One of the blogs I read on a semi-regular basis participates in a stock-picking contest each year. In the contest, bloggers from a number of different finance sites pick four stocks that they ‘own’ for a year. Any stock or ETF on Canadian or US exchanges are fair game. To get in on the fun, I figure I’ll throw out my top four stock picks for this year and see how I do. Note that due to the relatively short timeframe associated with this contest, and the lack of consequences for being wrong, the portfolio I’m outlining is not one that I would recommend in general. Though I do think that each of the stocks / ETF’s picked are no more than fairly valued at the very least.
#1 – Bank of America (BAC)
My #1 pick is Bank of America. It’s probably one of the most hated stocks out there now. It’s also trading at a substantial discount to both book value and tangible book value. My only reservation in picking this for the contest is that I have no idea whether or not it will go anywhere in a year. If you give me 10 years, I’d be much more confident.
#2 – Research in Motion (RIMM)
My #2 pick is Research in Motion. It’s also an extremely hated stock. Now this one I’m going out on a limb for as I’ve decided to avoid buying RIM for a number of reasons. However, I think the stock if RIM’s strategy and management begins to perform at all, their fortunes should pick up. It’s also trading near book value which should provide a bit of a floor to the price. I picked the US listed version as I’m guessing that the Canadian dollar will end the year higher against the US dollar which would add a few extra percentage points if I’m right. Not that it matters much.
#3 – FAS– US 3x Bull Financial ETF
Now this one is cheating a bit, but in the rules it says you can pick any stock or ETF on the Canadian or US markets. This is just a bit of a broadening of my #1 pick. Basically, I think US financials are some of the most beat down stocks out there. This just buys a basket of them and then leverages it up. Easy peasy. If the US avoids a recession and Europe doesn’t blow up too badly, this should turn out okay so long as the rebalancing and ETF fees don’t bite too badly.
#4 – UPRO– 3x Leveraged S&P 500 ETF
I was thinking of putting some of the stocks that I’m currently looking at in here, but as there’s only a 1 year time horizon, it was time to go big or go home. Basically, this is a bet that the US will do okay and muddle along. At the end of 2011, the S&P finished with an estimated P/E of around 12.5 as long as the quarterly earnings for the fourth quarter hold up. If they do, this will be the first calendar year in awhile that the P/E of the S&P has been 15 at the end of the year. So, this is basically a bet that price reverts to earnings and not that earnings come down to meet price. I’ve also leveraged it up to ensure that if I’m right, I win big. Then again, that can bite both ways.
Anyway, I’ll be tracking my picks on a quarterly basis along with the other bloggers to see how I do. Note that this is not how I would actually throw together a portfolio, but since it’s all for fun (and bragging rights), why not.
Until next time,
Nathan @ EngineeringIncome.com
The data and opinions presented above are for educational purposes only and should not be construed as individualized investment advice or as a recommendation to buy or sell the securities in question. The investing methodology outlined on this site assumes that a stock will perform in the future as it has in the past. This is generally not true. It is the responsibility of individuals to perform their own due diligence and/or consult their investment adviser to determine the suitability of any given investment product for their specific situation. For more information, please see my disclaimer. (link)
Full Disclosure: Long BAC as of the time of this writing.