Hot Stocks of 2013 and 2014?
Comebacks and momentum stories dominate the list of the hottest companies in Standard & Poor’s 500-stock index this year. Meanwhile, the names that did the worst in 2013 were once-hot shares that have turned suddenly cold, either because of industry woes or corporate stumbles. It’s a familiar theme. On Wall Street, one of the best ways to be this year’s darling is to be last year’s dog, and vice versa. “The market exaggerates,” says R.J. Hottovy, an analyst with Morningstar Investments in Chicago. “In some cases, companies get oversold…and then they get overbought.”
Netflix (symbol NFLX) is a prime example. The subscription movie company saw its shares slammed in 2011, thanks to a price hike and shift in its business model that alienated a huge number of subscribers. The company’s stock, which sold for $295 in July 2011, dropped to $54 in July 2012 as Netflix pressed forward with an expensive technology upgrade that allowed subscribers to receive movies and shows via the Internet rather than through the mail. But that gamble paid off, reviving the company’s subscriber base. Wall Street is so in love with Netflix that the stock soared 303% in 2013 and now sells for about 92 times projected 2014 earnings, which is nearly four times the Los Gatos, Cal., company’s projected long-term profit growth rate. (All stock returns as of December 12, 2013.)
Best Buy (BBY) has a similar story. Left for dead at the end of 2012, largely because of concerns that the chain couldn’t compete with the likes of Amazon.com (AMZN) and Costco Wholesale (COST), the Richfield, Minn., retailer brought in new management, cut costs and revived its online presence. The company is still not out of the woods, by the CEO’s own admission, but you’d never know that by the stock price. Best Buy’s shares shot up 245% in 2013 and, at $40, now sell for 14 times projected earnings for the fiscal year that ends in January 2015. While profitability is improving, “the market has probably overshot the intrinsic value,” says Hottovy. “Price competition is going to get a lot more attention in 2014 than it did this year.” (click on image below to view the top ten S&P 500 stocks of 2013. All stock returns as of December 12, 2013)
Other rags-to-riches stock stories in 2013 include Hewlett-Packard (HPQ), up 91%; Yahoo (YHOO), up 98%; First Solar (FSLR), up 76%; and Western Digital (WDC), up 87%. Both HP and Yahoo have new CEOs, who are attempting to return the companies to growth and profitability. Western Digital, like Seagate Technology (STX)—which rose 66%—languished in 2012 because the market had decided computer storage was as passé as mainframes. But both companies are helping store data in the “cloud,” and that’s made them hot again. First Solar, meanwhile, was one of the hot stocks of the initial solar-energy boom. But its shares were battered when Chinese solar companies entered the market and started slashing prices. The resulting shakeout reduced competition and left the survivors stronger, says John Blank, chief equity strategist at Zacks Investment Research.2013 was a great year for stocks. Reuters reports the S&P 500 has soared 29.2 percent this year, largely due to stimulus from the U.S. Federal Reserve. The index is on track for its best year since 1997. The Dow has gained 25.8 percent in 2013 while the Nasdaq has jumped 38 percent.
However, 2013’s top performers also include some unqualified success stories. TripAdvisor (TRIP), the travel-planning Web site, took off immediately after it was spun off from Expedia (EXPE) two years ago. It now sells for $83, about three times more than its spinoff price and some 38 times its estimated 2014 earnings. The key to its success is that this Newton, Mass., travel concern was one of the nation’s first social networks, says Scott Kessler, an analyst with S&P Capital IQ. By persuading travelers to rate the hotels where they’ve stayed and the tours that they’ve taken, TripAdvisor created consumer rankings that make it easier for similarly inclined travelers to plan a trip. Kessler adds that the social media theme played well in 2013, fueling a 97% rise in the stock.
But he thinks TripAdvisor is not likely to produce the same sort of market-beating returns in 2014. “There’s a fair amount of uncertainty with this stock given all the appreciation we’ve seen so far,” he says. “It just doesn’t seem like a great opportunity at this time.”
Kessler is equally tepid about the prospects for Priceline (PCLN), a now four-figure stock that was up 89% in 2013. Although Priceline has been brilliant at growing sales and revenues by double digits annually, the online travel market is getting increasingly crowded, and Kessler thinks it will be tough to keep up the blistering growth rate. “The company has a strong management team and a proven track record of success, but it’s hard to see what catalysts have not already been priced into the stock.”
The S&P 500’s worst performers
On the opposite end of the performance spectrum are some once-hot stocks that went stone cold in 2013.
