- Four stocks that are ready to graduate from this list to the more mature
50 Best Stocks in the World portfolio. (They'll join that list when I do my annual revision in September.)
- Three stocks that drop off the Future 50 list because they no longer have what it takes to become tomorrow's blue chips.
- Seven new picks that have a chance to be blue chips of the future.
A ShakeoutWhen I asked readers to nominate stocks for this list in July 1999, I suggested that they keep this in mind: If you were to look at the list in July 2004, you'd say about each entry, "Boy, I wish I'd bought that five years ago, and I'd sure be willing to hold it for another five years."
Looking to Energy and SecurityI think it's possible to fill in more of that hole and to improve on that 2003-04 performance in the next 12 months. How? By concentrating on two trends, energy and security, that have the legs to carry them from the present more than five years into the future. Fast-growing demand for energy from the economies of China and India, plus the difficulty that oil producers are having in increasing capacity, will keep energy prices on an uptrend for at least the next five years. There will be slumps and peaks, but the trend is a good bet for the Future 50 portfolio.
The Dearly DepartedFour companies have graduated from the Future 50 this year to the 50 Best Stocks in the World portfolio, opening up slots for four of the seven new future blue chips. The graduates are biotechs Amgen ( AMGN) and Genentech , communications-chip leader Broadcom ( BRCM) and the Big Hog of the pork market, Smithfield Foods ( SFD). Three stocks also drop off the Future 50 this year. I didn't drop stocks from the list because they produced big losses in the last year or even the last few years. Otherwise, stocks like JDS Uniphase ( JDSU) and Taiwan Semiconductor ( TSM) would be long gone. But that would take stocks that dominate their sectors off the list just because those sectors are in the market's doghouse at the moment. Patience and then more patience is sometimes the best approach to these future blue chips. But not always. When a company loses the competitive edge that put it on the list in the first place, it should get the boot. So this year I'm dropping Atlantic Coast Airlines because the company is making the transition from a regional to a low-cost carrier. That change pretty much eliminates the competitive advantages that put Atlantic Coast Airlines on the Future 50 to begin with.
On the Buy ListWith these seven changes -- a portfolio turnover rate of 14% this year -- I've set the Future 50 list for another year. By the rules of this portfolio, these names won't change, barring bankruptcy or some equally disastrous event, until the revision of July 2005. What will change from quarter to quarter (and perhaps even month to month if market conditions justify it) are the "buy" ratings that I put on the individual stocks of the Future 50 (and the 50 Best, too, as you'll note in the updates to this column) when I think the share price makes a stock particularly attractive for long-term investors looking to build positions at reasonable prices. (The removal of a "buy" doesn't signal a "sell," but rather, my opinion that the stock has appreciated to something like fair value, and the price doesn't justify buying more shares at the moment. Wait for a better opportunity.) My six current "buy" recommendations for the Future 50 are Affymetrix ( AFFX), Analog Devices ( ADI), ChoicePoint, FuelCell Energy, Performance Food Group ( PFGC) and Taiwan Semiconductor. Expect my annual update of the 50 Best Stocks in the World portfolio in mid-September.
New Developments on Past ColumnsI'm putting "buy" recommendations on eight stocks listed in the 50 Best Stocks in the World portfolio, as well. Current buys are Charles Schwab , Cisco Systems ( CSCO), First Data ( FDC), Intel ( INTC), Microsoft ( MSFT), PepsiCo ( PEP), Southwest Airlines ( LUV) and Texas Instruments ( TXN). I'm dropping the former "buys" on BP ( BP) and ExxonMobil ( XOM) because the shares have appreciated so much that they're no longer at an attractive price for building positions.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider FuelCell Energy, World Fuel Services, Netegrity and Atlantic Coast Airlines to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.