So far this year, I have discussed seven stocks to buy for the year that lies ahead. Then again, fortune can go both ways. What's great for one company may be terrible for another. Yes, there are opportunities on the long side in 2006, but there are also some companies that may make for better short plays. That's why I'm going to trade in my Mr. Brightside outfit for a black robe and a sickle this time.
I don't enjoy playing the pessimist. That's why I hope I'm wrong. Six of the seven stocks that I singled out as attractive equities are beating the market, so if you happen to own one of these stocks -- or are looking to buy in -- I won't be offended (or insulted) if you email me on Dec. 31, 2006, to let me know that I blew it.
Over the past year, ExxonMobil rode higher fuel prices to record profits and heady stock gains. In what I consider an alarming move, five CEOs of the major gasoline companies were even brought in to testify before Congress last month. It wasn't simply a matter of defending their profitability, but that's the way their testimonies seemed to play out.
I don't think the government is going to twist screws until it regulates your corner gas pump the way states regulate their public utilities. It's just that the sentiment toward Big Oil isn't exactly favorable these days. The fundamentals aren't looking much better.
Gas prices have settled back down. However, drivers stung at the pump have turned to smaller, more fuel-efficient cars and are gobbling up hybrids as quickly as they roll off the assembly lines. Analysts still expect ExxonMobil to grow earnings by 6% next year, and I think that's going to be a big challenge for the company. The catalysts have turned.
Is there another $125 billion company that relies on online advertising for 99% of its revenues? No, but the reason to fret over Google isn't as simple as that. Interactive marketing is growing, and Google will continue to lead the way. The problem is that rivals are getting smarter. Yahoo!
The growing paid-search market, along with smarter competition, can play itself out in several ways. Will fraudulent clicks become a bigger issue? Will a sea of worthy alternatives make sponsors bid smarter (and lower)? Losing AOL isn't a corporate killer -- Google's been growing its organic traffic at a faster clip than its third-party network lately -- but it does give an upstart in paid search an instant sizable audience. Google's share price is built on the foregone conclusion that the company will trounce estimates, as it has in just about every quarter since going public. I think Google will make out just fine in the long term, but I see streaks of mortality creeping in as 2006 unfolds.
3. Toll Brothers
That's why I'm certainly not predicting a complete collapse here. Rival developer NVR
Toll has been the industry's biggest worrywart, sounding the loudest cautionary tone. It's contagious. Two months ago, analysts had the company earning $6.51 a share in its next fiscal year. That target is now down to $5.55 per share. Yes, it's still an attractive multiple, but the same company that has beaten projections consistently in good times may very well come up short in the lean times that most likely lie ahead.
The return of Mr. Brightside
So what's an investor to do? Well, if you've got enough foresight to find stocks due to suffer in 2006, it's not much harder to find another selection of stocks poised to thrive. We've just released Stocks 2006, an in-depth and thoroughly researched look at a dozen companies that appear ready to run higher next year.
In fact, if you've been eyeing a subscription to any of our newsletter services, like Motley Fool Hidden Gems or Motley Fool Rule Breakers, your timing couldn't be better. For a limited time, take part in any of our newsletter experiences for a year, and Stocks 2006 will be yours for free.
If you play your cards right, your pessimism may be another thing worth selling in 2006.
Longtime Fool contributor Rick Munarriz does enjoy time travel, or at least the idea of it. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.