A Not So Graceful Landing

Despite positive returns, Grady's portfolio couldn't beat the Dow or S&P 500

Graceful Grady, president of financial management firm Grady Financial, wasn’t expecting the domestic stock market to soar the way it did in the late 90s. He reasoned rising interest rates would hinder consumer and corporate spending, which in turn would weigh down the market.

“Overall, the market was what I expected,” Grady says. “There was growth across some industries but nothing that would really turn heads like back in the dot-com days.”

Grady maintains that, to make winning stock selections, investors need to focus on tracking a company’s balance sheet-monitoring its net income, cost of operations, and debt. However, following that formula produced mixed results. During the 52-week period from Feb. 1, 2005, to Feb. 1, 2006, the portfolio of five stocks Grady selected for BLACK ENTERPRISE readers produced a 2.62% gain. By comparison, the Standard & Poor’s 500 Index posted a 7.82% gain, and the Dow Jones Industrial Average grew by 3.81% during the same period.

Unfortunately, three of the five stocks Grady selected had down years. Comcast Corp. (NASDAQ: CMCSA), which develops and operates broadband communications networks and provides high-speed Internet, video, and phone services, fell 11.42%, from $31.60 to $27.99. Grady says the stock moved up, but then fell after news broke that the company would be spending more money on operations. The stock also recently took a 69% plunge in fourth-quarter profits as a consequence of damage from Katrina and other hurricanes, lower investment income, and higher tax rates.

Sonus Networks Inc. (NASDAQ: SONS) also had a lackluster performance. The provider of voice infrastructure products declined 23%, dropping from $6.13 to $4.72 per share. Grady believes that consumers have not yet caught on to Voice over Internet Protocol technology. But on the bright side, he says, the company recently announced that the amount of voice traffic carried over Sonus’ industry-leading solutions increased 70% since December 2004. “I still think this stock will rise.”

Grady had better luck with eBay Inc. (NASDAQ: EBAY), the online auction site, which had a 2-for-1 stock split Feb. 17, 2005. The stock jumped 9.98% from a split-adjusted $38.97 to $42.86. “We see management putting money back into the company and also buying stock,” Grady says.

Motorola Inc. (NYSE: MOT), manufacturer of cell phones and two-way radios and provider of wireless infrastructure equipment and network switching systems, accounted for the bulk of Grady’s portfolio gains. Motorola improved its stock performance 43.76%, primarily because “consumers loved the ultrathin RAZR V3 cell phone with digital camera, MPEG 4 video playback, and Bluetooth wireless technology,” says Grady. The stock price increased from $15.86 to $22.80.

Grady’s final selection, General Electric Co. (NYSE: GE), which develops and markets a range of electrical appliances, lighting, and industrial automation products, also had an off year. The stock fell 6.23%, from $36.28 to $33.14. “This company uses a lot of energy,” says Grady, “so the continuing increase in oil prices last year affected the bottom line.”

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