Wunderkind Falls to Earth, Looks Overseas

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Peter Brimelow

Aug. 30, 2010, 1:13 a.m. EDT · Recommend (1) · Post:

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By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) -- Louis Navellier was a millennial wunderkind, with rates of return that broke the Hulbert Financial rule that you can't reliably get more than 15%-20% growth compounded in the stock market.

I named the predecessor to his Emerging Growth service as Letter of the Year in 2004. See Dec. 27, 2004 column.

Emerging Growth still shows a superior return over the entire period since the HFD began following it in 1985, achieving some 13.3% annualized vs. 9.9% annualized for the for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

But that reflects its stellar early years. For more than ten years, it's underperformed the market. And it's down 3.1% in the year to date through July, vs. 0.7% for the total return Wilshire 5000.

The Journal Editorial Report panel reviews the Obama administration's efforts at economic recovery over the summer months. Video Courtesy of Fox News.

Navellier's method was to remain fully invested and pick stocks according to his interpretation of Modern Portfolio Theory -- stocks that have a high "beta", or tendency to move more than the market. This naturally meant that Navellier was drawn to volatile stocks, which combined with his disinclination to time the market, meant that he was always vulnerable to a downturn.

But in fact his success was remarkably sustained after the 2000 break. Conversely, he doesn't seem to have benefited all that much from the 2009 rebound.

Curiously, Navellier's technique does still seem to be working in his newer companion letter, Blue Chip Growth, which focuses on large-cap stocks. That's up a solid 6.6% over the year to date, vs. 0.7% for the Wilshire; and 20.9% over the last 12 months, vs. 14.86% for the Wilshire. Blue Chip Growth was hard hit in the Crash of 2008, not surprisingly, but it is ahead of the market further out and shows an overall gain since 1997, when the HFD began following it -- of 6.9% annualized vs. 3.3% for the Wilshire.

Maybe this tells us something about the changing character of the low- and high-cap markets. Navellier used to say his method was better suited to smaller stocks with less analyst coverage. But apparently, not any more. See Dec. 11, 2009 column.

I don't suppose Navellier's return to the human race has helped him with subscribers, but the letters themselves have become much more readable, even flamboyant -- full of forcefully-expressed opinions that look almost like market forecast, if we didn't know that Navellier eschews them.

In the current issue of Blue Chip Growth, for example, he emitted this unmistakably bullish bellow:

"While consumption here in the U.S. may not be like the "go-go '80s" or the "dot.com '90s," spending is occurring on a global scale despite all of the gloom-and-doom headlines in the mainstream media. The V-shaped corporate earnings recovery as well as the U-shaped U.S. economic recovery are well under way and I don't want you to be "spooked" by the ominous headlines you read, see and hear on an almost daily basis."

Navellier gloated "our Buy List companies are reporting stellar sales increases" because of their international exposure. He listed as examples:

Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 243.79, +2.17, +0.90%) , sales up 61%

Baidu Inc. /quotes/comstock/15*!bidu/quotes/nls/bidu (BIDU 77.66, -1.71, -2.16%) , sales up 75%

Priceline.com Inc. /quotes/comstock/15*!pcln/quotes/nls/pcln (PCLN 291.35, -6.33, -2.13%) , sales up 27%

VMware Inc. /quotes/comstock/13*!vmw/quotes/nls/vmw (VMW 79.59, +0.32, +0.40%) , sales up 48%

Cognizant Technology Solutions /quotes/comstock/15*!ctsh/quotes/nls/ctsh (CTSH 57.92, -0.67, -1.14%) , sales up 42%

Navellier estimates that over 60% of his recommendations' sales come from business overseas.

He says: "Our companies are prospering from countries that have a growing middle class and stronger consumers than we have here in the U.S."

Two new buys in this vein:

DirecTV /quotes/comstock/15*!dtv/quotes/nls/dtv (DTV 37.72, -0.45, -1.18%)

McDonald's Corp. /quotes/comstock/13*!mcd/quotes/nls/mcd (MCD 72.88, -0.56, -0.76%)

Peter Brimelow has been an editor at Barron's, Fortune and Forbes and is the author of "The Wall Street Gurus: How You Can Profit From Investment Newsletters."

With its core business showing some signs of slower growth, Intel has to make its latest acquisitions work this time around.

12:20 p.m. Today12:20 p.m. Aug. 30, 2010 | Comments: 2

Do not care what anyone says, Priceline sucks. You do NOT "negotiate" any thing. Priceline has a set price it will sell at. Your job is to guess their price.And they won't even tell you when you are getting close. If you guess wrong too many times you can't play anymore until tomorrow.If / when you are successful guessing their price, you win!Did you ever get it at your price (i.e..."

- albersdg | 8:42 a.m. Today8:42 a.m. Aug. 30, 2010

"Peter Brimelow: Wunderkind looks to recoup overseas http://on.mktw.net/aJDgVW" 12:33 a.m. EDT, Aug. 30, 2010 from MKTWBrimelow

"Peter Brimelow: Baby-boomer bull gets belligerent http://on.mktw.net/aUecrT" 2:47 a.m. EDT, Aug. 23, 2010 from MKTWBrimelow

"Peter Brimelow: Rapturous gold bugs see new highs ahead http://on.mktw.net/c3YwZz" 9:47 a.m. EDT, Aug. 19, 2010 from MKTWBrimelow

"Peter Brimelow: Battered bulls still unbroken http://on.mktw.net/9ITPe6" 2:04 a.m. EDT, Aug. 16, 2010 from MKTWBrimelow

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