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All Contents © 2017The Kiplinger Washington Editors
The bull market that began nearly five years ago now ranks as the fifth-best of the 13 major advances since 1930.
From the market’s bottom on March 9, 2009, through March 5, 2014, Standard & Poor's 500-stock index has returned an annualized 25.3%. In cumulative returns, an investment in the S&P 500 has gained more than 200% when dividends are included.
But some stocks can measure their percentage gains in the thousands. How could that be? Because in the late winter of 2009, the fear gripping the stock market was so intense that even shares of many big-name companies were selling for a few dollars, or sometimes just pennies. They were in effect priced for Armageddon. Investors who had the guts to jump in at that point wound up with massive gains, provided they held on.
We wanted to find out which stocks have done best since the onset of the bull market and see what lessons could be drawn from them. So we asked Morningstar to cull its universe for the ten best performers, measured by total return, from March 9, 2009, through February 21, 2014. We limited the list to companies based in the U.S. and to those with market capitalizations today of at least $1 billion.
Join us for the countdown to number one.
By Tom Petruno, Contributing Writer
| March 2014
(Returns are through February 21, but share prices and related ratios are as of March 5. Price-earnings ratios are based on estimated calendar 2014 earnings, unless otherwise indicated).
Courtesy Las Vegas Sands
Five-year total return: 6,222% (131% annualized)
52-week price range: $47.95-$88.28
Price-earnings ratio: 23
Market capitalization: $71 billion
Apart from the banks, few stock crashes in 2007 and 2008 were more dramatic than what befell casino titan Las Vegas Sands (LVS). As financial markets seized up and the global economy shuddered, the company's shares plummeted from $144 to a low of $1.28, a wipeout of 99%.
Wall Street feared not only a sustained tourist slump in Las Vegas, where Las Vegas Sands owns the Venetian and Palazzo hotel/casinos, but also a sudden dearth of high-rollers in China's gambling center, Macau. There, the company owns the huge Venetian Macao, opened in 2007, and other resorts. What's more, Sheldon Adelson, the 80-year-old head of Las Vegas Sands, was pushing ahead in 2008 with a $5.7-billion casino resort in Singapore.
But as usual with the feisty Adelson, luck was on his side — and with anyone who took a chance on the stock when it traded in penny-stock territory. The company made it through the financial crisis intact, then came roaring back as the global economy steadied. Revenue and earnings both hit records last year, at $13.8 billion and $2.3 billion, respectively. The stock, at 23 times estimated 2014 earnings, isn’t cheap. But as Steven Wieczynski, an analyst at Stifel Financial writes, if the shares appear "priced for perfection, we would counter that recent quarterly results have been just that, and then some."
Bottom line: Adelson takes big risks, but the payoffs have been enormous — though not yet for people who chased the stock at its 2007 peak.
Five-year total return: 6,433% (132% annualized)
52-week price range: $40.52-$55.89
Price-earnings ratio: Not meaningful
Market capitalization: $2.2 billion
Atlas Energy (ATLS) is a publicly traded master limited partnership that was dumped mercilessly in the commodity bust of 2008. By the time the stock market bottomed in March 2009, the firm's units could be had for 65 cents each.
Pittsburgh-based Atlas owns controlling stakes in two other partnerships: Atlas Resource Partners, which explores for and produces oil and natural gas; and Atlas Pipeline Partners, a gas distributor. Those two businesses operate from Appalachia to New Mexico and have been players in the new U.S energy boom.
Total revenue from the Atlas businesses reached $2.6 billion last year, up from $1.5 billion in 2012, thanks in part to acquisitions. Atlas Energy CEO Edward Cohen called 2013 a good year and says he expects 2014 to be "even better." As for cash distributions to investors — the primary reason investors buy energy partnerships — Atlas Energy says it expects to pay out between $1.95 and $2.45 per unit in 2014. That would mean a distribution yield of between 4.6% and 5.8% at the latest market price.
Bottom line: An income-generating domestic energy play, but you should discuss MLPs with your tax adviser before investing.
Courtesy American Axle
Five-year total return: 6,645% (134% annualized)
52-week price range: $11.85-$21.48
Price-earnings ratio: 8
Market capitalization: $1.5 billion
American Axle (AXL) partly suffered guilt by association in the 2007-09 bear market as the car business tanked. But the threat to American Axle’s survival turned out to be very real: After its main customer and former parent, General Motors, filed for bankruptcy protection in June 2009, American Axle teetered on the brink — only to be rescued by GM, which provided a $110-million capital infusion in September 2009.
American Axle returned to profitability in the third quarter of 2009, and its shares, which had sunk to a mere 29 cents at the bottom of the bear market, boomeranged back above $10 by early 2010. With the auto industry's continued recovery, the Detroit company's global sales of axles, transmission parts and other driveline components hit $3.2 billion last year, more than double 2009 levels. Operating income reached $240 million, the highest in nine years.
