Can 2012′s Best Stocks Repeat in 2013?

by Dan Burrows | December 18, 2012 11:04 am

Can 2012′s Best Stocks Repeat in 2013?

Anyone who said a year ago that a homebuilder and a major appliance maker would more than double in 2012 and lead all stocks in the S&P 500 would have been a candidate for a straightjacket.

But what looks to be a definitive upturn in the housing market helped PulteGroup (NYSE:PHM[1]) nearly triple this year, gaining 186% through Dec. 17, while long-suffering Whirlpool (NYSE:WHR[2]) is up 114%.

That’s how it goes pretty much every year with the breakout stars of the stock market. The biggest winners look a like a bolt from the blue and — importantly — were usually deeply unloved to begin with.

That’s why this year’s market darlings are unlikely to enjoy a repeat performance in 2013. Sure, they could still have plenty of upside left, but the crazy outsized gains have probably been made.

Remember that when it comes to stocks, the higher they fly, the harder they fall — look at Apple (NASDAQ:AAPL[3]), for example — and the farther they fall, the more room they have to soar.

PulteGroup looks like a no-brainer now, but it took incredible guts, foresight and luck to buy this stock last year. In 2011, it lost more than 50% of its value through October, dropping well below $4 a share, before going on its incredible run.

Whirlpool was likewise a huge dud last year. For the year-to-date through December 19, 2011, it dropped nearly 50%. Only those brave souls who bought at the point of maximum pessimism — and held fast through a serious spring swoon — reaped the fruits of the ensuing 123% rally.

Also militating against another year of triple-digit returns for these names is the law of large numbers. It’s much easier to triple your market cap to $7 billion from $2.4 billion, as PulteGroup did. It will be much, much harder to go to $21 billion from $7 billion in a single year.

Another way a lowly stock can boom is to get an acquisition offer at a big, juicy premium.

Perennial also-ran telecom Sprint Nextel (NYSE:S[4]) was the second-best performing stock in the S&P 500 this year, gaining 138% through Dec. 17. But there’s no way we’ll see that kind of performance again in 2013, because so much of it was driven by Sprint’s pending $20 billion acquisition by Japan’s Softbank (PINK:SFTBY[5]).

Top stocks are often driven by takeouts — too bad they’re so hard to predict.

The nation’s big banks also had an impressive 2012, and as we noted recently, the outlook for next year looks bright[6], too. But it’s still hard to see how Bank of America (NYSE:BAC[7]) could have a second consecutive year where shares nearly double.

The stock is up 98% for the year-to-date through Dec. 17. But that was after losing almost 60% last year — another example of “the harder they fall.”

The darlings of 2012 may very well have another good run in 2013, but they almost certainly won’t be among the leaders of next year’s pack. That distinction will belong to companies the market appears to have all but given up on now. 

Yes, even an apparent dumpster fire like Hewlett-Packard (NYSE:HPQ[8]) could be a triple-digit gainer by this time in 2013.

As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.

Endnotes:
  1. PHM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHM
  2. WHR: http://studio-5.financialcontent.com/investplace/quote?Symbol=WHR
  3. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  4. S: http://studio-5.financialcontent.com/investplace/quote?Symbol=S
  5. SFTBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SFTBY
  6. the outlook for next year looks bright: http://investorplace.com/2012/12/goldman-buy-large-cap-u-s-banks-for-2013/
  7. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  8. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ

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