|
Free
Advice From S&P
Is it too
late to buy energy stocks?
Not according
to a recent Standard & Poor’s analysis of the oil and gas drilling
industry. There, S&P analyst Stewart Glickman pointed out that the
new Energy Policy Act recently signed by President Bush included
incentives likely to benefit oil and gas drilling companies. Glickman
detailed why, despite “a remarkable run thus far in 2005,” he sees
even more upside for oil and gas drillers. But Glickman didn’t stop
there, he went on to list S&P’s three top picks in the industry.
S&P
churns out a large variety of insightful industry and individual stock
analysis reports daily. Many of them are available free on Business
Week’s site (publisher McGraw Hill owns both S&P and Business
Week).
You’re
undoubtedly heard of S&P, but you may not be aware that it is the
only major stock rating service that isn’t trying to do
investment-banking business with the same companies that it is rating.
Thus, it doesn’t have the potential for conflicts of interests such as
those that influenced some analysts’ ratings during the bubble years.
Here are some
of my favorite free S&P resources, starting with two readymade
portfolios with market-beating track records.
Top Ten
Portfolio
S&P’s Top Ten Portfolio is a list of the 10 stocks that S&P
considers the best candidates for capital gains over the next 6 to 12
months. Since its launch on December 31, 2001, S&P’s Top Ten
gained 31% through July 29 2005 compared to 14% for the overall market
as gauged by the S&P 500 index. Last year the portfolio returned 19%
versus 11% for the S&P 500.
S&P’s
Top Ten composition isn’t fixed. It can replace stocks as S&P sees
fit. Typically, it replaces one or two stocks each month. In my view,
that’s not a lot of trading given the results.
Promising
Growth
S&P’s Promising Growth Portfolio attempts to emulate Warren
Buffett’s stock picking strategy. However, unlike Buffett, who holds
stocks for years, S&P updates the portfolio twice yearly, in
February and in August. However, according to S&P, many stocks carry
over from one portfolio to the next. S&P creates the portfolio using
a screening program that scans through the entire stock market looking
for stocks that Warren Buffet might like, based on published accounts of
how he selects stocks.
At first
look, S&P’s version of Warren Buffett won’t knock your socks
off. It averaged a 16%t average annual return since its February 1995
inception, compared to 9% for the S&P 500, but underperformed during
the go-go 1997-1999 years. What I find intriguing is that S&P’s
Buffet portfolio has only suffered one losing year. It dropped 13% in
2002, but that was small-beans compared to the 23% loss suffered by the
S&P 500.
The biggest
problem with using S&P’s Buffett screen is that it picks a lot of
stocks. The August version includes 58 stocks. Using traditional
stockbrokers; that may be too many stocks for many investors. However,
there are specialized brokers such as FOLIOfn (www.foliofn.com),
which allow purchase of fractional shares and are set up to economically
handle portfolio style investing.
Find
S&P’s Top Ten and Promising Growth portfolios from Business
Week’s homepage (www.businessweek.com)
by selecting Stocks
on the Investing dropdown menu and then click on the first Top Ten or
Promising Growth Portfolio article (either one will work) that you see
listed. Once you’ve selected an article for either portfolio, click on
the Portfolio
Archive link to see a list of all of portfolio articles going back
two years.
Picks
& Pans
While still in Business Week’s Stocks section, check out S&P’s Picks
& Pans, which feature S&P’s analyst comments on stocks
they cover that made news that day. The single paragraph commentary
relates the news, the analyst’s take on the news, and any resulting
changes in the analyst’s buy/sell rating. It’s an interesting read
and you can browse through the archives going back three or four months.
Industry
in Focus
The oil and gas drilling industry analysis article that I quoted earlier
is part of S&P’s Industry in Focus section, which is a good
resource for investing ideas. Rather than describing broad industry
trends such as pharmaceuticals, it focuses on narrower investment
opportunities such as cancer drugs.
Find it by
selecting Sectors
on Business Week’s Investing dropdown menu. Once again, after you’ve
selected an article, click on Industry
in Focus Archive to see a list of other recent articles.
Sector
Watch
For a somewhat broader industry view, read Sam
Stovall’s Sector Watch, which you can also find in Business
Week’s Sectors section. Stovall, who is S&P’s chief investment
strategist, describes S&P’s outlook for a particular industry, say
specialty retailers or homebuilders. If the outlook is favorable,
Stovall lists S&P’s top-rated stocks in the industry.
There’s
much more worthwhile information from S&P on Business Week’s site
than I have room to describe. Investing
Q&A is a good resource for investing ideas from S&P analysts
as well as from outsiders. If you’re a mutual fund investor, I’m
sure you’ll find the Fund
Q&A articles worth reading. Some features are hard to find, so
take some time to explore the site.
published 9/4/05 |