Consider Newmont Mining (NEM). Shares in the Greenwood, Colo., gold-mining company were selling for just $26 in October 2008, but the world financial crisis sent precious metal prices soaring, and Newmont’s stock hit $69 by the end of 2011. As world economies have edged away from the cliff, gold prices have plunged and so, too, has Newmont. The company’s shares now sell for a mere $23, down a whopping 47% in 2013 alone.
Big coal was all the rage during the 2012 presidential campaign, but in 2013 it accounted for some of the worst stock performance in the S&P 500 index. Cliffs Natural Resources (CLF) was down 37% during the year; Peabody Energy (BTU) dropped 30%. Blame fracking, says Blank, of Zacks Investment Research. Hydraulic fracturing procedures are allowing U.S. companies to produce more oil and natural gas than they ever have. Add that to the fact that solar has finally come out of the “1970s hippie thing” to become a viable business, and you see why coal companies have been left in the dust, he says. He doesn’t see that changing anytime soon, either.
You can’t blame the retail industry for what has happened to shares in Abercrombie & Fitch (ANF). Other S&P 500 retailers—from Michael Kors Holdings (KORS), which is up 57%, to T.J. Maxx parent TJX Companies (TJX), up 46%—are having a stellar year. But Abercrombie, known for advertising its clothing with sparsely clad youths, watched its stock price tumble 30% in 2013 as sales and profits plunged. The prospects remain bleak, says Blank: “It is your classic poorly run business.”
Bruce Upbin of Forbes reports, The Best Performing Big Tech Stocks Of 2013: Did You Own Any Of Them?:
Idaho, China, Menlo Park. That would have been your itinerary this year to find the tech stocks that make up the list of the best-performing names of 2013. These are stocks that have doubled or even tripled their investors’ money and, while some have likely exhausted the easy gains, others are expected by Wall Street analysts to continue soaring. And can you believe good old Yahoo! came in at number 10? It’s not growing that much but investors have realized the rising value of its approximately 24% stake in the Chinese e-commerce firm that is heading toward a huge IPO in 2014.No but I'm wondering where is Twitter (TWTR)? Its shares have nearly tripled since their initial public offering last month, including an almost 5% gain on Thursday, making the microblogging site's IPO one of the best performing this year (shares are getting hit on an analyst's call but get ready to buy that dip!).
Forbes stats editor Scott DeCarlo and I screened close to 400 publicly traded technology stocks, cutting off the list for this ranking’s purposes at stocks that ended the year with a market cap under $5 billion. That excluded a bunch of well-known names that did extremely well in 2013 including Yelp (up 261%), Shutterstock (up 223% post-IPO), and WebMD (up 168%), as well as much of the solar sector, which had a terrific comeback this year with SunEdison up 298%.
But cutting off at $5 billion also excludes a lot of small-cap fliers and tiny Chinese ADRs. Nothing against Chinese ADRs except that they are, well, Chinese ADRs. We than re-ranked the big-cap list by total return through December 20. That’s the not the end of the year, I know, but stocks tend to meander in late December so I doubt the picture will look different by New Year’s Day. If it does, sue me. I’ll have another post to write.
The Nasdaq composite index, the annual performance bogey for most tech stocks, delivered a 36% return this year. Seventy out of the 105 stocks over $5 billion in market cap beat the Nasdaq, but you’d have done better in absolute terms (but not in percentage terms) throwing darts at the smaller-cap names, where 165 stocks beat the Nasdaq out of 261 that we tracked.
The best-performing large-cap tech stock of the year? Micron Technology, the Boise, Idaho maker of random access memory and microprocessors. Forbes contributor and stockpicker David Steinberg liked Micron at the beginning of the year and reiterated that call in September, saying that consolidation has finally brought a modicum of pricing power to the memory chip industry, and Micron is one of the few survivors. Demand is on the upswing and Micron has also put behind it the drag of an ongoing patent lawsuit with Rambus.
Here’s the top 10 and giant spreadsheet you can download with close to 400 tech stocks (above and below $5 billion market cap) ranked by 2013 performance:
At number two is SouFun, China’s biggest real estate Web portal. It makes money from property listing fees, ads and operating home improvement websites. The company has coverage in more than 320 cities in China with a big, active community of home buyers and sellers, as well as investors and property developers. Revenue in the most recent quarter was up 45% and operating earnings per share was up 66%. The stockpickers at Zacks likes next year’s growth prospects, recently raised to 35% growth from this year.
