Fortune's 2007 investment scorecard
We had our share of winners and losers, including a solar power play that shined, an IPO that soared, and a mortgage insurer that tanked.
NEW YORK (Fortune) -- Gentleman's B-. That's the overall grade we're giving our stock recommendations this year. And while no one likes sharing a mediocre report card (especially since we did score big in certain cases), we believe in the same accountability that we apply to CEOs and companies.
In that spirit, here's a roundup of some of our high- and not-so-highlights as 2007 comes to a close.
The year has been a tale of two halves. The first was glorious and prosperous: The Dow and S&P 500 soared to historic heights, and the Nasdaq reached its loftiest level since the 2000 crash.
But woe defined the second half: Subprime debt troubles, broken M&A deals, the housing bust, and trouble at the nation's largest banks have churned up a sea of uncertainty for investors and knocked the indexes off their peaks.
So the returns for the year (through Nov. 14) are not terribly impressive: The S&P 500 has posted a total return of 2.9%, the Dow has topped that with 5.7%, and the Nasdaq leads the pack with 8.8%. At the same point last year, the indexes were all above 10%.
Sadly, many of our stock picks followed the pattern of the overall market: After running up nicely, they're trading roughly where they were when we recommended them.
Some of our most dramatic winners and losers came from traditionally volatile small-cap stocks. We're awarding ourselves an A+ for global-warming play First Solar (Charts) in our May 28 issue. Alternative energy, including solar power, is being taken more seriously as oil prices threaten to breach $100 a barrel. First Solar, which boasts high-wattage investors including the Walton family, Goldman Sachs, and Black Rock, has seen its stock nearly triple since our recommendation. (The shares seem pricey to us these days, though solar energy is faddish enough that the stock may still shine.)
We think we've also earned an A with our advice to buy VMware (Charts) in the June 11 issue. The stock debuted in August at $52 and has been trading above $80. And the shares could still rise: No pure-play competitors have emerged to slow the company down.
If VMWare was an A, Bon-Ton Stores (Charts) qualifies as an F. When we recommended it at $43 in the March 5 issue, the regional department store chain had recently doubled in size by acquiring stores from Saks and was improving gross margins. But cautious consumers, weaker sales, and more markdowns have darkened the picture for retail. The stock has nose-dived to $14 and shows no sign of a quick rebound.
Some of our strategic advice deserved at least an A -. The oil boom helped boost our energy picks (May 28), though we cautioned last issue that only some of those stocks - such as Valero (Charts, Fortune 500) and Marathon (Charts, Fortune 500) - still have room to run.
Our advice to invest globally (March 19) was also a good call - for example, India's ICICI Bank (Charts) has jumped from $38 to $64 - and economists and money managers expect non-U.S. stocks to continue outpacing their domestic counterparts.
Some strategies stopped working in the face of this summer's credit crunch. When we wrote "Smart Ways to Play the M&A Boom" (May 14), there seemed to be no end in sight to the acquisition spree. Then subprime mortgages and the securities used to trade them began to unravel. It became nearly impossible to float mortgage-backed bonds and almost as hard to sell bonds made up of leveraged-buyout debt.
That has thrown the deal machine into chaos. United Rentals (Charts) has plummeted 32% since our story - that's a C - for us - largely because the private investment firm Cerberus abandoned an agreement to buy the equipment-rental company. Even if it renegotiates the deal, the terms are unlikely to be as sweet as the original offer to pay $34.50 a share.
We went looking for undervalued shares in "Five Bargain Stocks" (Feb. 19), basing our evaluation on how much a buyer would pay for the company in the event of an acquisition. Two picks seem worthy of an A- and an A, respectively: Federated Investors (Charts) and Pepsi Bottling Group (Charts, Fortune 500) have returned 17% and 32%.
But mortgage insurer MGIC Investment (Charts) has tanked (yielding us another F). The company insures lenders against higher default rates on homes purchased with less than a 20% down payment. The stock has plummeted 64%, and we'd advise keeping your distance.
We're giving ourselves a D+ for going to bat for bank stocks - based on their low price/earnings ratios and juicy yields (Aug. 6) - just ahead of the subprime credit crisis. Citigroup (Charts, Fortune 500) has dropped 24% since we recommended it.
Our other two picks have held up relatively well. Although Bank of America (Charts, Fortune 500) slipped 4%, and Wachovia (Charts, Fortune 500) sank 9%, both have increased their dividends this year. Given that they should emerge from the subprime debacle wounded but still strong, they could turn out to be true bargains at their recent depressed levels.
Finally, we're assigning ourselves a D- for forecasting (as we did in the July 9 issue) "A Sunny Second Half." None of our experts anticipated the speed with which credit problems would roil the stock markets. So even while the Canadian oil exploration company En Cana (Charts) has returned 10% since we cited it, the large-caps in the story have been losers. Caterpillar (Charts, Fortune 500) is down 11.5%, and Boeing (Charts, Fortune 500) has lost 6.5%.