With less than a month left in this decade (have we even decided what to call it yet? Is it officially the Noughties?), it’s time to look back, reflect, and make fun of all the stupid investment calls that people made back in 2000. And here’s a doozy: Fortune magazine’s “10 Stocks To Last The Decade“. (Hat tip to Seeking Alpha for the link and the inspiration.) Quoth:
[...]if you’re a long-term investor, these ten should put your retirement account in good stead and protect you from those recurring nightmares about the stocks that got away.
The top performer on their list is Genentech, up 150% since the Fortune article was published. That’s 9.5% p.a. compounded – not bad at all, when the S&P’s dropped 25% over the same time period. Good call, Fortune. But how about the rest of the list?
Nokia, off 75% in ten years. Oh dear.
Nortel, which went bankrupt early this year. Oh dear. And it’s not as though they didn’t see it coming:
Like a lot of stocks in this sector, Nortel’s isn’t cheap. It trades at a P/E of around 114, bolstered by a 52-week gain of 250%. But profits are growing at a clip of 30% a year, and the company’s biggest challenge right now is meeting the voracious demand for its wares–not exactly a bad problem to have.
You’d think a P/E above 100 would be a bit of a red flag. But their next pick is a real winner:
The same reinvention skills are apparent in the management at Houston-based Enron.
That company has successfully transformed itself from a traditional natural-gas outfit (complete with a 32,000-mile pipeline) into a middleman for the new economy. Last November, Enron launched an e-commerce site that lets companies trade electricity, coal, gas, and other energy commodities over the Internet. Total amount of deals brokered so far? Try $100 billion, which is more online commerce than anyone else–Amazon.com included.
EBS and Brokertec electronically match more than $100 billion every day – five times more, in the case of Brokertec – but you don’t see anyone rushing to slap a 100x P/E target on their parent company Icap.
In conjunction, Enron is about to complete a 15,000-mile fiber-optic network that will help it broker the sale of that most precious resource right now, broadband capacity. Need extra pipes to run your telecom network during a busy season? Enron can actually buy bandwidth from one customer with excess capacity and sell it to another. That’s a lucrative strategy, given how explosively broadband demand is growing. Gannon at SunAmerica estimates Enron’s core gas business can easily grow profits 15% a year–a big jump over its competitors. Tack on the broadband service, which should turn profitable in a few years, and annual earnings growth can top 25%, he says.
“It should turn profitable in a few years.” That right there is the dot-com bubble summed up in a single sentence.
“Enron is going to become one of the leaders in broadband communications.” Not bad for a gas utility.
Also, one of the leaders in shifty accounting and outright fraud.
So out of ten stock picks, they’ve picked one winner, seven losers, and two spectacular flameout bankruptcies.
I can’t wait to see what Fortune predicts for the next decade. I have a feeling it’ll consist mostly of Chinese stocks, green energy stocks, and Chinese green energy stocks – and I have a feeling that in December 2019, I’ll be writing this exact same article.