- Micron Technology (MU), up 250%
- SouFun Holdings (SFUN) , up 218%
- Pandora Media (P), up 205%
- Qihoo 360 Technology (QIHU), up 165%
- 3D Systems (DDD), up 119%
- Splunk (SPLK), up 139%
- T-Mobile (TMUS), up 137%
- Facebook (FB), up 107%
- CoStar Group (CSGP), up 105%
- Yahoo! (YHOO), up 101%
At number three is Pandora, whose shares nearly tripled in 2013. Few might have guessed they would perform that well, given how tough it is to make money in digital music streaming. But investors woke up to Pandora’s mighty position with 70% share of Internet radio and 71 million monthly active users. Advertising, which accounts for 80% of revenue, will hit $643 million this year. Mobile ad sales topped $100 million for the first time in the third quarter of 2013, making Pandora third in mobile ad revenue behind only Google and Facebook. Musicians aren’t happy about it, but Pandora is renegotiating (likely downward) its royalty rates with artists, labels and music publishers sometime early next year.
One of the big takeaways this year was the underperformance of most of the biggest names in tech. Apple came in dead last among the big-cap stocks, up a mere 5.7%. Also bringing up the rear were Cisco (up 10%), AT&T (up 7%), Verizon (16%), Oracle (10%) and Qualcomm (20%).
You might be wondering, “Where’s Netflix?”. Some consider it a tech stock, and it quadrupled in price in 2013, making it the best overall performer in the S&P 500, but in our industry categorization it falls under media stocks.
And if you think that's impressive, Kapital reports that small caps have been among the top performers in 2013:
It's almost 2014, and while there are many who are still concerned about flighty valuations in the stock market, the three major indices have seen a relatively strong December so far. Most analysts say that the rebound indicates the market is calming down at the prospect of tapering, and beginning to accept the implications that the economy is recovering.And here's a chart of a company most of you have never heard of, VisionChina Media Inc. (VISN). Its shares have skyrocketed from $1.77 to $31.63 in the last three months (click on image, short this pig but be careful!):
Overall the stock market has performed exceptionally well in 2013, as gold and bond yields have plummeted. The optimistic climate has been good for growth stocks, so we decided to find the top five highest performing small cap stocks in the year to date, so see which companies may be poised for further growth in 2014.
With market capitalizations under $2 billion, these top performing small cap stocks are finishing the year outperforming their peers by over 400%. In addition, most have strong EPS growth projections for the next five years.
The top performer on any American index for the year was Zhone Technologies (ZHNE), an Israeli software company which is up nearly 1000% for the year. Part of the stock's performance has been attributed to a number of its technologies gaining approval for use in military and government contracts.
The second highest performing small cap on our list in 2013 was Canadian Solar (CSIQ), Canada's largest manufacturer of solar panels. Solar stocks have all performed well in 2013, even as sales at some of the firms declined.
So do you think these small cap stocks will continue to outperform in the next year? Check back for more lists of the top performing stocks of 2013.
1. Zhone Technologies (ZHNE): Designs, develops, manufactures, and sells communications network equipment for telecommunications, wireless, and cable operators worldwide. Market cap at $155.50M, most recent closing price at $5.21.
2. Canadian Solar Inc. (CSIQ): Engages in the design, development, manufacture, and sale of solar power products in Canada and internationally. Market cap at $1.28B, most recent closing price at $27.57.
3. SuperCom Ltd. (SPCB): Provides electronic monitoring, identification, and security products and solutions to governments, and private and public organizations in Europe, the United States, and Israel. Market cap at $41.03M, most recent closing price at $4.70.
4. Lannett Company, Inc. (LCI): Develops, manufactures, packages, markets, and distributes generic pharmaceutical products sold under generic chemical names in the United States. Market cap at $1.08B, most recent closing price at $32.22.
5. Gray Television Inc. (GTN): Operates as a television broadcast company in the United States. Market cap at $709.37M, most recent closing price at $12.75.
While these eye-popping returns caught most hedge funds and active fund managers off guard, I've been warning my readers for the longest time that the risks of a melt-up in stocks are a lot higher than the risks of a meltdown. Why? Because despite the recent Dectaper surprise, the Fed and other central banks continue to pump an inordinate amount of liquidity into the global financial system, and this will propel risk assets much higher.
But I also warned you that as the Fed tapers in 2014, the risks of deflation will rise significantly. Luckily, we don't have to worry about deflation for now because we'll first get the mother of all liquidity rallies and then suffer the consequences of the mother of all liquidity hangovers.
When I covered the activity of top funds during Q3 2013, I shared with you that I love tracking and trading stocks. I now track over 2000 stocks in over 80 industries (focus mostly on U.S.). At the end of each trading day, I look at the most active, top gainers and losers and add to my list of stocks to track. I also like to know which stocks are making new 52-week highs and lows, which stocks are being heavily shorted, and which ones offer the highest dividends.
