It's better to be unfashionably early than to overpay at the door. At least, that's what I'm starting to realize after running a pair of "Stocks to Buy in 2006" pieces earlier this year. My reasoning seemed pretty simple. I looked beyond the 2005 filler to see which catalysts would drive particular stocks the following year. It's what Rule Breakers do: We look ahead, because that's where the investing advantages are. Everyone has already digested the road behind us.
The experiment has worked out well -- perhaps too well. Six months ago, I took a closer look at three stocks that appeared ripe for hearty runs in 2006. Netflix
| 6/24/05 | 12/12/05 | Change | |
|---|---|---|---|
| Netflix | $15.77 | $25.10 | 59.2% |
| TiVo | $6.80 | $5.39 | -20.7% |
| Apple Computer | $37.76 | $74.91 | 98.4% |
| S&P 500 | 6.63% |
We're not even through with 2005, and two of the three have already produced stellar gains. In both cases, the higher prices have been well-deserved. Netflix bounced back into profitability and continues to distance itself from the competition. Apple continues to sell new iPods at a fast clip while expanding its digital music offerings to include video downloads.
TiVo hasn't quite hit its stride yet. I'm not exactly thrilled that the company dove back into its low-margin hardware business when there was so much more potential on the higher-margin software-licensing and interactive advertising side, but I'll forgive it for now. I mean, to be fair, 2006 is still nearly three weeks away.
Fall to the future
Three months after my first batch, I came back with four more stocks that also looked much more attractive under the glow of 2006's lighting. Microsoft
| 9/26/05 | 12/12/05 | Gain | |
|---|---|---|---|
| Microsoft | $25.20 | $27.45 | 8.9% |
| Sirius | $6.63 | $7.46 | 12.5% |
| Pixar | $42.75 | $53.61 | 25.4% |
| Marvell Tech. | $44.48 | $59.95 | 34.8% |
| S&P 500 | 4.3% |
Is there a lesson there about jumping the gun? I'm not sure. I still think that all seven companies will have much better news to report to their investors in 2006 than they've had in 2005. My natural concern here is whether these shares have been bid up in anticipation of many of the catalysts to come in the year ahead.
Shares of Sirius have just about tripled since Stern announced his impending move 14 months ago. Apple shares have appreciated significantly -- stratospherically so, if you base it on enterprise value over the past couple of years -- but the fundamentals have backed those heady share gains.
That's why I'm still willing to stand by these picks -- yes, all seven of them -- for the year ahead. They have certainly performed well, with all but one smoking the market averages. But 2006 holds out the promise for even headier gains if things fall into place.
If you prefer some fresher ideas, your timing couldn't be any better. Stocks 2006 just came out, featuring a dozen promising investments, thoroughly researched and just begging for your 2006 market dollar. It's available for at an attractive price for a limited time, or you can couple it with a one-year newsletter subscription and get Stocks 2006 for free.
Either way, hopefully you can now appreciate the joys of being unfashionably early. OK, let's reclassify that as being fashionably early. It's what all the cool stock pickers are wearing this season, so why not? December's ticking away. The battle to win in 2006 starts now.
Microsoft is a Motley Fool Inside Value recommendation. Netflix, TiVo, and Pixar are active Motley Fool Stock Advisor picks.
Longtime Fool contributor Rick Munarriz does enjoy time travel -- at least the mere notion of it. He does own shares in Netflix, Disney and Pixar. The Fool has a disclosure policy. He is also part of the Motley Fool Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
