Halftime for the S&P 500 — 3 Best and Worst Stocks

by Marc Bastow | June 26, 2013 11:53 am

By any measure, it’s been quite a ride for the S&P 500 during the first half of 2013. The index, which started out on Jan. 2 at 1426.19, rose through the first quarter and continued upward, peaking at a record close of 1669.16 — a 17% gain from the start of the year — on May 21. Indeed, the index managed to find an intraday record high of 1687.18 the very next trading day.

QuarterlyReviewOutlook185 Halftime for the S&P 500    3 Best and Worst Stocks[1]A combination of improvements throughout the economy, especially in the housing markets, a lenient (to say the least) fiscal policy spearheaded by Federal Reserve Chairman Ben Bernanke, and an improving unemployment and jobs picture helped ease the way toward ever-higher market gains…

…until the bottom fell out in early June. Blame China and its disappointing growth, or Bernanke for scaring off investors with talk of “tapering,” or blame plain old profit-taking, but the S&P 500 fell 67 points from the beginning of June, slicing nearly 5% off the top.

Of course, that’s the bad news. The good news is the index is still ahead 10% for the year so far, making it a winner in most people’s book. It’s been a pretty nice run for the index, and for some notable companies that have also seen some spectacular — and perhaps unexpected — gains. There’s a flip side to the gains of course, and we’ll get to them, too.

So without further ado, here’s a look back at the three best and three worst performances for the first half of 2013 , with a few honorable mentions to boot:

Honorable Mention for Best Performer: Hewlett-Packard

HPQ1 Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: +70%

The surprising and perhaps confounding rise of Hewlett-Packard (HPQ[2]) continued into the first quarter, as Meg Whitman continues to steer the ship well clear of the rocks and into calmer water. The company continues its transition to an IBM (IBM[3]) -like services model, all while pumping out a small but consistent dividend that yields around 2.50%. I still don’t get it, but I have to hand it to HPQ — well done.

No. 3 Best Performer: Micron Technology

MicronTechnologyLogo Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: +117%

Caught you by a bit a surprise, no? But semiconductor manufacturer and marketer Micron Technology (MU[4]) caught the wave of demand for the mobile world, particularly phones and tablets, and rode it to a spectacular first half of 2013.

Demand for its DRAM and NAND Flash products powered a financial turnaround, as its sales growth soared, gross margins improved after a focus on operational efficiency at its factories, and MU turned a solid profit for its just-ended (May 31) quarter after a solid second quarter (Feb. 28) that surprised analysts.

That turnaround sent analysts scrambling: Sanford Bernstein reiterated an “outperform” rating on the shares, while Piper Jaffray, Roth Capital, RBC and Nomura all  lifted their target prices on the stock over the first half, helping to power the rally.

The future looks bright, too: MU’s purchase of Japan-based[5] Elpida (ELPDF[6]) recently cleared the last antitrust hurdles, and Elpida holds a contract to supply Apple’s (AAPL[7]) iPad and iPhone memory chips.

No. 2 Best Performer: Best Buy

BestBuyLogo e1297955683480 Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: +128%

Along with Hewlett-Packard, Best Buy (BBY[8]) just might be the turnaround story of the year. What was once left for dead has risen like the Phoenix, built on a new business model run by new management.

Hubert Joly was brought in on the heels of BBY’s buyout and management fiascos[9], led by its founder Richard Schulze. Schultze is now basically out of the picture, the company will remain public, and Joly has turned it around with some shrewd moves: first and foremost he changed personnel in the C-suite from stodgy bricks-and-mortar operatives to e-commerce heavyweights, starting with Williams-Somona’s (WSM[10]) Sharon McCollum.

The move jump-started BBY’s move into a bigger online retailing footprint while paving the way to close down older, larger stores and open new, smaller mall-based Best Buy mobile locations. The strategy’s a hit, and BBY just announced a new venture[11] with Microsoft (MSFT[12]) to open store-within-a-store concepts to help sell Windows products. It’s all working for BBY, and the future appears bright[13].

No. 1 Best Performer: Netflix

Netflix Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: +130%

Talk about hitting it out of the park – Netflix (NFLX[14]) hasn’t made a misstep the entire year. Consider its growth: revenue hit the $1 billion mark last quarter,while membership grew to 36 million.  Net profits came in at nearly $3 million, and investors cheered at the results[15].

That’s just the tip of the iceberg: During the first half Netflix announced original content programming like its popular House of Cards, and Hemlock Grove, and resurrected the canceled series Arrested Development to help drive traffic.

The blockbuster move, though, was its deal[16] with Dreamworks (DWA[17]) to produce new programming and create original shows based on DWA properties like Shrek, Kung Fu Panda and Madagascar. The deal includes more than 300 hours of original programming starting in 2014, and helped move the stock price over 4% on the announcement, helping to power the stock to its exalted No. 1 spot on the S&P 500 so far this year.

