by Will Ashworth | November 8, 2012 10:30 am
The next four years aren’t going to be easy for President Obama, as he’s dealing with a dysfunctional Congress — something that was present throughout most of his first term, too. Yet despite the difficulties he had in Round 1, the economy slowly began to recover, as did the markets; and there’s no reason to think things can’t improve for Round 2.
That said, some stocks improved less slowly than others. If you glance at Bespoke Investment Group’s list of the top performing stocks since Election Day 2008[1], you’ll see many of the big winners in Obama’s first term were clustered around health care, technology, energy and especially consumer discretionary. The top 10 is littered with names like Whole Foods (NASDAQ:WFM[2]), Wyndham (NYSE:WYN[3]), Chipotle (NYSE:CMG[4]) and Priceline (NASDAQ:PCLN[5]) — the last of which rocketed a whopping 1,000%-plus in four years.
But what stocks will make this list four years down the road? Surprisingly, you might not have to look that far. Three names on Bespoke’s list have at least tripled in the past four years, yet still have the potential to make additional outsized returns by the time Obama finally exits office:
Returns, Election Day ’08-’12: 240%
As recently as 2009, many thought department stores were a thing of the past. Certainly problems at Sears Holdings (NASDAQ:SHLD[6]) and J.C. Penney (NYSE:JCP[7]) haven’t helped the cause. Macy’s (NYSE:M[8]) CEO Terry Lundgren acknowledges that the department store death march is something he has heard since he began working retail in the mid-1970s. Movie theater operators hear the same thing every decade or so.
Neither are going away anytime soon.
Continuity is something that luxury retailer Nordstrom (NYSE:JWN[9]) has in abundance. With the exception of a three-year run starting in 1997 — when long-time employee John Whitacre took the reins — a Nordstrom has always been chief executive. Financially, JWN has increased earnings in eight of the past 10 years at a compound annual growth rate of 21.2%. Not surprisingly, its share price has compounded at an annualized rate of 19.6% over the same period. Nordstrom ably demonstrates that share prices follow earnings.
Three things will keep Nordstrom moving higher: Canadian expansion[10], online revenue growth and its Rack off-price stores. Throw in the June announcement that it is finally opening a full-line store in Manhattan in 2018[11], and you have one of the most interesting stories in retail.
Returns, Election Day ’08-’12: 245%
The past three months have been anything but friendly for Monster Beverage (NASDAQ:MNST[12]), the leading marketer of energy drinks whose products have come under attack from politicians in Washington and elsewhere over deaths associated to excessive caffeine in its 24-ounce cans[13].
The family of a Maryland teenager is suing Monster for wrongful death due to caffeine toxicity. While sad, evidence suggests that a venti-size cup of coffee[14] at Starbucks (NASDAQ:SBUX[15]) has more caffeine than the two 24-ounce cans consumed by the teenager over a 24-hour period. Whatever needs to get settled between the family, the company and the FDA will all happen in due course.
Any restrictions the FDA places on Monster’s drinks will likely apply across the board to all manufacturers of energy drinks, keeping the playing field level while protecting innocent children from harming themselves. Unless the FDA completely bans the sale of energy drinks — which is unlikely given children also consume significant amounts of coffee — it’s more probable that the cans will have very stringent labeling.
Monster has a tough row to hoe, as third-quarter results sparked a selloff that sent shares to 52-week lows. Ultimately, though, MNST will continue to grow at a reasonable pace until Coca-Cola (NYSE:KO[16]), which distributes Monster, gets tired of being second-best.
Returns, Election Day ’08-’12: 326%
Like most homebuilders, Lennar (NYSE:LEN[17]) had a tough time coping with the housing market collapse. Its revenues dropped from $16.3 billion in 2006 to a low of $3.1 billion in 2010, resulting in $3.5 billion in operating losses between 2007 and 2009. Since hitting a low of $5.54 on Feb. 20, 2009, it has rebounded nicely (just like the markets in general), delivering an impressive 604% in just 45 months.
I don’t think Lennar has another big move like that in it, but I do believe a return to a healthy housing market will result in significant gains beyond those already captured.
Realistically speaking, LEN stock has risen above $40 just once in its history, and that was in early 2005 at the height of the housing bubble. It will need to produce at least $1 billion in operating profits before I could see it testing $70. That’s probably not enough to be the best-performing stock during the next four years, but it might put it in contention if John Bogle’s 7.5% annual growth estimate for stocks[18] over the next decade is anywhere near accurate.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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