But what Wall Street seems to like most is that American Axle is further weaning itself from its dependence on GM, which spun out the business in 1994. Sales to other companies accounted for 29% of American Axle's total last year, up from 25% in 2010. And the company continues to expand rapidly in key foreign markets, including Brazil, China and India.
Bottom line: A cheap way to play the auto industry's global growth. But keep an eye on the company's debt level.
Five-year total return: 7,885% (142% annualized)
52-week price range: $9.26-$34.85
Price-earnings ratio: 35*
Market capitalization: $1.2 billion
A new wave of dot-com stocks has captivated Wall Street over the past year, yet few can match the recent performance of CalAmp (CAMP), a little-known, 33-year-old maker of telecom equipment.
The Oxnard, Cal., company has been riding a surge in demand for wireless-telecom applications, such as improved package-delivery monitoring, "M2M" (machine-to-machine) systems that control the movement of trains, and emergency-response coordination by government units. Analysts see revenue hitting $280 million in the fiscal year that ends next February, up from $139 million two years ago. Earnings are expected to be $1.05 a share this year, up from 18 cents two years ago.
Although the stock has responded in kind and then some, CalAmp's history may give investors pause. The shares also briefly spiked in the late 1990s and again at the tech zenith in the early 2000s, topping $40 both times — only to crash. But back then CalAmp was primarily a supplier of home satellite TV dishes. Now 80% of sales are in wireless equipment. FBR Capital Markets analyst Scott Thompson thinks CalAmp's wireless-growth prospects remain outstanding, with one caveat: If bigger players were to barrel into its markets, they could drive down product prices and potentially wreck CalAmp’s profitability, he says. With the stock at a rich 35 times estimated earnings, there's no margin for disappointment.
Bottom line: Great little niche growth company, but high risk at these valuations.
*Based on estimated earnings for the four quarters that end November 30
Five-year total return: 8,389% (145% annualized)
52-week price range:$15.82-$56.42
Price-earnings ratio: 14
Market capitalization: $1.3 billion
When Perry Sook founded Nexstar Broadcasting (NXST) in 1996, his goal was to build a big portfolio of TV stations in midsize markets across the U.S. — places such as Salt Lake City; Scranton, Pa.; and Lubbock, Tex. He stuck to the plan, even though he got little love from Wall Street for much of the past 18 years.
That changed beginning in 2012, when the market seemed to suddenly wake up to Sook's empire. The Irving, Tex., company’s shares have quintupled since mid 2012. Nexstar now owns, operates or provides programming to 108 TV stations reaching 56 markets and about 16% of all U.S. TV households. Revenue topped $500 million last year, and operating income was a record $103 million.
One key to Nexstar's success has been the lucrative retransmission fees that cable companies pay to carry local TV stations. To complement his stations, Sook also has developed community news Web sites that stress local news. And while media empires often stress the value of their assets as an investor lure, Nexstar is offering cash back, too: The company in January announced a 25% boost in its quarterly dividend, to 15 cents a share.
Bottom line: A great collection of valuable local broadcast outlets to buy on any pullback.
Courtesy Dana Spicer
Five-year total return: 10,834% (158% annualized)
52-week price range:$15.51-$23.46
Price-earnings ratio: 12
Market capitalization: $3.3 billion
Dana (DAN) was the proverbial baby thrown out with the bathwater in 2009. Many frightened investors figured that the Maumee, Ohio, auto-parts maker — newly restructured in 2007 — would quickly follow the car makers into insolvency.
It was a bad bet: Though Dana lost $431 million in 2009 as sales crumbled, it was profitable again in 2010. The stock recovered quickly from a low of 20 cents in 2009 to about $17 by year-end 2010. That accounted for most of the advance that propelled Dana to the number-five spot on our bull market winners' list.
But since 2010, the stock is up a modest 26%. Dana's revenue fell to $6.8 billion in 2013, down 6% from the previous year. Weaker North American sales of big trucks and other heavy equipment trimmed demand for the axles, steering shafts and other driveline components that Dana supplies, and depreciating currencies hurt results in foreign markets, including South America. The company projects flat revenue this year and expects operating earnings to inch up to between $1.82 and $1.86 a share, compared with $1.77 last year. In short, there's not much excitement here in the near term.
Bottom line: Needs a stronger global economy to lure investors. The modest 0.9% dividend yield isn’t enough to attract income investors.
Five-year total return: 11,711% (162% annualized)
52-week price range:$25.12-$48.97
Price-earnings ratio: 18
Market capitalization: $5.2 billion
The financial collapse of General Motors and Chrysler in 2009 caused investors to toss almost everything connected to the auto business onto the same junk heap. That included car rental giant Avis Budget Group (CAR), which saw its shares plummet to 38 cents in March 2009.
But like many companies ravaged by the 2007-09 recession, Avis quickly hacked expenses to deal with shrinking revenue. By 2010, sales began to recover, the company was profitable again, and the stock was back above $10. It helped that Parsippany, N.J.-based Avis and other rental firms slashed the size of their fleets, creating car shortages that forced up rental rates.
