Portfolio Review


List review

So far this year, the Forecasts' growth-at-a-good-price investment strategy is paying off. Our Focus List has returned 7.8%, versus 5.1% for the S&P 500 Index. The Buy List and Long-Term Buy List have also outperformed, as shown in the table below. Returns assume portfolios are fully invested and exclude dividends and transaction costs.


-------------- Price Change --------------
2011 *
Since 2003 *
* As of Mar. 8.

The returns shown above are based on fully invested portfolios and exclude dividends and transaction costs. Because of our diversified and risk-averse approach, the Forecasts seldom ranks among the very top newsletters for a single year. But our disciplined approach has resulted in consistently strong relative returns. In fact, according to the Hulbert Financial Digest, an independent service that considers dividends, trading costs, and market-timing advice:

Dow Theory Forecasts outperformed the U.S. stock market for the three, five, eight, 10, and 15 years ended Jan. 31. On a risk-adjusted basis, the Forecasts outperformed for the five, eight, 10, and 15 years ended Jan. 31. Risk-adjusted returns account for the volatility of returns, and the Forecasts has below-average volatility.

• Our Buy List and Focus List have outperformed the market for the five, 10, and 15 years ended Dec. 31. Both lists have also outperformed since their year-end 1995 inception. On a risk-adjusted basis, both lists outperformed for the five and 15 years ended Dec. 31 — and since inception.

• The Forecasts' mutual-fund portfolios, the Growth Portfolio and Conservative Portfolio, outperformed for the five, 10, and 15 years ended Dec. 31 — as well as since inception at year-end 1995. For all these periods, both fund portfolios also outperformed on a risk-adjusted basis.

• Overall, for the 15 years ended Dec. 31, Hulbert calculates an annualized return of 8.0% (about 217%) for the Forecasts. By comparison, the S&P 500 Index gained about 150%.

For a list of the stocks on our buy lists, see the linked table. In the following paragraphs, we review a few of our favorite companies that are making news.

The London Stock Exchange is reportedly considering the purchase of NASDAQ OMX Group ($28; NDAQ), less than a month after the British company agreed to purchase the Toronto Stock Exchange. The resulting company would generate about $5.5 billion in annual revenue, forming the largest exchange group in the world. With trading becoming more international, exchanges are pursuing mergers that leverage their technologies to lower costs and gain traction in new markets.

NASDAQ shares trade within 5% of a 27-month high, helping make NASDAQ one of just four stocks in the S&P 500 Index earning both Quadrix® Value and Performance scores of 85 or higher. Shares trade at 14 times trailing earnings, a 37% discount to the five-year average and 21% below the average diversified financial stock in the S&P 1500 Index. NASDAQ is a Buy and a Long-Term Buy.

Agilent Technologies ($46; A) rallied after raising its annual target for organic growth to 8% and increasing long-term forecasts for profit margin and return on invested capital. Strong demand for capital equipment for life sciences, communications, and petrochemicals should support growth. Agilent sees the $41 billion measurement market expanding 5% to 7% a year.

In the January quarter, Agilent reported 19% higher revenue excluding acquisitions, more than three times the market's growth rate. China's expansion into third-generation wireless technology contributed to that growth, as did fourth-generation development elsewhere. The stock, up 11% in 2011, has surged to its highest level in a decade. But the shares remain reasonably valued at 21 times trailing earnings, 18% below the five-year average. Agilent is a Focus List Buy and a Long-Term Buy.

Just weeks ahead of the much-anticipated launch of the PlayBook tablet computer, Research In Motion ($65; RIMM) announced that chief marketer Keith Pardy is leaving. Though Pardy plans to assist the company during a six-month transition period, his departure could slow RIM's makeover. The company hopes to shed its staid image to better compete with Apple's ($356; AAPL) iPhone and iPad.

RIM's PlayBook tablet computer could prove a viable competitor, as it will run an advanced operating system, QNX, and may support applications for Android devices. In addition, the new tablet offers a high level of security, critical for corporate users, and can be linked to smartphones to access the Internet. Separately, some speculate that later this year, RIM will offer its popular BlackBerry Messenger service across smartphone platforms. RIM is a Buy and a Long-Term Buy.

Corporate roundup

Texas Instruments ($36; TXN) narrowed its sales and profit target ranges for the March quarter. The midpoints of the ranges did not change, but the shares fell on the news, as many expected higher guidance. The company said demand for personal-computer chips was weak in February. TI, which supplies chips for Apple's ($356; AAPL) popular iPad tablet computer, is a Focus List Buy and a Long-Term Buy . . . U.S. corporations issued $2.8 trillion in debt last year, 10% below the record set in 2009. J.P. Morgan Chase ($46; JPM) racked up $1.26 billion in bond-underwriting fees, grabbing an 8% global share of fees generated from corporate and sovereign bond deals, first among banks for a third straight year. In other news, J.P. Morgan earned $907 million in pretax profits from cash held in Bernard Madoff's accounts from 1986 to 2008, according to a study that analyzed the Ponzi scheme's bankruptcy records. The bank had previous classified its Madoff-related profits as "wholly immaterial," citing much smaller numbers. J.P. Morgan is a Focus List Buy and a Long-Term Buy . . . New York's attorney general accused Intel ($21; INTC) of blocking its antitrust investigation by using a confidentiality order that prevents rival Nvidia ($20; NVDA) from turning over information. Intel is a Buy and a Long-Term Buy . . . Echoing its late arrival to smartphones, Microsoft ($26; MSFT) reportedly won't release a Windows operating system for tablets until the second half of 2012. By then, Microsoft could be running up against second- and third-generation offerings from rivals. Microsoft is a Long-Term Buy . . . DirecTV ($47; DTV) is in talks with Hollywood studios about offering movies as soon as a month after their theatrical release. One-night rentals for the service, possibly starting by June, could cost around $30. Comcast ($26; CMCSa) has been exploring a similar service. DirecTV is a Focus List Buy and a Long-Term Buy. Comcast is a Long-Term Buy . . . Wal-Mart Stores ($52; WMT) boosted its quarterly dividend 21% to $0.365 per share, payable April 4. Wal-Mart is a Long-Term Buy . . . A federal judge refused to order Exxon Mobil ($85; XOM) to pay $92 million for additional cleanup stemming from the 1989 Exxon Valdez oil spill. The U.S. and the state of Alaska had sought to reopen the original 1991 settlement, under which Exxon paid $900 million in damages, with the provision that it might pay up to another $100 million later. Exxon is a Focus List Buy and a Long-Term Buy . . . BlackRock's ($199; BLK) top-ranked U.S. exchange-traded funds experienced net withdrawals of $1.1 billion in the first two months of 2011, while its largest competitors reported net inflows. BlackRock, a Buy and a Long-Term Buy, is still the ETF market leader, with $460 billion in fund assets.

Rank Changes

No changes were made this week in Dow Theory Forecasts.

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