10 Stocks that Surged Since the Market Bottomed in 2009
On the third anniversary of the market's nadir, we look at the rags-to-riches companies whose shares have gained the most.
Three years ago -- March 9, to be exact -- investors finally gave up the ghost.
Collapsing real estate values, a sweeping financial crisis, and massive waves of bankruptcies and foreclosures, topped off by a rapidly rising unemployment rate, gave rise to a pervasive sense of doom.
Certain that things would only get worse, people and institutions alike sold stocks in bunches, pushing Standard & Poor's 500s-stock index, a widely diversified group of big-company stocks, to 676.53, less than half of its value just two years before. Indebted companies that relied on consumers' free-spending ways and easy credit were particularly hard hit. A bunch of retailers, mattress makers, casino operators and car rental firms were on the verge of collapse.
Although the economic recovery has been slow since 2009, the credit crunch has eased. Consumers are spending again, if carefully. Jobs are coming back. And, as brave or patient investors know, the S&P 500 has more than doubled in price from its bottom. And rags-to-riches comebacks by formerly sick businesses are legion. When we searched for the ten U.S. companies whose shares performed the best for the past three years, we found many of the same kinds of businesses that investors left for dead in the Great Recession, according to an analysis by Morningstar. The intrepid investors who kept their money in the shares when so many others bailed have been extremely well rewarded for their faith, reaping between 2,700% and 12,000%. Here are the companies and their stories (the list excludes companies that didn't have at least $50 million in market capitalization in 2009):
Select Comfort (symbol SCSS), makers of the Sleep Number bed, soared nearly 12,000% from three years ago. What does 12,000% mean in real numbers, you may be wondering? It means zooming from 25 cents to $30. That's right, on March 9, 2009, these shares sold for just 25 cents each because the company was massively indebted. Conditions to renegotiate or roll over debt were desperate, threatening the existence of this business and many others. Select Comfort found a way ahead, and it has since dramatically increased the popularity of its brand, persuading Americans to pay a premium price for its product. Select is now debt-free and rapidly building cash on its balance sheet. With boosts in sales and productivity, analyst Joan Storms at Wedbush Securities has a $36 target on the stock, up 16% from the current $31.01 (share prices are as of the March 8 close).
Pier 1 Imports (PIR) has a similar story, Storms adds. Selling for 11 cents a share three years ago, the chain was deep in debt and losing money hand over fist. The problem: an ill-timed decision to sell much more expensive furniture and other big-ticket merchandise. CEO Alex Smith opted for a massive restructuring, which brought the company back to its roots by offering a wider range of stuff at more-reasonable prices. The company went from a $129 million loss in the fiscal year that ended February 28, 2009, to a $100 million profit two years later. That propelled the stock from 11 cents -- it may as well have been zero, having fallen from more than $25 -- to $17.20. That's an increase of more than 11,000% from the March 9 nadir. Analyst Storms believes the stock could sell for $19.50 within the next year.
Two car rental companies are in the top ten. Dollar Thrifty Automotive Group (DTG) ranks third with a 10,911% return, while Avis Budget Group (CAR) ranks eigth with a 3,453% gain. Both suffered in the recession for two reasons, says Avondale Partners analyst Fred Lowrance. The first issue was financing. Car rental companies finance their wheels by selling asset-backed securities into the financial markets. The banking crisis took away this source of credit, leaving rental companies facing the dire possibility of being unable to buy new cars to refresh their fleets. If that's not a slow death, nothing is.
Worse, both of these rental companies offered primarily Chrysler and General Motors vehicles, and both of those makers were in danger of failure. Since GM and Chrysler might not be around to back their warranties or produce parts for potentially aging rental fleets, things got worse still for Dollar and Avis. Both briefly became penny stocks (meaning they sold for less than a buck) - until the capital markets recovered and it became clearer that the U.S. car manufacturers would survive. Dollar shares have also benefited from a takeover bid announced two years ago by Hertz. The deal hasn't closed, but takeover talk has buoyed the stock. Lowrance thinks Dollar is close to fairly valued at $78.73, but he thinks Avis could reach $20 from the current $13.59.
Two oil and gas companies also made the grade. Plays on the shale boom, Kodiak Oil & Gas (KOG) and Atlas Energy (ATLS) both revived by drilling for oil -- Kodiak in North Dakota and Atlas in Pennsylvania, says Michael Scialla, managing director at Stifel Nicolaus & Co. That doesn't make them unusual, but it does explain their shares' enormous recovery. Kodiak was pushed to the brink during the credit crisis, mainly because it had decided to drill on Indian reservation lands and the permit process was stalled. It paid off big when they hit oil, however. Kodiak shares have gone from 18 cents to $9.56. The story at Atlas Energy was similar, but the company sold a good portion of its business to Chevron in 2011. However, both companies are now selling for premium prices (Atlas at $27.74) and both lost money in the fourth quarter of 2011.
Las Vegas Sands (LVS) was also in deep trouble when the financial crisis struck. Heavily indebted as it developed massive resorts in Asia, the projects stalled when the financial markets froze, sending the company's share price tumbling from $145 in 2007 to just below $2. But it helps to be owned by a billionaire. Sheldon Adelson, one of the richest men in the world and the financial backer of Newt Gingrich's quest for the Republican presidential nomination, owns the majority of the stock. When he committed more of his own cash, banks agreed to extend the resorts' financing. Marina Bay Sands opened in Singapore two years later. Now Las Vegas Sands operates casino resorts in Macao, Singapore and, of course, Las Vegas. Thanks to its Asian earnings, the company is expected to grow at a double-digit rate for the next several years, which makes its current stock price of $55.29 a bargain. "The price reflects the strength of these markets and the potential prospects for these and future projects," says Amit Kapoor, research analyst with Gabelli & Co. Kapoor thinks it could trade for $65 within a year.
Two auto parts manufacturers on the list, Tenneco (TEN) and TRW Automotive Holdings (TRW), were slammed for much the same reasons as the rental companies. Both supply GM and Chrysler, and that stream of income looked tenuous. Both also had plenty of debt. Tenneco, which makes exhaust equipment for smog abatement, got into the heavy truck market, which provided more stability. TRW looked overseas to sell its safety equipment -- everything from seat belts to air bags to rearview-mirror cameras, says Richard Hilgert, analyst with Morningstar. Hilgert thinks TRW, currently $44.42, could sell for $65 in a year; he puts a $42 price target on Tenneco, which is presently at $37.30. Three years ago, both stocks were below $2.
Pharmacyclics (PCYC), which ranked ninth in price appreciation over the three-year period, is a different story than the others here. Most of this stock's big gain has been in the last year rather than starting at the commencement of the three-year market revival. It's still rated a "buy" at Wedbush Securities, though, at $25.61, it has hit the analysts' price target of $25. This biotech company develops small-molecule drugs for cancer treatments. Its medicines are part of a groundbreaking series of new treatments that aim to help your body's immune system fight dread diseases, rather than treating the diseases with poisons, says Stephen Brozak, president of WBB Securities. This kind of an investment is always risky because it takes much research and capital to make it through the gauntlet of testing and regulatory approvals required to get a drug to market.
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