How last year's stock picks have performed.
A year ago, we suggested five sectors and 12 stocks within them that looked especially attractive ("Best Plays in Today's Market," April 2005). The dozen gained 22% on average, dwarfing the 5% rise in Standard Poor's 500-stock index.
The best performers benefited from the energy boom. Shares of Burlington Northern Santa Fe, a railroad that hauls coal and other cargo, soared 71%. Close behind were energy-services stalwarts Baker Hughes and BJ Services, up 50% and 48%, respectively. Norfolk Southern, another railroad, gained 39%. We still recommend the two railroads, as well as these and other energy-services stocks (see Big Energy's Enablers).
Four stocks -- Disney, Dow Chemical, Lyondell Chemical and Stryker -- lost money. The spike in the price of natural gas -- an important component of chemical manufacturing -- hurt profits at Dow and Lyondell. Shares of Disney and Stryker lagged to some degree because investors have shunned the stocks of large, growing companies. But we still like these four stocks, and Disney is especially attractive. Its earnings for the quarter that ended December 31 were much stronger than analysts expected, and the company is impressing Wall Street with its new strategic plans.
--Jeffrey R. Kosnett