Tuesday, January 01, 2008

Stockerblog's Review of 2007 Predictions

Back on Sunday, August 12, 2007, I described a series of predictions for the balance of the year. Here are my predictions and the results:

1. The residential real estate market will get far worse.
That was a slam dunk prediction.

2. Politicians will probably pass laws to severely limit the number of sub-prime mortgages in the future.
I was wrong about this one; the mortgage companies themselves did this on their own.

3. The real estate market is far from the bottom.
That was true.

4. The Federal Reserve Board will eventually lower rates but it will do almost nothing to help the real estate or mortgage market.
They did lower rates, real estate has continued to drop, mortgage defaults have continued to get worse.

5. A few major hedge funds will go under, and at least one major investment firm will experience severe problems.
Several hedge funds have closed their doors, and many investment firms have had major problems.

6. More mortgage companies will declare bankruptcy and at least one major homebuilder will go under.
Since August 10, there have been 93 lenders that have imploded. In regards to homebuilders, Levitt Corporation's (LEV) homebuilding division filed for bankruptcy, along with several smaller homebuilders.

7. The stocks of investment brokers and investment banks will stagnate.
Well that was an understatement.

8. The bank stocks will also languish.
Another understated prediction.

9. Any stocks which have nothing to do with mortgages or real estate with be significantly higher by year end.
There were plenty of those stocks; look at GameStop Corp. (GME), Fluor Corporation (FLR), Research In Motion Ltd. (RIMM), and Amazon (AMZN).

10. Seven stocks which should be much higher by year end.
Finally, the most important section. I gave a list of seven stocks that I predicted would be higher by the end of 2007. Every stocks was up, and the average increase of all the stocks was 10.5% (26.9% on an annualized basis, far outperforming the Dow Jones Industrial Average, which was basically flat, up only 0.2%. The S&P 500 was only up 1%. By the way, the 10.5% gain does not include dividends; if you add those in, it bumps the return up to 11.7%.

The worst performing stock on my list is Kimberly-Clark (KMB), the health and hygiene products company, which was up only 1.7% (or 3.2% if you include dividends). The top performing stock on my list is UIL Holdings (UIL), the Connecticut based utility, which increased by 20.0% (or 23.2% with dividends). The following is a list of the stocks and their returns:

Company ........... 8/10/07 ..... 12/31/07 ..... Gain
Lafarge (LFRGY.PK) .... 39.19 ..... 45.35 ....... 15.7%
URS Corp. (URS) ....... 50.24 ..... 54.33 ........ 8.1%
Pepsico (PEP) ......... 67.95 ..... 75.9 ........ 11.7%
Kimberly-Clark (KMB) .. 68.21 ..... 69.34 ........ 1.7%
Johnson & Johnson (JNJ) 61.15 ..... 66.7 ......... 9.1%
UIL Holdings (UIL) .... 30.78 ..... 36.95 ....... 20.0%
Anheuser-Busch (BUD) .. 48.73 ..... 52.34 ........ 7.4%

Average return 10.5%
Average return annualized 26.9%

Dow Jones Industrial Average 0.2%
S & P 500 1.0%

Author does not own any of the above.

By Fred Fuld at Stockerblog.com

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