Take it from the top

Posted January 15, 2015

In 2015-01

Picking hot stocks may well be a fool’s game, but it sure is fun. Since 1983, we’ve asked money managers to select Tar Heel companies whose shares they think will perform best in the coming year. Greensboro chip-maker RF Micro Devices Inc., recommended by Raleigh-based Capital Investment Cos. co-founder Bobby Edgerton, gained 171% last year, while Morrisville drug developer Furiex Pharmaceutials Inc. — picked by Craig Lewis, an executive with Chapel Hill-based Franklin Street Partners Inc. — gained 133%. But another Lewis selection, Wake Forest energy-technology provider PowerSecure International Inc., declined 45%. No game for the timid, the hot-stocks feature started when there was less pretense in money management and being called a stockbroker was a source of pride. Now money managers prefer titles such as “financial consultant” or “wealth adviser.” The art of selecting individual winners is often discredited because research shows even the smartest investors rarely outperform basic index funds. The odds of finding the next Apple may be better than a winning lottery ticket, but not by much. Stock picking even gets a bad rap from many investment companies, which press clients into accounts that cost a steady 1% to 1.5% of assets — in good times or bad — rather than rely on dwindling fees from trading stocks.

With U.S. stocks in the sixth year of a bull market, and trembling over the Russian economic collapse as we go to press, a more cautious approach than chasing small-cap companies seems wise. We decided to shake up our hot stocks feature by focusing on prospects for the state’s 10 biggest public companies, whose shares are held widely and traded frequently by North Carolina investors. We limited our four investment advisers to those stocks. Picking favorites, two chose Charlotte-based Bank of America Corp., the worst performer over the last five years, and two selected VF Corp., the Greensboro apparel company that was second-best among the top 10. Two experts rated Red Hat Inc. the least attractive, though analysts who track it are very bullish on the Raleigh tech company.

To be sure, some stock pickers truly have the touch. Jim Morgan, the former Interstate/Johnson Lane Inc. CEO turned Krispy Kreme Doughnuts Inc. chairman, won The Wall Street Journal’s contest a record number of times before the newspaper ended the feature. Edgerton, who says he knows more about more public companies than anyone alive, picked our biggest gainers in 2013 and 2014. Not surprisingly, he thinks we shouldn’t have limited his options this year. Maybe we’ll go back to the old way in 2016. But if you can’t wait that long and need that hot-stock fix, Edgerton suggests you take a look at root9B Technologies Inc., a Charlotte-based cybersecurity consultancy that was trading for about $1.10 per share.

David Mildenberg

David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.