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All Contents © 2018The Kiplinger Washington Editors
By David Landis, Contributing Editor
| August 21, 2018
On March 9, 2009, the Wall Street Journal asked, “Just how low can stocks go?” The same day, an asset manager told CNNMoney.com, “With an absence of good news, the path of least resistance is down.” America was mired in what came to be called the Great Recession, and Standard & Poor’s 500-stock index closed the day down 57% from its 2007 high. Things couldn’t have looked bleaker. Which is precisely when bull markets begin.
The current one becomes the longest bull market on record on August 22, at least dating back to 1932. The S&P 500 has returned a cumulative 410.4% over the run, and plenty of individual stocks have done much better.
To find the best stocks of the bull market, we asked S&P Global Market Intelligence to set its time machine back to March 9, 2009, and give us the best stocks since then in the S&P Composite 1500. The Composite includes components of the large-company S&P 500, the MidCap 400 and the SmallCap 600—covering 90% of the U.S. market.
The winners are a diverse group.
Prices and other data are as of August 10.
Share price: $91
Market value: $4.8 billion
Cumulative total return: 6,393%
ASGN, formerly known as On Assignment, provides professional-level workers for temporary assignments, particularly in the science and technology industries.
The stock was in the dumps during the past recession, as businesses cut back on contract and temporary employees before laying off their full-time workers.
As the economy improved and staffing demand picked up, ASGN bought an information-technology services company called Apex Systems in 2012, doubling its revenues. ASGN has continued to grow by acquisition, purchasing government-services contractor ECS Federal earlier this year.
ASGN’s focus on critical science, technology, engineering and math skills bodes well for its prospects. Analyst Tobey Sommer, of SunTrust Robinson Humphrey, recommends the shares and notes that ASGN is gaining market share in the tech-staffing industry. Earnings are expected to jump 35% in 2018 and 11% in 2019. With the shares up more than 40% this year, this bull-market winner is best bought on dips.
Share price: $346
Market value: $150.6 billion
Cumulative total return: 6,189%
Once known for those little red envelopes holding DVDs delivered to your mailbox, Netflix has successfully transitioned to delivering movies and other video entertainment via streaming internet (though you can still get DVDs by mail).
Netflix has more than 130 million subscribers in more than 190 countries. It also produces its own content, receiving 112 Emmy nominations this year.
The shares are suitable for only the most risk-tolerant investors, however. In July, a disappointing report on the growth of new subscribers cut nearly 20% from the share price—but still left the stock’s price-earnings ratio, based on expected earnings for 2019, at 81.
With a projected $8 billion investment in new programs and other spending, the company expects its free cash flow to be negative by up to $4 billion in 2018. Netflix is banking on expanding its subscriber base; if that engine sputters, the stock could fall further.
Courtesy Ruth’s Hospitality Group
Share price: $33
Market value: $1.0 billion
Cumulative total return: 4,830%
High-end steak houses were pounded in the 2007–09 recession as business clients stopped dining out. Worse yet for Ruth’s Hospitality, owner of the Ruth’s Chris chain, the firm had borrowed heavily to buy a seafood restaurant company. Investors lost their appetite for Ruth’s shares, which fell below $1.
The bull market and economic rebound have been good to companies that cater to wealthy consumers. But Ruth’s has done a lot right on its own. New management changed the menu and improved bar sales. It sold off the seafood chain, paid down debt and focused on its namesake restaurants. Unlike many high-end restaurant companies, Ruth’s has a number of franchisees—more than half of its 150 locations, says Brian M. Vaccaro, an analyst with Raymond James & Associates. That means the parent company can spend less on restaurant renovations and collect cash royalties. Those infusions, combined with a cleaned-up balance sheet, let Ruth’s initiate a dividend and a share-buyback program in 2013. The shares currently yield 1.3%, making the stock a “high-quality, total-return story,” says Vaccaro, who recommends the shares.
Raysonho @ Open Grid Scheduler via Wikimedia
Share price: $31
Market value: $1.5 billion
Cumulative total return: 4,817%
La-Z-Boy, known for its famous recliners, was poorly positioned for the collapse of consumer spending in the financial crisis.
In the years following the recession, La-Z-Boy has managed costs, strengthened its balance sheet and added to sales with acquisitions. Profit margins are at highs the company hasn’t seen since the 1980s. Earnings per share, which were negative in 2009, were $1.82 in the year that ended in April and are expected to hit $2.10 for the year ending April 2019.
Nonetheless, analysts aren’t convinced there’s a catalyst to propel the shares much further for now. Analyst Budd Bugatch, of Raymond James, says that although he’s a fan of the brand and the company’s strong financial condition, there’s “scant evidence” that the company’s attempts to boost online sales will reverse a slowdown in La-Z-Boy’s sales growth. He has a “hold” rating on the shares.
U.S. Air Force photo/Staff Sgt. Samuel King Jr.
