Still Moving Up

Following the super gains posted two weeks ago, last week was supposed to be one of profit-taking and, therefore, lower stock prices. That came partially true in our portfolio. Here are last week’s highlights:

- Maxtor +2%

- UTStarcom +2%

- Disney +1%

- ProFunds Ultra Semiconductor -8%

If you were waiting to get into Ultra Semi below my entry price, now’s your chance. After the big drop last week, the fund is at $17.98, 0.6% below my buy price. Despite a few warnings and downgrades last week, the future looks good for semiconductor companies with Intel having just two weeks ago reported an increase in its projected revenues for the quarter.

Maxtor continues its recovery. Last week, the company said that it expects a strong fourth quarter. Revenue should range from $980 million to $1.01 billion, compared to earlier expectations of $920 million to $950 million. Without a one-time $9 million charge related to severance payments and other details, the company should lose $42 million to $44 million, or 17 cents to 18 cents a share, compared to previous guidance of a loss of 18 cents to 22 cents a share. Most analysts expected a loss of 20 cents a share on sales of $935.17 million.

As for the market in general, next year’s looking as mixed as ever. Cheerleaders on both sides of the chart are already lining up with predictions for 2005. My favorite market prognostication remains the one made by J.P. Morgan: “It will fluctuate.” That one’s never wrong.

From the universe of projections that are wrong half the time comes this gem, courtesy of SmartMoney:

Schwab’s Liz Ann Sonders expects stocks to perform well in 2005, but with an outside chance of an epic crash.

Said crash could come from none other than surging deficits that produce a dollar route that cranks up inflation and interest rates and crushes the stock market in a picture not seen since 1987. That would indeed be unfortunate, but strikes me as a bit like throwing a dart at the catastrophe board. An epic crash could come from a crashing dollar, forgiving for a moment the self-evidence of a crash being the cause of…a crash. Yet it could as well come from another terrorist strike, the final popping of the real estate bubble, or runaway oil prices. There is never a lack of bricks in the wall of worry up which stock prices crawl.

From the cheerier side of the chart, BusinessWeek has this to say:

Corporate profits should hit a new record again next year. We see an earnings gain for the S&P; 500 of 10.5%. Although that is less than half the spectacular 22.5% earnings advance that we estimate for 2004, it remains substantial, in our view, and constitutes a positive background for equities. Overall, we see the S&P; 500 ending 2005 at 1300, an 8.3% gain from the 1200 we project for yearend 2004. Add in a 1.7% dividend yield, and our projected total return is just slightly below the 11.2% annual average posted by the “500” since the end of 1969.

Given that 10.5% is the stock market’s long-term average annual performance, file this one under “When In Doubt”. The funny thing about market wizardry is that it always looks at the variables that failed to produce an accurate picture last year — with the expectation that those same variables will somehow provide clear guidance this year.

The truth, of course, is that nobody knows a damned thing. But they’re paid to write as if they do and that’s what we investors are left to read. With a good sense of humor, it can be fun and that’s all market projections should be. With a good sense of company fundamentals and an eye on charts, it can be profitable and that’s all investing should be.

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