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There are two ways to make money by investing in the future:
1. You can buy a relatively expensive stock with a future that everybody believes in and make a pile of money if the future turns out as expected. As investors who bought Google (GOOG, news, msgs) at $90 know, just because everybody believes in a particular vision of the future doesn't mean it's wrong. You would have done quite nicely -- a 323% gain -- buying Google at its closing price of $100.34 on its first day of trading in August 2004.
2. You can buy a cheap stock with a future that nobody believes in and make a pile of money if "everybody" turns out wrong. A year ago everybody, myself included, hated Level 3 Communications (LVLT, news, msgs). The international communications and information services company was going under, doomed by a stubborn glut in optical-network capacity and new technology that packed more traffic on less fiber. A year later, the stock is up 100%.
These two paths always exist in the stock market, of course, but they seem especially marked this year as I do the annual revision of my Future 50 portfolio. (Every year in the middle of July, I turn over about 10 stocks, 20% of the portfolio. Then, for the rest of the year, I leave the list alone except for occasionally -- very occasionally -- making buy recommendations on price.)
I think there are good reasons to believe that some of the most loved energy-related stocks of the present are due for a shakeout. And I think there are good reasons to believe that some of the most scorned technology stocks are due for a revival in 2007. But I know I can't predict how the next 12 months, let alone the next five years, will play out. In the 10 stocks I'm adding to the Future 50 portfolio I've tried to position the portfolio to make money whether the future turns out as expected by the consensus or surprises us all.
The 10 stocks I'm adding to the Future 50 portfolio this year are Suncor Energy (SU, news, msgs), Color Kinetics (CLRK, news, msgs), Zoltek (ZOLT, news, msgs), Maxwell Technologies (MXWL, news, msgs), EOG Resources (EOG, news, msgs), EMC (EMC, news, msgs), Navteq (NVT, news, msgs), SiRF Technology Holdings (SIRF, news, msgs), Tejon Ranch (TRC, news, msgs) and Infosys Technologies (INFY, news, msgs).
I'm also necessarily deleting 10 stocks from the Future 50 portfolio. Five of those are simply being dropped from the list. They are EchoStar Communications (DISH, news, msgs), Flextronics International (FLEX, news, msgs), Siebel Systems (which was acquired by Oracle (ORCL, news, msgs)), Solectron (SLR, news, msgs) and Vodafone Group (VOD, news, msgs). Five others are being dropped from this list but I will add them to the 50 Best Stocks in the World portfolio when I revise that list in September. They are General Cable (BGC, news, msgs), Inco (N, news, msgs), Qualcomm (QCOM, news, msgs), Stryker (SYK, news, msgs) and Valero Energy (VLO, news, msgs).
I began the Future 50 list in July 1999 with the goal of identifying 50 stocks that passed a simple test: If you were to look at the list five years down the road, you'd say about each entry: "Boy, I wish I'd bought that five years ago."
This year, for the third year in a row, this very passively managed portfolio beat both the S&P 500 ($INX, news, msgs) and the Nasdaq Composite Index ($COMPX, news, msgs). For the year ending in July 2006, the Future 50 portfolio was up 6.2% compared to a 3.1% gain for the S&P 500 and a 2.8% drop in the Nasdaq Composite. Last year the Future 50 gained 21.8%, ahead of the 10.5% gain for the S&P 500 and the 12.3% gain on the Nasdaq Composite. In the previous year, the Future 50 gained 12.9%.
But here's the problem for the year ahead.
There are two visions of the future out there among investors. One's very popular and very expensive and the other is completely out of favor and very cheap. Which to buy?
Profits from going with the crowd
The consensus future is built largely around a belief in a continuation of the current crisis in energy prices. If that future develops as projected, without glitches, investors who buy shares in companies producing oil from oil sands, or gear to produce electricity from wind, or products that save energy, will make good money. The big problem with investing in this future is that these stocks are often so expensive that any disappointments are likely to be very costly.For example, we know that sometime in the future the rising price of energy of all kinds will lead to increasing use of energy-saving LED (Light Emitting Diode) technology to replace inefficient incandescent lighting. That isn't the end of the advantages of LED technology either: it produces less heat, it requires less maintenance, and it can be digitally programmed to produce exactly the light quantification and quality (color, for example) that's required for a specific application.
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