Back in December, InvestorPlace launched a feature in called 10 Best Stocks for 2012, in which experts picked a buy-and-hold investment they thought would deliver market-beating returns over the next 12 months.
The first quarter set the bar pretty high — eight of the picks ended in the black, half trumping the the S&P’s 500 best performance since 1998 — so it was expected that Q2 would slow down a bit.
And it did. Only one company saw stock gains for the quarter.
Still, the group mostly managed to tough out the quarter, and seven of the 10 stocks have made it through half of 2012 in the black year-to-date. Five of those picks have topped the Dow’s 5%-plus returns, and four are up in double digits, surpassing the S&P 500’s 8% returns.
With that in mind, let’s take a look at how these 10 stocks have held up now that we’ve halfway home. Here’s a recap of InvestorPlace‘s 10 Best Stocks for 2012:
No. 10: Arcos Dorados
Q2 Return: -18%
YTD Return: -28%
Investor: Josh Brown
¡Ay, caramba! Arcos Dorados (NYSE:ARCO) is the largest McDonald’s (NYSE:MCD) franchisee in the world, operating primarily in Latin America. It translates, unsurprisingly, to “Golden Arches,” but the stock has been far from golden this year.
Josh Brown still stands by the four key themes he mentioned in his ARCO stock recommendation: expanding consumer spending in Latin America; the ferocity of McDonald’s as a global brand; growth within a defensive sector; and the comeback potential for emerging-market equities in 2012.
What he didn’t foresee, though, was the fact that ARCO’s management is unable to communicate with shareholders and control expectations, so doubt for the company — which has only been public for a short time — was quick to grow when earnings reports weren’t up to par.
Arcos Dorados’s first-quarter earnings dropped 28% to just 12 cents per share — 6 cents less than analysts expected. That killed the stock and overshadowed the company’s 11.5% year-over-year (or 16.6% on a constant currency basis) increase in revenues.
Part of a reason for the recent struggles, though, is the fact the company has been forced to increase spending on restaurant openings until 2013 as part of its master franchise agreement with McDonald’s. Things could turn around at the end of that period, but for now, ARCO is the worst pick at nearly 30% YTD losses.
No. 9: Banco Santander
Q2 Return: -14%
YTD Return: -13%
Investor: Jim Jubak
Banking on Spain didn’t turn out to be such a good idea, either.
And sure, it didn’t need a bailout … but a lot of banks in Spain did. In general, the fear that a country’s financial system is on the verge of collapse tends to make investors feel a little uneasy. Jim Jubak himself added a disclaimer about sovereign debt in his original bullish call for the stock. And the company’s first-quarter earnings also took a 24% dive to about 1.6 billion euros.
All those headwinds helped to erase the company’s double-digit gains in the first few months of 2012.
Recently, Banco Santander was one of numerous Spanish banks to have its credit downgraded by Moody’s, as STD was lowered two notches. On the bright side, its negative outlook still got higher ratings than many other Spanish financial institutions … which is less bad, if nothing else.
No. 8: Caterpillar
Q2 Return: -20%
YTD Return: -6%
Investor: Dan Burrows
Caterpillar (NYSE:CAT) cruised through the first quarter, coming in at No. 4 on the list after almost 18% gains for the period.
The past few months haven’t been as kind — at least to the stock.
The world’s largest maker of construction and mining equipment was thought to have fears of a global economic slowdown more than baked into its cheap share price, but important emerging markets — China in particular — slowed down too quickly and lower exports to recession-plagued Europe also took a toll. All that has led to a 20% second-quarter return that has dragged CAT shares 6% into the red year-to-date.
Still, there’s reasons for optimism.
Global slowdown and the selloff that came with it didn’t stop CAT from logging record earnings and having a record order backlog in the first quarter. The company also threw a bone to long-term shareholders, hiking its dividend 13%.
And while China really hurt the company in Q2, the country’s new stimulus program could help it get back on track for the rest of the year.
No. 7: Alcoa
Q2 Return: -13%
YTD Return: +1%
Investor: Jeff Reeves
InvestorPlace Editor Jeff Reeves’ pick Alcoa (NYSE:AA) outpaced the S&P 500 with 18% returns year-to-date in the first quarter — but it has been downhill from there.
Jeff threw out an early “I told you so” as his prized pick posted strong earnings on Jan. 9, making nine straight quarters of year-over-year revenue growth and an increase in YOY profit in eight of the previous 10 quarters. Alcoa then had more good earnings news for its 2012 first quarter, announcing it made 9 cents per share against expectations for a 3-cent loss.
However, the usual woes — you know, the economy, Europe, China’s slowdown, weak demand for materials — have taken their toll on Alcoa come Q2, as they did on many others.
When Jeff originally picked Alcoa, it was because aluminum prices had no where to go but up — and he still says that is again the case now that AA once again has taken a beating.
For now, though, Alcoa’s dwindled dynamic start leaves it slightly up for the year, but still near the back of the pack.
Disclosure: Jeff Reeves owns a personal position in Alcoa stock.
No. 6: MAKO Surgical
Q2 Return: -39%
YTD Return: +1.5%
Investor: David Gardner
You know what they say: What goes up must come down.
Little-known MAKO Surgical (NASDAQ:MAKO) sat atop the Best Stocks for 2012 list at the end of the first quarter, but absolutely crashed and burned in Q2. Sure, it’s still slightly up for the year, but a nearly 40% drop in returns during the past three months has almost entirely taken the wind out of its sails.
