by James Brumley | August 2, 2013 2:21 pm
Late last year, via a myriad of polls asking amateur and professional investors which companies would be 2013’s biggest stock winners, Apple (AAPL), Qualcomm (QCOM) and Marathon Petroleum (MRO) seemed to the most common elements among those lists.
And why not? Surely Apple was on the verge of coming out with a break-through product, Qualcomm would get back in the smartphone groove too, and our insatiable energy needs were bound to mean a banner year for the oil and gas play.
But here we are a little more than halfway through the year, and Marathon has barely budged, QCOM has done well to fight its way back to a breakeven, and AAPL … well, Apple continued to deteriorate in the first half of 2013 the way it did during the last quarter of 2012. Despite the bounce since mid-June, AAPL still is down 13% year-to-date.
So, how could so many people be so wrong about some of the market’s most popular stocks?
The answer to the question actually lies in the question itself — these stocks were popular. Not only are the people who saw these names as good investments apt to be customers of these companies, but these stocks are some of the media’s daily focal points; they’ve been subliminally pounded into the tops of traders’ minds, and the tips of their tongues.
As Warren Buffett has cautioned so many times, though, “You can’t buy what’s popular and expect to do well.” Popular stocks make for crowded trades, meaning it’s unlikely there’s any hidden value left to tap into with them. The best picks are all too often the obscure, boring and sometimes downright-unloved names that nobody sees coming until they’ve already arrived.
Take a few of this year’s biggest stock winners as an example:
Stamps.com (STMP): The U.S. Post Office might be on the verge of collapse due to years of losses, but it’s not like Stamps.com hasn’t done what it could to stave off that demise. The online postage-printing company ramped up revenue to the tune of nearly 15% in 2012, and is on pace to improve the top line by 12.5% this year. Better still (for investors), shares are up nearly 70% year-to-date, and the company blew away earnings estimates of 47 cents per-share for Q2 by reporting a profit of 60 cents. Looks like snail mail and letter-writing aren’t dead after all.
International Paper (IP): While on the topic of things that were supposed to become obsolete but never did, global paper usage continues to reach into record-breaking territory, with about 400 million metric tons of it being consumed last year. That’s great news for names like International Paper. Still, how much growth can there be in the boring paper industry? Tree-hugging environmentalists are fighting it every step of the way, and digital storage is the new norm. As it turns out, though, there’s more than a minor growth opportunity in the paper arena. International Paper ended up pumping up the top line by 7% last year, and is realistically expected to improve it by 5.5% this year. It might not be red-hot, but it’s good enough to push IP shares up 24% year-to-date.
Hewlett-Packard (HPQ): The PC industry’s three-year (and increasingly uphill) battle against tablets has been well-documented. At the same time, against a backdrop of an increasingly competitive printer market, it’s no wonder Hewlett-Packard shares lost nearly 80% of their value between early 2010 and late 2012. And, as of late last year, more of the same weakness was expected from HP … the company and the stock. Those pessimists should have taken a closer look at what CEO Meg Whitman has been doing during her first couple of years with the company. It has taken a while, but the new enterprise-focused Hewlett-Packard has shocked the world by shaking off its irrelevance within the technology market. The end result is a stock that has rallied 90% in calendar 2013 — a move practically no one expected to see just a few months ago.
The moral of the story is, if you have a bullish hunch about an unpopular stock, don’t be afraid to act on it. Most investors struggle just to put up mediocre results most of the time, largely because they’re all chasing the same few names. By breaking away from the herd, you’ve got a much better shot at some big winners.
As for the three stocks mentioned above: Newcomers might want to exercise a little patience with any entry, but all still have plenty of long-term potential.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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