Great companies, lousy stocks
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Great companies, lousy stocks

By Bill Gunderson
of Gunderson Capital Management (http://www.PWstreet.com)

I’m selling my book on-line. Thanks to Google AdWords, they are flying through cyberspace.

Does that mean I am telling my clients to rush out and buy Google?

Not a chance.

Johnson & Johnson make some of the most trusted health care products in the world. Surely there is room in my list of 157 Best Stocks Now for such an important part of our national life. No. Not if you want to make money.

I’m using Microsoft products to write, send and read this article. Don’t even think about putting this in your portfolio.

These are all good companies. Great companies. But lousy stocks. Let’s see why.

When Google went public seven years ago, it made a lot of people a lot of money. When the company founders told Wall Street analysts they were not going to play the quarterly earnings game, and instead invest in new things that sometimes made money but were always interesting, investors scoffed.

They are still scoffing. After a recent conference call with company officials, Google investors complained that expenses were too high, profits were too low, and Google was throwing too much money around at too many things. Like wind mill farms, for example.

Google recently invested $100 million in an Oregon wind power project, and that is on top of wind investments in North Dakota, and the East Coast.

I am sure these projects are a lot of fun. But I am also sure that investing in Green Energy is a lousy idea -- if your objective is making money.

Over the last three years, Google’s stock has returned zero to investors. That is awful. Some of the best know professional investors in America are waiting -- hoping -- for Google to change. And they call that an investment strategy?

Same with Johnson & Johnson. For all I know this company is saving the universe. But I am sure it is killing a lot of portfolios because it is a darling of the big investment firms that love to put it in their clients’ portfolios.

Over the last three years, Johnson & Johnson has returned 5% to investors. If I owned that stock, that would make me ill.

The list goes on and on. If your portfolio is full of the stocks that have run you into the ground for years, and you are holding them because of their latest announcement that is going to turn everything around, good luck with that.

Because that is what you are counting on: Luck. That is not investing. That is gambling. Prospects are not profits.

For the last five years, analysts have been saying Apple is at the end of its lucky streak. But they just keep doing great things, the greatest is making money for its investors.

That is unlikely to change any time soon.

If you want to see an unfashionable company, you may not find it if you do not spend a lot of time in the lower-middle class warehouse districts. But that is where you will have to go to see one of my favorite stocks: CSX. It is a railroad. And it carries everything everywhere it goes.

I carry it in my portfolios because it delivers profits to shareholders. And looks like it will for a while. When it stops doing that, so will I.

Over the last five years, it has returned 19% percent per year.

Here’s a company I do not use, but probably should: It has been one of the greatest performing stocks of the decade: Priceline.

Surprised? Don’t be. It’s all in the numbers. Over the last ten years, Priceline has returned 84% per year over the last five years.

There are lots more out there: Netflix is a great stock too, averaging 50% per year over the last five years.

It is tempting to call this numbers-crunching -- and on some levels it is. But more than that, the profits are the best way to measure the performance of the people who run the company.

It is the best way to watch what they do. And not what they say.

And that is the best way to start picking your best stocks now.

 

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