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Hits and Misses Amid the Ups and Downs of Turbulent Markets

Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate merits of individual stocks.


Jim: It's time for our semiannual review, Mike, when we go back and take a look-see at our picks of the last year or so. It's sometimes painful, but the mail indicates our readers like to see how we've fared.

Mike: I think what some of our readers like is the chance to see where they've been smarter than we are. Hey, it's a risk for anyone who lays out their stock picks for public consumption.

Jim: Oh sure, we're a courageous pair. The truth of the matter, as everyone knows, is that we've experienced a pretty wild market over the last seven months.

Mike: One in which the market's leaders and laggards have shifted rapidly.

Jim: And the result, for the broad market, is that both the blue-chip Standard & Poor's 500 index and the tech-heavy Nasdaq composite index are down so far this year.

However, having said that, I'm happy to point out that a number of our picks have done much, much better than the market. Of course, a number haven't. But we'll get to that in a minute. Is there anywhere you'd like to begin?

Mike: I would like to start, frankly, by thanking my good friends at Xerox for reminding me that sometimes in the stock-picking business, you don't know nothin'.

Jim: Well, it turns out now that they are my good friends at Xerox, because I panned the stock.

Mike: Don't smile too broadly, Jim, because I know where you've buried a few of your mistakes.

Jim: OK, I'll parcel out my gloating as we go, because I know I'm going to have to pay for it sooner or later.

Mike: Anyway, back in September we discussed Xerox. On the principle that sometimes things can't get any worse, I called it a buy when it was selling for $42 a share. It's now selling for the princely sum of about $15, and my new opinion of Xerox is based on what you might call the rule of Somali governments, which is that things can always get worse.

Jim: I'm sorry for your sake that I was dead right on that one. Xerox just can't seem to find the right strategy to get out of its rut. Recently it announced another shockingly disappointing quarter, and this is clearly a company that's in need of some dramatic changes. And whether that should be management change--another management change--or something else, I'm not sure.

Now we might as well get to one that you got right and I got wrong, Procter & Gamble.

Mike: I called Procter & Gamble as a must-to-avoid when we talked about it in November. You saw something clean and bright, I guess, in the detergent business.

Jim: I thought their new chief executive was going to finally get that consumer-products giant turned around. Now he's history. And Procter & Gamble is worth half of what it was when we talked about it.

But let's pick out a couple we got right. One is Merck, the huge drug company that's also in the Dow Jones industrial average. Back in March we both liked this company a lot because it has hot-selling drugs on the market and some good ones in the pipeline. To help matters even more, the whole drug sector picked up steam this summer. And I'm happy to say that since we recommended it in mid-March, it's up more than 20%.

Mike: I'd point to Hughes Electronics, which has gained nearly 20% since we reviewed it in October. We saw that Hughes' satellite communications is promising business, including its DirecTV subsidiary, which in many ways is the whole ballgame at Hughes. It's what's really going to drive investor sentiment.

Jim: Then there's a stock that's just murdered us.

Mike: You must be thinking about Krispy Kreme.

Jim: How did you guess?

Mike: We both avoided this stock--I assume on our doctors' orders. This is, of course, the doughnut play du jour. It's the Coors of doughnuts, a regional favorite that's gone national and went to the public markets to get the money. But I still say that this doughnut play is a lot of baloney.

Jim: Nice mixed metaphor. Now, when we discussed this stock in April I remember predicting it would get a lift from all the publicity that the chain got during its IPO. But I have to admit I was dead wrong on how high this stock would get bid up before reality sets in. It's up 60% since we talked about it.

There was a story in Barron's magazine a couple of weeks ago that basically mimicked us, and that knocked several points off Krispy Kreme's price. But, hey, let's face it, timing's everything. I still believe that investors will eventually come to realize that this chain has no particularly strong growth prospects. But in the meantime, I have to face up to it, you could have made a bundle.

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