Is there any reason to see a downturn? Probably not — Jeff Reeves explains why here[18].

Honorable Mention for Worst Performer: Apple

AppleLogo Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: -25%

It is hard work trying to find the whys and wherefores[19] of Apple’s (AAPL[7]) stunning fall from grace. Consider that by Jan. 1 it had already dropped 25% from its September 2012 $705 high, and it’s ground ever lower since, currently residing right around $400.

Falling demand for all things “i” certainly isn’t helping, and the competition for your mobile device purchasing dollar is as intense as ever, perhaps scaring away investors.  And of course Apple is one of those stocks people just love to hate.

Did anyone even notice the 15% rise in Apple’s dividend, the historic scale of their share repurchase program, or its bond offering[20]? Judging by its stock performance, nope.

If anyone can predict where this stock will go for the remainder of 2013, please let me know.

No. 3 Worst Performer: Newmont Mining

NewmontTheGoldCompanyLogo Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: -37%

The Colorado-based coal producer Newmont Mining (NEM[21]) started the month on June with an announcement it would lay off 33% of its workforce within 90 days. That was the high point for the company, as prior to that announcement both Cowan and UBS (UBS[22]) downgraded the stock.

Gold stocks are following prices of the precious metal downward, pressuring the entire sector (the SPDR Gold Trust ETF (GLD[23]) is down nearly 25% for the first half), and Newmont is just another player caught in the downdraft. It certainly doesn’t look any better heading into the second half either, as gold continues to languish.

No. 2 Worst Performer: Peabody Energy

PeabodyEnergyRAIfinal Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: -43%

If there were any worse place to be in the first half than precious metals, it was in the coal space. Consider Peabody Energy (BTU[24]), which operates 28 coal mining operations in the United States and Australia. The company is caught in the world of lower natural gas prices and diminishing demand for coal — while prices for coal exports are under pressure and dropping. The bottom line for Peabody is it came into 2013 on the losing end of a dismal fiscal 2012 ($585 million loss), and first- and second-quarter 2013 numbers don’t portend any change.

No. 1 Worst Performer: Cliffs Natural Resources

cliffs Halftime for the S&P 500    3 Best and Worst StocksFirst-Half Return: -58%

What happens when your company is an iron ore and metallurgical coal producer? You get Cliffs Natural Resources (CLF[25]), which managed to finish the first half of 2013 with the worst stock performance in the S&P 500.

And really, how could it not?

Bad enough the company is wedded to the coal industry and its myriad problems, but iron ore prices are falling as well. Indeed, CLF indicated that if the price continues to drop, it will table expansion plans at its critical Bloom Lake (Canada) production facility. But the proverbial nail in the stock-price coffin was its 76% reduction in its dividend in February.

Nothing good happened to CLF in the first half, and its hard to see light at the end of this tunnel.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL and MSFT.

Endnotes:
  1. [Image]: http://investorplace.com/hot-topics/quarterly-review-outlook/
  2. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  3. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  4. MU: http://studio-5.financialcontent.com/investplace/quote?Symbol=MU
  5. purchase of Japan-based: http://www.fool.com/investing/general/2012/05/08/micron-joins-the-big-leagues.aspx
  6. ELPDF: http://studio-5.financialcontent.com/investplace/quote?Symbol=ELPDF
  7. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  8. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  9. buyout and management fiascos: http://investorplace.com/2012/10/best-buy-is-still-struggling-amid-the-icebergs-bby-msft-aapl-goog-cs/
  10. WSM: http://studio-5.financialcontent.com/investplace/quote?Symbol=WSM
  11. just announced a new venture: http://investorplace.com/2013/06/microsoft-expands-into-best-buy-stores-within-a-store-msft-aapl-ssnlf-bby/
  12. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  13. future appears bright: http://investorplace.com/2013/05/3-dead-stocks-still-walking-gmcr-bby-hpq-amzn-tgt-wmt/3/
  14. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  15. investors cheered at the results: http://investorplace.com/2013/05/netflix-survives-at-the-pleasure-of-the-studios/
  16. its deal: http://investorplace.com/2013/06/netflix-scores-original-shows-from-dreamworks-animation/
  17. DWA: http://studio-5.financialcontent.com/investplace/quote?Symbol=DWA
  18. explains why here: http://slant.investorplace.com/2013/06/netflix-rating-cut-should-you-sell-nflx/
  19. whys and wherefores: http://investorplace.com/2013/06/the-rational-reason-apple-stock-is-a-buy/
  20. bond offering: http://investorplace.com/2013/04/ibond-offering-will-bring-investors-i-promise-msft-aapl-wmt-brk-a-brk-b/
  21. NEM: http://studio-5.financialcontent.com/investplace/quote?Symbol=NEM
  22. UBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=UBS
  23. GLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=GLD
  24. BTU: http://studio-5.financialcontent.com/investplace/quote?Symbol=BTU
  25. CLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=CLF

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