Picking Stocks for 2009. January 16, 2009

I’m expecting 2009 to be a better time for investors. Not an easy time, as in the one-sided market of the late 1990s when everything one bought went up, but an easier time than 2008 - at least for those willing to engage in a little market-timing. And that’s although I expect rallies will only be bear market rallies within an ongoing bear market.

Why an easier time then?

Last year my newsletter’s market-timing strategy portfolio gained 9.2%, one of the very few advisory services that were up for the year in which the S&P 500 lost 38.5%, hundreds of mutual funds and hedge funds closed due to heavy losses, and even ‘best investor in the world’ Warren Buffett was down 31.8% for the year. But it wasn’t an easy year. The extreme volatility made for stress, and the need to stick with mutual funds and ETF’s due to the higher risk in individual stocks took some of the fun out of it.

The outlook is different in that regard for 2009. Of the many stocks that plunged severely last year, some plunged for good reason, while others sank in sympathy with the market, or were sold simply because mutual funds and hedge funds had to sell something in order to raise cash to meet their record level of redemptions.

I believe that has quite a number of stocks on the bargain table, which is a lot different than when 2008 began.

One I mentioned to you in my December 26 column was Zimmer Holdings, symbol ZMH. Zimmer is about as far away from the troubled financial, housing, and retail sectors as you can get. To remind you of what I said in December, the company designs and manufactures orthopedic implants, including joint, dental, and spinal replacements. I believe its 54% stock plunge last year was overdone, and recommended its purchase. It’s up about 2% since that Dec. 26 column. The encouraging thing about that is how well it held up even as the S&P 500 plunged back down 10% over the last two weeks.

In my newsletter this week we featured another individual stock, which may have appeal to those looking for income as well as those seeking potential capital gains.

It is Cedar Fair, symbol FUN. Cedar Fair operates popular regional theme parks, and water parks, in 13 states in the U.S. and one province of Canada.

The parks include Cedar Point in Ohio; Knott’s Berry Farm and Soak City USA in California; Dorney Park/Wildwater Kingdom in Pennsylvania; Valleyfair in Minnesota; Worlds of Fun in Kansas, Michigan’s Adventure Park: Canada’s Wonderland in Toronto; Kings Dominion in Virginia; and Carowinds in North Carolina.

Cedar Fair is noted for exciting rides. Its Cedar Point Park in Ohio offers 65 rides and 16 roller coasters, including Top Thrill Dragster, one of the world’s tallest and fastest coasters.

In addition to thrill rides for the brave, the parks are family oriented with water slides and wave action pools, as well as attractions for smaller children themed around the ‘Peanuts’ comic strip characters.

While the recession is having an effect on attendance at theme parks, Cedar Fair’s regional attractions, each only a few hours from large population centers, are faring much better than the destination-vacation type theme parks. The company just reported a couple of days ago that attendance in its 4th quarter was 8% higher than the same quarter a year ago, and estimated average daily spending per guest declined only 1%.

The company’s aggressive annual expenditures for new rides and attractions have always been key to keeping visitors returning, and Cedar Fair has announced expenditures of $62 million for 2009 additions, including a huge new coaster at its King’s Island Park in Cincinnati. Company president Dick Kinzel says, “It is likely that many of the difficult market conditions we faced in 2008 will be present in 2009, and we will continue to focus on adding value to the guest experience through new shows, thrill rides, family attractions and special events. I believe we have an excellent overall entertainment package lined up for 2009 that will appeal to today’s budget-conscious consumers.”

Revenues have increased in each of the last ten years. Going forward the worsening recession will probably have a greater negative effect on attendance (and the bottom line). But I believe that with the stock having plunged 57% along with the rest of the market, the potential negatives have been pretty much already factored into the share price.

Cedar Fair may also have appeal for those looking for income. A limited partnership, Cedar Fair must pay out most of its earnings to investors in the form of dividends. The partnership has increased the dividend for 21 straight years. At the current depressed stock price the dividend yield is a robust 15.5%. Even if the company had to cut its dividend for the first time, the yield would probably remain at a high payout.

Meanwhile, according to FirstCall/Thompson Financial, of seven analysts surveyed, three had a ‘strong buy’, three a ‘buy’, and one a ‘hold’ rating on the stock.

As always this is my opinion and there are no guarantees in investing, but I believe Cedar Fair is a good choice for 2009, for both income and potential capital gains.

Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding the Bear – How To Prosper In the Coming Bear Market. His new book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!