The Investor

The Ones That Got Away

There are some stocks of which you say, "Nah, that can’t go up anymore."

By 3.9.04

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The NASDAQ index gained 72% from March 2003 through the end of the year -- a big winning year for the stock market. I've just been corresponding with some of my fellow participants on Investor's Business Daily's e-mail discussion boards, identifying some of the top performers of 2003. To my chagrin, I find that I didn't own any of them (except for one brief period, noted below). But let's look at a handful of big stock market winners for the year, and see what they looked like, where they started, where they ended, and where they are now (all prices split-adjusted). And figure out if I, or you, could have gotten in on any of them.

You always remember the big ones that got away. I remember with particular rue one day in April when I had scoured IBD's weekly Top 100 list, and identified two terrific-looking potential investments. One, Schitzer Steel (SCHN), sold scrap steel in China. The other, Starcraft (STCR), supplied after-market trickups for SUVS, trucks, and mini-vans.

I chose Starcraft, thinking that Bill Gates's substantial holdings in Schnitzer might be a liability. Who knew what a quirky billionaire might do to a stock's price if he started quarreling with the Board of Directors or selling off his stake?

You know what happened. Within weeks, I got stopped out of Starcraft (it dropped 8 percent or more). Schnitzer went on to become one of the year's big winners. From just under $15, it rose to $60 by the end of the year. It has since corrected to as low as $40, then recovered. It now sits at about $50. Bill Gates did quarrel with the Board, and did reduce his stake, and it didn't make any difference at all.

THERE ARE SOME STOCKS of which you say, "Nah, that can't go up anymore." And you find yourself saying the same thing week after week, and then month after month, and feeling like a fool that you didn't spot real strength when it showed up right before your eyes. Two such, Harman International (HAR), which makes high-end audio components, and Coach (COH), the luxury handbag and accessory manufacturer (and now marketer through its own chain of stores), may still have room to grow.

Harman started 2003 in the $30 range, and now trades at $79 or so. Coach was a $15 stock as 2003 began, and now prices out above $40. Could you have spotted either one? Certainly. Both Coach and Harman were fixtures on Investor's Business Daily's "Stocks in the News" at least as far back as last April.

Sometimes stocks take off on unlikely enthusiasms. John B. Sanfillipo and Sons (JBSS), a processor and distributor of nuts, and Cal-Maine Eggs (CALM) rode the Atkins diet wave of protein consumption to dizzy heights in 2003. JBSS started off as a $10 stock and peaked at $50 at the end of the year. It has since topped, and trades at about $33. CALM's weekly chart looks even more dramatic, like a face of Mount Everest. It spent the first quarter of the year as a $3-$5 stock, then vaulted to $40 by December 31. It corrected by almost 25 percent in January, then recovered to sell near $40 today.

You could have ridden both those stocks as technical trades, certainly. It would have taken nimble observation, because many stocks start out looking like that, while few keep going. But, all told, even a relatively clumsy trader could have made 25 percent or better on CALM or JBSS during the last three quarters of 2003.

And they were widely recognized and written up.

AMONG THE BIG GAINERS for most of the year were three Chinese Internet portals, Sina (SINA), Sohu (SOHU), and Netease (NTES). One of my shrewd discussion board confreres read an article about the Internet in China two years back, and bought two of the three stocks at about $5. All three started 2003 at or near $10. Sina and Sohu now trade at about $40, Netease at near $70. It would have been a wild ride on any of the three.

I actually bought all three one morning, thinking my portfolio needed a boost. I watched them for an hour, then sold them on gains of a couple of dollars. In retrospect, that was a dumb thing to do on a couple of scores. It was day trading, and thus idiotic. And I had unwittingly bought in on the beginning of their last rally, and could have held them for far more substantial gains for the next month.

They were easy stocks to buy, then get bucked off, and they still trade wildly.

I've learned. Oh, my, but I've learned. I no longer buy "at market," but instead put in low-ball "limit" orders. If a stock keeps rising and gets away from me, I just let it go. I sell far more conservatively. Most good stocks go up about 20 percent, and no more. So when I get one that goes up like that, I start setting sell stops just below the day's finish price, and if the order takes, and I'm out, I've at least made a profit.

I sleep a lot easier nowadays. I even went on an eight-day vacation a few weeks back, and didn't even look at my portfolio. It held up just fine.

One of these days I'll get one of the rockets. I'll let you know when.

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About the Author

Lawrence Henry writes every week from North Andover, Massachusetts.