STOCK WATCH


Five Stock Disappointments in 2007

Jeffrey R. Kosnett

These companies are well positioned to rebound next year.



Tired of waiting for GE, AIG, Pfizer and Wal-Mart to deliver the goods? So are we.

But there are some appealing stocks that disappointed in 2007 for various reasons but are likely to do much better in 2008. Here are five to consider (and see Five Stock Surprises in 2007).

1. American Express (symbol AXP). This is a joke, right? MasterCard, in its first full year as a publicly traded company, nearly doubles in value, while American Express shares drop 12% in 2007.

Because Amex card users are more likely than MasterCard carriers to be traveling on business or to be affluent, you can't blame Amex's underperformance on tight-fisted shoppers or adjustable-rate mortgages.

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Nor can you finger anything in particular that Amex did wrong, except possibly to sell its bank in a bad year to be selling banks. But by the time Amex did that, in September, its stock was already having a lousy year. It closed on December 12 at $54.08.

2. Comcast (CMCSA). Competition from AT&T, Verizon and direct-satellite systems is brutal, but that doesn't justify a 50% haircut in Comcast's shares since midsummer.

The company caused some of the damage itself by revealing that it would spend more on capital improvements and marketing to justify its huge investment in added capacity. Since then the stock, which had already fallen from $30 in midyear to $22 at the time of the annoumcement, is now under $18. That's a loss of $12 billion of market value in less than two weeks.

If you think that’s an excessive punishment, this stock is a real cheapie. A share, which closed at $17.63 December 12, costs you less than two movie tickets.

3. Duke Realty (DRE). It was a lousy year for real estate investment trusts. Not, however, for REITs engaged in industrial, distribution and warehousing properties. That was real estate's best segment in 2007, with an average return of 11%.

Unfortunately for Duke, it is switching focus from simple industrial buildings to creating and developing major mixed-use office and industrial complexes from the ground up. So instead of advancing with other industrial REITs, Duke's shares, which trade at $26.65, lost 35% in 2007 through December 12.

In the long run, there's more profit potential in owning and developing prime waterfront land in places like Baltimore and Savannah, Ga., than renting out dated Midwestern properties. But when it comes to real estate, the stock market doesn't look five years ahead, or even three. It sees more debt on Duke's books and a delay in the payoff from its development plans.

Genentech (DNA). It's hard to see any major problems here except guilt by association with the struggling drug industry. There's certainly no profit trouble here: 2007 earnings are running 30% ahead of 2006 earnings.

But capping a disappointing year for the stock, a Food and Drug Administration panel in early December rejected Genentech's application to use its Avastin drug for metastatic breast cancer. The product has other uses, though, and the company has a large pipeline of new products.

Genentech is still more of a high-growth, high-energy company than its older and more traditional rivals in pharma. The shares, which closed at $70.58, have lost 14% in 2007, following a 12% decline in 2006.

This has to turn.

Granite Construction (GVA). Granite picked a bad year to have a bad year. While shares of many other construction and infrastructure companies soared, Granite stock fell hard. At $40.31, it has lost 21% year to date.

Granite owns some California land on which homes will eventually be built, so the stock was hurt to some degree by the housing downturn. But it was the slow pace of winning high-profit public-works jobs that was most responsible for the disappointing performance.

Granite has now reorganized itself into two parts: the West, which specializes in small and regional road projects, and the East, which wants to build such gigantic projects as bridges and tunnels. This is supposed to help it bring in new business against a long list of able competitors.




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