The Five Smartest Things on Wall Street This Year

MasterCard mastery; Fannie covering; driving GM; red-hot ICE; Cisco kid.
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1. Charging Ahead

It's time to give

MasterCard

(MA) - Get Report

some credit.

The Purchase, N.Y., payment processor was one of 2006's hottest stocks, overcoming chatter about a looming consumer spending slowdown and talk of possible exposure to antitrust litigation.

Those issues -- and poor showings by some other spring initial public offerings -- weighed heavily on MasterCard heading into May's IPO. The company first

planned to raise $2.8 billion but ended up taking in about 15% less, as the offering priced

below its expected range.

But how the view has changed since then. MasterCard shares are up 151% for 2006. Even in a year that saw huge run-ups in financial services stocks of all stripes, that's a handy little gain for just seven months' work.

If you're in a holiday mood, you might even call it priceless.

2. Fannie Covering

Thanks to a diligent regulator, the geniuses who led

Fannie Mae

into accounting quicksand will have their day in court.

This month the Office of Federal Housing Enterprise Oversight, led by James Lockhart,

sued former CEO Franklin Raines. The civil action charges Raines and two other executives with improperly manipulating the firm's earnings to maximize their incentive-driven bonuses.

The feds want to slap Raines and his buddies with civil penalties exceeding $100 million -- and to force them to pay back some $115 million in bonuses. That seems harsh, until you consider that it was on Raines' watch that Fannie overstated its profit by a staggering $6.3 billion.

The defendants' lawyers were predictably petulant, claiming their clients didn't know the accounting was all wrong. One called the allegations "a work of unsubstantiated fiction."

Of course, the same has been said of the Raines-era Fannie's books.

3. Cisco Kid

Cisco

(CSCO) - Get Report

CEO John Chambers has regained his golden touch.

Cisco was one of the great tech success stories of the 1990s, as the company made a fortune selling the gear that built the Internet. But when growth slowed and Cisco's shares went south, Chambers lost his way.

For years, he

infuriated governance types by selling Cisco shares and

pouring company funds into what critics called a self-serving buyback plan. Cisco shares lost three-quarters of their value as the tech bubble deflated.

But now Cisco has turned the corner -- and how. After languishing in the teens, shares rocketed this past summer into the high 20s after Chambers delivered a plan to bolster the company's growth. Suddenly, with the help of recent acquisition Scientific-Atlanta, Cisco is

retaking market share once lost to surging rivals.

"The balance was amazingly good everywhere," Chambers said last month in the latest triumphant

conference call. "We are hitting on all cylinders, in all product categories, across all geographies."

Once again, the world is Chambers' oyster.

4. Driving GM

This year's wild ride at

General Motors

(GM) - Get Report

shows Kirk Kerkorian knows when to slam on the breaks.

The billionaire investor started buying GM shares back in May 2005, when massive labor and benefit costs seemed certain to sink the automaker. Kerkorian's turnaround acumen -- he was behind the mid-1990s revival of Chrysler, for starters -- drew Wall Street to his cause, and GM stock blasted skyward.

Buoyed by early gains, Kerkorian boosted his stake in GM and got his trusted lieutenant, Jerry York, a

seat on the board. GM shares rallied further, as betting types wagered that York's presence would

shake up the cozy Detroit boardroom. A genuine GM makeover seemed within reach.

But the turnaround story skidded off track this fall, when York quit the board. Despite management's

claims to have everything under control, York spoke of "grave reservations about the ability of the company's current business model to successfully compete in the marketplace with those of the Asian producers."

Kerkorian

followed York out the door, quickly selling his GM stock. He plowed some of those profits back into the operator of the red hot Bellagio casino,

MGM Mirage

(MGM) - Get Report

.

It could be that GM's turnaround was a mirage, too.

5. Red Hot ICE

Trading floors got a nice bounce this year.

The business of matching buyers with sellers may lack for drama, but that doesn't make it any less lucrative. Take a look at the 2006 results for the big publicly traded exchanges.

Shares of the

Nymex

(NMX)

doubled on the day of their mid-November

initial public offering. The

Intercontinental Exchange

(ICE) - Get Report

has seen its shares triple over the past year, and the

NYSE

(NYX)

has more than doubled.

But that all pales in comparison to the

Chicago Mercantile Exchange

(CME) - Get Report

. Its shares have risen more than 1,300% since they debuted four years ago. Incredibly, that performance leaves even high-minded, high-performing

Google

(GOOG) - Get Report

-- up 447% over two-plus years -- in the dust.

Talk about doing no evil.

Click here for the Five Dumbest Things on Wall Street This Year.

In our

award-winning effort to enrich the reader experience, the Five Dumbest Things Lab now scores each item using our proprietary Dumb-o-Meter. This cutting-edge technology employs a finely calibrated, 100-point scale measuring sheer Dumbness, as calculated via a closely guarded secret formula.

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