After pulling back in 2011, Avis shares have been red-hot again over the past two years as revenue has surged (reaching $8 billion last year) with rebounding leisure and business travel — and as the rental giants have continued to raise rates. That's a side effect of the massive industry consolidation over the past decade that left the Big Three rental firms — Enterprise, Hertz and Avis — with a stunning 95% of the market. Christopher Agnew, who covers Avis for MKM Partners, expects earnings of $2.77 a share this year, rising 35% to $3.73 in 2015, and calls Avis his "highest conviction idea."
Bottom line: Still feels like a long-term bargain, assuming the now-concentrated industry maintains its pricing power.
Courtesy Pier 1 Imports
Five-year total return: 12,966% (167% annualized)
52-week price range:$18.05-$25.29
Price-earnings ratio: 17*
Market capitalization: $2.0 billion
Many investors in early 2009 feared an economic collapse was imminent. And in the stock market, plenty of companies were priced accordingly: near zero. One was home-furnishings retailer Pier 1 Imports (PIR), which traded for a mere 15 cents at the market bottom.
The Fort Worth, Tex., company already was in trouble heading into the Great Recession, as revenue began to slide in 2005 and losses mounted. Things got worse when housing collapsed. But Pier 1 CEO Alex Smith, who arrived in 2007, saw a way back from the brink: Slash payroll costs, close marginal stores, eliminate debt and refocus on finding one-of-a-kind merchandise. His strategy worked: By 2010, the company was profitable again. The stock rebounded to $5 by the end of 2009 and $10 by the end of 2010. Results have continued to improve: In the nine months that ended November 30, sales were up 9%, to $1.26 billion, from the same period a year earlier, and operating profit rose 7%, to $105.4 million.
But like many retailers, Pier 1 posted disappointing 2013 holiday and post-holiday sales, which the 1,000-store chain blamed partly on wild weather late last year and early this year. As a result of the recent sales shortfall, the stock has declined 24% from its 52-week high. Analyst Joan Storms, of Wedbush Securities, advises buying the shares on this weakness. She thinks Pier 1 is capable of 15% annual earnings growth over the next few years, helped by an aggressive new online-shopping push. A plus is that the company remains nearly debt-free.
Five-year total return: 13,533% (170% annualized)
52-week price range:$6.61-$17.07
Price-earnings ratio: Not meaningful
Market capitalization: $1.4 billion
Much of the huge gain by Keryx (KERX) has come in the past 15 months. The catalyst: optimism about the New York City firm's new drug, Zerenex, a treatment for side effects of chronic kidney disease.
Japanese regulators approved Zerenex in January. The company, founded in 1998, is hoping for U.S. approval in June. Wall Street analysts project that the drug's market launch will push Keryx's revenue to $57 million this year, from $9 million in 2013. Keryx is expected to lose about 25 cents a share in 2014, but that would be about half of last year's loss.
Some investors worry that Keryx hasn't announced a partnering deal with a major U.S. operator of dialysis centers. The fear is that the company may lack the resources to launch Zerenex alone and to go up against competing treatments already on the market. Keryx in January raised $90 million by issuing more stock, but that further diluted the stakes of existing shareholders. The analyst community, however, isn't flinching: Of the ten Wall Street analysts who follow the stock, every one has a "buy" rating on it. One of them is Oppenheimer & Co.’s Boris Peaker. He expects the company to attract a new round of positive attention when detailed Japanese studies of Zerenex are published, possibly soon.
Bottom line: Too much uncertainty for all but the gutsiest speculators.
Five-year total return: 19,213% (189% annualized)
52-week price range:$71.85-$154.89
Price-earnings ratio: Not meaningful
Market capitalization: $10.4 billion
Biotechnology has been one of the hottest sectors for the past two years, and no stock shows that better than Pharmacyclics (PCYC), which takes the crown as the biggest winner of the five-year-old bull market. A $1,000 investment in the Sunnyvale, Cal., company's shares at the market’s bottom in March 2009 is worth a stunning $177,557 today.
The buzz began to build in 2011 for Pharmacyclics's drug Imbruvica, a new treatment for blood cancers such as leukemia. The company that year signed a deal with Johnson & Johnson to develop and market the drug. Last November, the two firms got Food and Drug Administration approval to start selling Imbruvica for a rare blood cancer. In February, the FDA approved the drug for a more common leukemia. Sales have already surged, and analysts on average expect Pharmacyclics's revenues to jump from $260 million in 2013 to $405 million this year and $778 million in 2015. They expect earnings at 8 cents a share this year, then see profits surging to 65 cents a share in 2015.
The real excitement is about broader future uses for Imbruvica in cancer treatment. That's what is driving analysts' extremely bullish outlook for the 23-year-old firm. Robyn Karnauskas, of Deutsche Bank Securities, sees revenues of $4 billion and earnings of $15.66 a share by 2018 and sees the stock at $180 in 12 months. But as the past year has shown, a major challenge for long-term believers in Pharmacyclics is dealing with wild short-term trading in the stock.
Bottom line: Likely to stay a hot stock, but suitable for big risk takers only. How patient can you be?
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