Markets

Our '08 Picks Take a Licking

For the first half of the year, our eight stocks prospered.

By Jeffrey R. Kosnett, Senior Editor

From Kiplinger's Personal Finance magazine, January 2009

First, the good news: None of our top choices went to zero (see 8 Stocks to Own in '08). In a year in which several financial giants went bankrupt and other titans of industry teetered on the brink (think General Motors and Ford), we claim a tiny victory for avoiding total failures. The bad news, of course, is that our picks lost a lot of money -- 43%, on average, from our press date through November 7, compared with a 36% decline for Standard & Poor's 500-stock index.

But as Paul Harvey would say, here's the rest of the story: For the first half of the year, the eight, led by coal giant Consol (symbol CNX) and natural-gas producer XTO (XTO), prospered. Consol, at $56 when we priced the stocks, soared to $119 in June as a result of surging world demand for coal. XTO also rallied. Then energy prices tipped and the stocks quickly followed.

Shares of AT&T (T), down 31%, and Stanley Works (SWK), off 35%, suffered with the broad market, although their businesses remain healthy. General weakness in technology stocks hurt Intel (INTC), which lost 40%. Our best performer, Israel's Teva Pharmaceutical (TEVA), the world champion in generic drugs, remains a dominant growth business. The stock dipped 4%.

The biggest losers were Parexel (PRXL) and Cemex (CX). Parexel, which conducts clinical trials for drug companies, missed earnings estimates in midyear, a killer in a bear market. After rising to $36, Parexel fell to $9, for a loss of 61%. Cemex got hit with a double whammy: In addition to suffering from the construction slump, the Mexico-based supplier of cement and concrete lost big on currency trades. The stock plunged 74%.

The past year was lousy for bonds, too. The Merrill Lynch U.S. Broad Market index squeaked out a 1.1% return, but many areas of the bond market suffered nasty losses. Fidelity Intermediate Municipal Income (FLTMX), a member of the Kiplinger 25, gained 1.4% through November 7. But Artio (formerly Julius Baer) Total Return Bond (BJBGX) lost 3.3%, and Fidelity Floating Rate High Income (FFRHX) sank 12.4% as the global credit squeeze smacked the market for the bank loans in which it specializes.

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