2006: Year in Review

December 29, 2006

Take a look back at 2006 Dhinesh Financial articles and review their performance and further developments

2006 was a great year for the stock market, with the Dow Jones Industrial Average ending up 16%, the S&P 500 up 14%, and the Nasdaq up 10%. Many shrewd investors outpaced these numbers using Trading strategies successfully. Here is a look back at how the stocks that I analyzed in 2006 articles have done relative to what I forecasted.

Global Investing Focus: India, July 9 -

Indian stocks have indeed experienced “breakneck growth and expansion.” The Sensex benchmark average has increased over 33% in just 5 months. Investor appetite for taking part in the economic boom in India continues to remain strong, and additional investment from bonuses and retirement account contributions should sustain appreciation.

Commodities Corner: Bullish on Oil, July 9 -

Oil stocks experienced a swift rise as fears about a pipeline leak in Alaska increased supply fears during July. In September, however, a weak hurricane outlook and increasing oil supplies resulted in a sharp correction of oil with some stocks giving back their entire years gains, documented in the September 23 article, Sector Rotation: A Drain in the Oil Fields. Oil prices currently trade in the $60 range, flat from year ago levels. This means that oil stocks remain at unusually low valuations and should continue to post strong earnings as high oil prices persist.

Commodities Corner: Flaming Hot Steel, August 2 -

While Wall Street continued to write off steel companies, I believed that there was a great deal of value in steel stocks, and that concerns about a slowdown in worldwide steel demand overdone. US Steel (X) fell $7 per share shortly after this article was written, trading as low as $55 until in September the same Wall Street analysts that drove the stock lower with negative “sell” and “underweight” recommendations suddenly changed course and lifted stock prices. US Steel appreciated almost 50% from its low point to $79 in December as takeover rumors emerged. The rest of the steel sector experienced similar increases, and as long as the outlook for the world economy remains robust, there is still lots of money to be made in steel stocks.

Struggling Homebuilders, August 13 -

"Although it may seem clever to sell [homebuilding] stocks short and try to profit from further declines, it is important to remember that these companies have all already taken big hits, but existing short-sellers will have to buy back their shares at some point." Although the housing market has experienced a poor second half of the year, homebuilding stocks have bounced back as investors realized that the decline was more than warranted. Toll Brothers (TOL) is up 33% since August 13.

Automakers Running out of Gas, August 23 -

Shares of General Motors (GM) and Ford (F) are unchanged from their August 23 levels as uncertainty over their restructuring plans have left investors skeptical about turnarounds at the companies. During the same period, Toyota Motor (TM) has charged ahead 20% in the period as business remains strong at the Japanese automaker. GM ended 2006 as the top performer of the Dow Jones Industrial Average with a 58% increase, but will need to make big changes to repeat this kind of performance.

The Next Gold Rush, August 30 -

Gold prices increased 23% in 2006 aided by strong demand for the precious metal from both jewelry and investment purposes as an inflation hedge. Just one day after this article was published, Glamis Gold (GLG) and Goldcorp (GG) agreed to a $21.3 billion merger, providing additional support for the sector. Experts predict that gold should continue it’s upward trend, but the change in 2007 will likely not be as dramatic as 2006.

High-Flying Nvidia, September 6 -

Nvidia (NVDA) had already doubled from its share price of September 2005, and I believed that there would be a short pullback on profit-taking somewhere along the line, but this never developed. Instead, Nvidia is up 37% in the final four months of the year, and for the year is the 3rd best performer in the S&P 500 with a 104% rise. Investors are betting that Microsoft Vista will spur strong demand for Nvidia graphics card products, but it remains to be seen whether it will be enough to push the stock even higher. From a technical perspective, the stock is showing signs of leveling off, but it could just be momentary profit-taking before further upswings.

Unravelling the Zune vs. iPod Battle, September 14 -

"Apple is the true pioneer in the digital media player market, and it will be difficult for Microsoft to make significant inroads with the Zune. Despite the wireless capabilities of Zune, brand loyalty is formidable for the iPod … Ironically, switching from an iPod to Zune for many users will be like the idea of swapping a Windows for a Mac – simply unimaginable." Indeed, the Zune is facing a tough time as consumers favor the iPod, and salespeople at retail outlets rarely point customers to the Zune.

Coming Soon: New All-time Highs for the Dow, October 1 -

"Expect the Dow to reach uncharted territory within the next two weeks, with a push from the first positive piece of economic news. The market remains strong and should manage to march on higher in the coming weeks as it has in the past. There is simply too much value in securities that has to be realized at some point." The market came a long way from a midyear correction, and the Dow was on the cusp of claiming an all-time high for the first time in over six years. The popular gauge of the US stock market stood at 11,679 at the start of October, trending steadily higher to end the year at 12,463. The question now is how much higher can it go, which will be determined by the Federal Reserve stance on interest rates and inflation, oil prices, and whether the economy is slowing enough to stall corporate growth rates. At this point, everything looks rosy for stocks heading into 2007, but the Fed may hold interest rates steady for longer than some are expecting.

Majestic Prospects for MasterCard, November 19 -

MasterCard was one of the hottest IPO’s of 2006, and finally slowed its rampant rally at the end of the year. After flying as high as 108.60, the stock ended the year at 98.49. Concerns from Wall Street analysts about transaction volumes and legal liabilities drove it as low as the $90 level, before it recovered. Some upside remains in the stock, and MasterCard could report its third consecutive positive earnings surprise, forcing analysts to rethink their calculations.

Looking back at past events is much easier than predicting what will happen next. After all, hindsight is truly 20/20 in the stock market. Spending some time to analyze and formulate your own conclusions about stocks and industries can pay off immensely. Wall Street analysts are often wrong and miss great opportunities that can be found with a little research. I would like to wish you a prosperous 2007, and the best of luck in your investing pursuits. Please feel free to use the Contact Form to provide me with feedback or discuss a financial topic of interest.

At the time of publication, Dhinesh Ganapathiappan did not own or control shares of any companies mentioned in this article.