by Will Ashworth | March 8, 2012 11:42 am
The quarter pole is just around the corner. In slightly more than three weeks, we will have mowed through a quarter of 2012′s trading. As of March 6, the S&P 500′s total return is a respectable 7.24%.
However, when compared with these five meteoric stocks, those returns are downright embarrassing. That’s O.K. — by the time we ring in the New Year, some, if not all, of these stocks will have crashed and burned.
No stock is hotter than Ed Lampert’s science experiment. Up 139% YTD, you’d think Lampert and his minions had figured out a cure for cancer. No such luck. Instead, the hedge fund manager has slowly begun the process of slicing and dicing the once-proud retailer. On March 2, Sears Canada announced it is selling the leases to its downtown stores in Vancouver, Calgary and Ottawa back to landlord Cadillac Fairview for $170 million.
CEO Calvin McDonald put on a brave face, suggesting SHLD will use the funds to refurbish and reformat its stores, making it more attractive to Canadians. If you believe that, I have some swampland to sell you in Florida. As Target (NYSE:TGT) moves closer to its big splash into Canada in 2013, the sale of stores and leases is only going to accelerate on both sides of the border.
Lampert has no business running a retail fashion operation. God help the Gap (NYSE:GPS) if Lampert were ever able to get a hold of the Fishers’ baby. They may have problems, but Lampert would surely multiply them with his real estate hocus-pocus. At this point, if you’ve made money on Sears, get out while you still can.
The luxury lifestyle brand famous for its handbags hit the ground running Dec. 15, when the stock closed its first day as a public company up 21%, to $24.20. In the 11 weeks since, the stock has gained an additional 90.5%, closing March 7 at $46.10.
A double in less than three months, KORS holds the wonderful distinction of being the best-performing U.S. IPO in the last year.
How hot is Michael Kors? Sometime between Feb. 9 and its December IPO, Karen Finerman, a CNBC Fast Money contributor, had this to say about the retailer: “I’m a buyer. Yes, it’s expensive on current earnings, but this is a growth story. I’m looking for the stock to trade up to the mid- to high $20s.”
That boat has obviously sailed. If it was expensive in the high $20s, at twice that amount, it’s astronomically so now. You can bet on an earnings miss in the next few quarters to bring this fashion favorite back to earth.
This is the last of my retail call-outs. Fossil, known for its fashion accessories and watches, is up 54.6% year-to-date as of March 7. Among mid-caps or larger, Fossil is in exclusive company: Only 16 stocks have achieved a total return YTD of 50% or more.
Fossil has come a long way since losing 60% of its value in 2008. In February 2009, it was trading as low as $11. Total return in the three years since? A whopping 983%.
A $10,000 investment in 2008 would be worth $112,000 today. Ever heard the expressions “what goes up, must come down” or “reversion to the mean?” Investors are currently willing to pay almost seven times book value for Fossil stock. Compared to some of its peers, FOSL might not seem expensive — until you look at Tiffany (NYSE:TIF), which can be had for less than four times book. Fossil has had a good run, but it’s time to take a breather.
I had never heard of Terex until I walked by a piece of machinery doing some work in my neighborhood. Curious about the brand, I went to its website. There was the road paver I’d seen only minutes earlier.
Terex seems like a good little company, and its stock’s on a tear in 2012, up 67% as of March 7. What could be driving such momentum? Construction spending.
Caterpillar (NYSE:CAT), Manitowoc (NYSE:MTW) and Deere (NYSE:DE) all had strong fourth quarters. Investors are speculating that Terex’s strong position in North American construction gear could do wonders for its bottom line should the economy continue to improve.
That might be true. However, Terex generated just $745 million in operating profits in the last five on $30.3 billion in revenue. That’s a meager 2.5% margin.
If you’ve got a time horizon of three to five years, I’d probably gamble on the upside potential. However, if you bought at the turn on the year and are sitting on a good profit, you better punch your ticket because if construction doesn’t pick up soon enough, Terex is going to head back down below $15, where it started the year.
I’ve saved the best for last. Last August I recommended that investors avoid buying the stock of this Internet radio site with more than 90 million registered users. Its business model simply made no sense.
Heading into trading March 7, Pandora stock was up 32.4% year-to-date. Unfortunately, prior to the market opening, Pandora announced that it had lost $8.2 million on revenue of $81.3 million.
Some analysts believe Pandora’s increasing market share bodes well for the future. I disagree. I believe it will never be able to make money no matter the number of listeners it acquires because it won’t be able to sell enough advertising. Even if it does, the cost of content will do it in. Investors apparently agree. The stock dropped 24% Wednesday on the news.
The bottom line: Always be careful when holding stocks that are reaching meteoric highs. If something seems too good to be true, it probably is.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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