MAKO is a small-cap, niche medical company banking on a narrow product line — a pretty volatile play. Picked on the theory that baby boomers will need increased medical care as they age and a belief in its MAKOplasty procedures, it looked genius at first — until early May rolled around.
A quarterly loss of about $10 million sent investors fleeing, dropping it to around half its price overnight and have hovered at those levels since.
The selloff might have been overdone, though, and MAKO could now be bargain buy — if you’re willing to take the risk and be patient.
No. 5: Turkcell
Q2 Return: Flat
YTD Return: +7%
Investor: Charles Sizemore
Charles Sizemore, editor of the Sizemore Investment Letter, gained a spot since the first quarter as his Best Stock for 2012 — Turkish telecom company Turkcell (NYSE:TKC) — survived Q2 to remain solidly in the black.
The company’s Q4 report saw Turkcell’s earnings drop 33% due to a currency crisis in Belarus, where the company has significant assets. In Q1, however, Turkcell got back on track and enjoyed year-over-year revenue growth of 12.3% and profit growth of 56%.
The company also has been in the midst of an ongoing board of directors power struggle, missing its dividend payout and a special shareholder meeting scheduled for June. However, a settling of the dispute probably would result in a return to the dividend — which Charles believes could boost the stock and possibly give TKC the momentum needed to climb a little closer to the top of the list.
The drama has been a distraction for the company and has impaired its long-term planning, but Turkcell keeps chugging along.
No. 4: FedEx
Q2 Return: Flat
YTD Return: +10%
Investor: Paul R. La Monica
FedEx is a fundamentally strong, low-risk stock. And while it’s flat for the quarter after posting a poor forecast for the dog days of summer, FedEx stock still is going strong.
Last quarter wasn’t all bad, as adjusted earnings were up 14% and EPS of $1.99 beat analyst expectations. Competitor UPS (NYSE:UPS) also acquired European carrier TNT Express, but that could actually help FedEx by giving the entire industry a boost and letting the company raise prices.
FedEx might not be booming, but it’s putting in a solid effort with a slow-and-steady effort — just like Paul expected.
No. 3: Hershey
Q2 Return: +17.5%
YTD Return: +16.5%
Investor: Jon Markman
And halfway through the year, the bronze medalist is none other than dessert darling Hershey (NYSE:HSY). After being near the bottom and in the red after a volatile Q1, the company is looking delicious — and not just for its Kit Kat bars.
With first-quarter earnings crushing analyst expectations and coming in 32% higher than last year’s figures, investors have been all over the stock, and Jon Markman’s early-year confidence about the company’s prospects is making a lot of sense. In fact, Hershey is the only company boasting positive returns in Q2.
The company remains the leader in the North American chocolate market with 43% of sales and has its hand in more than just the candy jar — the company’s food service division products include co-branded products like Dairy Queen Blizzard desserts, Rich’s cookie dough made with Reese’s peanut butter and Betty Crocker Ultimate Fudge brownies made with Hershey’s fudge, on top of the many popular brands usually associated with the company.
HSY shares reached a new all-time high last month, despite weakness elsewhere in the markets, and has been trading at around 19 times next year’s earnings expectations. At this rate, Hershey could be headed for this contest’s crown by year’s end.
No. 2: Microsoft
Q2 Return: -5%
YTD Return: +18%
Investor: James Altucher
James Altucher’s pick of Microsoft (NASDAQ:MSFT), which he’s riding for a second straight year, hasn’t let him down.
In the first quarter, it was the third-best-performing Dow Jones stock and still is near the top. MSFT slowed after reaching a 52-week high, but it still boasts high double-digit returns that nearly double the S&P’s.
Plus, its valuation — one of James’ original reasons for liking Microsoft — remains low, at around 11 times earnings, the company sits on piles of cash, and a 2.6% dividend remains attractive to investors.
And, on top of its many products — Windows, Office, the Xbox video game console and servers — Microsoft now is taking on Apple‘s (NASDAQ:AAPL) iPad with its very own tablet, the Surface. It could be a game-changer for Microsoft, which has yet to successfully navigate the tablet business, and it’s looking promising early on.
Microsoft isn’t completely in the clear, though. While revenues and operating income were up strongly in the most recent quarter, net income actually declined to $5.1 billion, and Entertainment & Devices continued to struggle. But for now, it’s our second-best performer through the first half of the year.
No. 1: Capital One
Q2 Return: -2%
YTD Return: +30%
Investor: Philip van Doorn
Philip Van Doorn’s pick — financial stock Capital One (NYSE:COF) — takes over the top spot after six months of trading.
What’s the trick? Well, to start, TheStreet.com contributor Philip van Doorn was right when he said not only that financials weren’t looking all that bad, but that smaller banks like Capital One were ready to soar. Financials indeed were the top-performing sector in Q1 2012 and Capital One notched 32% gains in the quarter.
The company then was busy with acquisitions in the second quarter, buying ING Group‘s (NYSE:ING) ING Direct for roughly $9 billion and HSBC‘s (NYSE:HBC) roughly $30 billion U.S. credit card portfolio for a premium of $2.6 billion. The expected mess because of those moves sent shares spiraling in June, but they picked up to give COF shares a slight loss for the quarter and maintain a 30% gain year-to-date.
Plus, the acquisitions should raise the company’s earnings bar in the future, so don’t be surprised if Capital One remains No. 1 for the rest of the year.