 97 percent last year, sells at 27x earnings, and pays a one percent dividend. It just reported terrific earnings Monday and gets Market Edge’s best ”long” designation and is rated a 4 (out of 5) by S&P Global.
I wish I could have written this column in December, given that my nine picks are up an average of 13 percent so far this year, twice the S&P 500’s 6 percent return (through January 23). The 2018 percentage gains are as follows: Amazon (17), Apple (5), Blackrock (15), Facebook (7), Nvidia (23), Price Global Tech (10), Shopify (18), Vail (10) and Wynn (16).
To be fair, next year I will compare my results for 11 months, from February to December, to negate the sensational returns this month. Unlike for Apple and Blackrock, my other 7 recommendations are much higher risk than average. All my picks currently have momentum, but when the market sells off they are likely to go down more than average.