Share price: $149
Market value: $12.3 billion
Cumulative total return: 4,804%
United Rentals provides equipment ranging from earth-movers to power tools for customers that include construction companies, utilities and homeowners. In all, United has 4,200 types of equipment for rent at more than 1,000 locations in the U.S. and Canada.
The U.S. construction and industrial markets should remain healthy, allowing United Rentals to increase sales, says analyst Seth Weber, of RBC Capital Markets. In June, United bought BakerCorp, which provides equipment for industrial and construction uses to some 4,800 customers in North America and Europe. Weber says this expanding line of business offers better returns than some of the firm’s other offerings.
Yet United’s shares trade at just eight times estimated 2019 earnings. Weber thinks the shares deserve a higher multiple and could reach $214 over the next year.
Share price: $287
Market value: $14.3 billion
Cumulative total return: 4,505%
In the depths of the financial crisis, WellCare Health Plans shares were down 95% from their 2007 highs. It wasn’t all economic, though: WellCare was navigating a scandal that started with an FBI raid in 2007 and resulted in the conviction of five company executives for Medicaid fraud. The company itself faced civil lawsuits and ultimately entered into an agreement with the U.S. Department of Justice to avoid prosecution. It took years to clean everything up.
Under new management, the focus has returned to providing managed care via programs including Medicare and Medicaid. WellCare surprised analysts with the strength of its second-quarter earnings and raised its outlook for the year. Analysts expect the firm to earn $10.88 a share in 2018, compared with a recent low of $2.06 a share in 2014. The company should continue to prosper thanks to big new Medicaid contracts in Arizona, Florida and Illinois, says Stephen Tanal, of Goldman Sachs. Acquisitions are extending WellCare’s reach and adding to earnings.
Investors should watch for dips. At 23 times expected 2019 earnings, and trading close to Tanal’s price target of $290, the shares largely reflect the improved prospects.
Share price: $86
Market value: $2.1 billion
Cumulative total return: 4,492%
For Lithia Motors, an Oregon-based owner of car dealerships, the recession was a blip in a long-running growth story. From five dealerships in 1996, the year it went public, Lithia has expanded to 188 locations in 18 states. A big growth spurt came in 2014, when Lithia bought DCH Auto Group in one of the biggest dealership mergers in the industry’s history. For the year that ended in June, Lithia’s revenues topped $11 billion.
But the shares hit the brakes this year when profit growth failed to meet analysts’ expectations. The stock’s decline gives investors a chance to buy a good company at a discount, says analyst Glenn Chin, of Buckingham Research. In terms of its potential return for shareholders, Lithia is “best in class,” he says.
Share price: $168
Market value: $2.2 billion
Cumulative total return: 4,322%
Quaker Chemical makes what analyst Laurence Alexander, of Jefferies Corp., calls “industrial staples”—supplies that industrial customers can’t do without. Think lubricants used in steelmaking and compounds used in metalworking.
Quaker withstood the last recession better than investors gave it credit for at the time. Moreover, the firm has increased sales at existing businesses while adding to revenue with a series of acquisitions, Alexander says. The company is truly international, with less than half of 2017 sales coming from North America.
But an aging expansion dampens Quaker’s prospects, says Alexander, because the firm does best in the earlier stages of the economic cycle. Given the multiyear recovery, the stock deserves a “hold” rating rather than a “buy,” he says.
Courtesy Standard Motor Products
Share price: $49
Market value: $1.1 billion
Cumulative total return: 3,932%
Two months before the bull market took off, Standard Motor Products announced it would skip its dividend, a casualty of restructuring costs and debt payments come due. But profits for the seller of replacement auto parts rebounded quickly from the financial crisis as drivers who kept their cars on the road longer needed more parts—a trend that has continued even as the economy has recovered.
The dividend was restored in 2010 and the shares now yield 1.7%. But the company’s second-quarter sales and earnings numbers missed analyst expectations, coming in below the previous year’s levels, and it remains to be seen whether the comeback story is stuck in neutral. CFRA analyst Efraim Levy likes the stock, given the potential for improving profit margins and continued dividend growth.
Share price: $61
Market value: $2.0 billion
Cumulative total return: 3,861%
Investing in pharmaceutical and biosciences stocks is a little like baseball. For every blockbuster drug that’s a home run, you get a lot of strikeouts when companies fail to develop a safe, effective product that makes it to market.
Cambrex aims to better its odds. The company makes ingredients and compounds that other pharmaceutical companies can use in their end products. By having multiple customers with many drugs in progress, Cambrex avoids the risk that one big failure will ruin its prospects. Analyst John Kreger, of William Blair, says Cambrex has benefited from an outsourcing trend in the industry. But trouble at one partner is weighing on Cambrex. Gilead Sciences, whose hepatitis C products face declining demand, accounted for 37% of total revenues in 2017. Growth in other Cambrex product lines remains robust, and after impressive second-quarter earnings, Kreger maintains a “buy” rating on the stock.
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