I had a great year in 2013, now up close to 140 percent, but I've taken my beatings with stocks in the past. Nortel cost me a pretty penny and so did Patriot Coal when it restructured to shed their pension liabilities of all things. The company is now set to reemerge from bankruptcy as a well capitalized private company, effectively wiping out shareholders (PCXCQ).
Last year, I wrote on a lump of coal for Christmas, recommending coal, copper and steel stocks. I also mentioned a bunch of other stocks in other sectors, many of which are part of the top performers in the S&P 500 in 2013. Coal stocks seem to have bottomed but copper and steel stocks have broken to the upside recently as the U.S. and global recovery gains momentum.
Coal, copper, steel and shipping shares which are starting to show signs of life lately, are all part of a mega trade centered around emerging markets. The Caisse is betting big on emerging markets but as I stated in a recent comment on why it's time short Canada, this trade might pan out or flop spectacularly in 2014. We shall see but it's interesting to note that steel stocks have recently decoupled from Chinese and other emerging market shares.
The two sectors that impressed me the most in 2013 were solar (TAN) and biotech (XBI). No doubt, there are a lot of high beta momentum chasers in these sectors but it's nice to see my 2008 call on the age of biotech and my 2011 prediction on the solar melt-up are finally kicking in (the turd wannabe traders on Zero Hedge couldn't see that one coming, they're still long gold. DOH!).
I'm particularly bullish on biotech because I think if deflation does take hold, you want to be in sectors with pricing power. But biotech shares are very risky which is why I track the activity of top biotech investors, like the Baker Brothers, very closely to gain insights on individual companies. Shares of Pharmacyclics Inc. (PCYC) and ACADIA Pharmaceuticals Inc. (ACAD) have soared and I like some of their smaller holdings, like Idera Pharmaceuticals, Inc. (IDRA), BioCryst Pharmaceuticals, Inc. (BCRX), Progenics Pharmaceuticals, Inc. (PGNX) and XOMA Corporation (XOMA) where they hold a significant percentage of the float.
And last Wednesday, I told my readers to buy the dip Galena Biopharma, Inc. (GALE) Inovio Pharmaceuticals, Inc. (INO), noting Louis Bacon's Moore Capital Management took a position in the latter company (but it's a global macro fund not a biotech fund).
Boston Scientific Corporation (BSX) as part of the top performing stocks in the S&P 500 in 2013 or to see the strong performance in Rite Aid Corporation (RAD). There are many more stocks in these sectors that I think are going to rip higher in 2014.
Another sector with pricing power that performed exceptionally well in 2013 was education. Shares of Apollo Education Group, Inc. (APOL), DeVry Education Group Inc. (DV) and Grand Canyon Education, Inc. (LOPE) all recorded great gains.
Finally, a little note on gold shares. I've been bearish on gold for a long time, warning my readers that the U.S. recovery would be stronger than expected and gold would plummet. Moreover, in the absence of inflation, there isn't really a strong case to invest in gold but I do think gold shares (GLD) are way oversold and it's a good time to start accumulating at these levels. Also, as I stated in my comment from tapering to deflation, the ECB will have to crank up its quantitative easing, and when it does, gold shares will rally hard (but they could go lower first so be careful).
There is a lot more to cover but I have been eating delicious food and drinking great wine over the last three days and I'm totally wiped. Once more, please remember to contribute to this blog by going to the top right-hand side and clicking on the PayPal options. Alternatively, you can email me and I will tell you where to send the cheque after I've verified who you are (email is LKolivakis@gmail.com).
Those of you who want a more in-depth analysis on how to trounce the S&P 500 in 2014 can contact me and we'll arrange a consulting fee. I'm not cheap and have no time to waste with petty projects but I guarantee you that you will make more money following my advice than wasting 2 & 20 praying for an alternatives miracle. I should contact Natalia over at MCM and start a hedge fund in Montreal but think the industry is a frigging joke.
Lastly, Helen Solinski, Manager, Donor Relations at Myelin Repair Foundation, contacted me to tell me they are always looking for funds. I ask all you to please donate generously to this non-profit organization looking to repair myelin (the underlying abnormality in MS and other neurological diseases) by clicking here. Thank you and have a Happy and Healthy New Year!
Below, CNBC's "Fast Money" traders share their strategies to playing shipping stocks right now, including DryShips (DRYS) and Navios Maritime (NM). Be careful with shippers and anything related to China and global growth. There are a lot of momos (momentum chasers) chasing these high beta stocks but so far, there hasn't been any significant and sustained breakout.
And Scott Johnson, founder and CEO of the Myelin Repair Foundation, discusses how their foundation's Accelerated Research Collaboration™ (ARC™) model is designed to optimize the entire therapeutics development continuum through collaboration, for multiple sclerosis and all diseases.