Lagging The Market

A year ago when Randell Cain, principal and portfolio manager at Atlanta Life Investment Advisors, targeted stocks in the oil industry and the housing market, he felt those two areas were on a growth trajectory that would steer his stock values higher. Instead, during the 52-week period from Sept. 30, 2005 to Sept. 29, 2006, Cain’s total return on his portfolio of stocks declined 6.9% while the S&P 500 rose 10.8%. “As a whole, our stocks have suffered from a confluence of factors impacting the overall economy. We continue to hold all of the shares that were recommended a year ago. Our investment style has been rewarded by being patient,” Cain says.

Cain’s best performing stock, Marathon Oil Corp. (NYSE: MRO), rose from $67.24 to $76.56, a 13.9% jump. The company, which markets and transports crude oil, natural gas, and petroleum products, has benefited from higher oil prices during the year. “Many investors and analysts speculate that oil prices may decline to the mid-$30s, while it currently stands near $60,” Cain notes.

Owens-Illinois Inc. (NYSE: OI) a company that manufactures glass containers and plastic packaging products, suffered a 25.2% decline from $20.62 to $15.42. “Pricing for glass containers is gradually getting better with tightness in certain U.S. and non-U.S. markets, Cain says. “Higher interest rates are pressuring the already-leveraged balance sheet. And, while the valuation continues to appear quite attractive, relief from some of these near-term issues has made it a less timely holding.”

Countrywide Financial Corp. (NYSE: CFC) rose from $32.29 to $34.90, an 8.1% rise. “Countrywide Financial has seen a significant decline in home sales driven by higher interest rates and a lack of speculative demand,” Cain says. “Countrywide has a diversified portfolio of businesses that has limited some of the downside volatility.”
NVR Inc. (AMEX: NVR), a home building and mortgage banking business, tanked from $884.95 to $535, a 39.5% decline. Sales and orders dropped precipitously due to higher interest rates, less speculative demand, and a more patient purchaser.

Altria Group Inc. (NYSE: MO) rose from $70.60 to $76.55, an 8.4% increase. The company, formerly Phillip Morris, benefited from solid fundamentals and speculation that a break-up will unlock significant value. “Such speculation has some believing that the value could be as much as $90 to $100,” Cain says. “While we cannot offer definitive insight in terms of timing, the company has made clear their intent to create greater shareholder value by pursuing spin-offs.”