by Jeff Reeves | December 23, 2013 3:57 pm
It has been a heck of a year for the stock market, with the S&P 500 index tacking on more than 27% as of this writing. But even more amazing is the fact that some stocks have lapped these impressive returns many times over.
In fact, the 10 highest fliers in this U.S. blue chip stock index all have doubled investors’ money across the last 12 months … and one has even quadrupled year-to-date! Many stocks have rallied thanks to a recovering American economy and improving investor sentiment, but others on this are true turnaround stories.
In late 2012, traders had left some of these names for dead, but a number of the S&P 500’s best stocks achieved big-time gains in the last year by proving these bears wrong. So what were the top S&P 500 stocks of 2013? Take a look:
Lincoln National (LINC) is one of the smaller components in the S&P 500, but the financial stock’s gains are some of the biggest of the year on Wall Street. Lincoln National is in the insurance and wealth management business, and 2013 was a great year for this arm of the financial industry. After all, when the economy is recovering and stocks are surging, it’s an easy sell to get more folks to believe in the value of retirement planning.
Of course, LNC is still not back to levels seen before the financial crisis. But the company hasn’t posted a quarterly loss since 2011 and its restructuring during challenging times has put it in a prime position to prosper now that things are looking up.
Hewlett-Packard (HPQ) was left for dead at the end of 2012, but CEO Meg Whitman has made many believers across the last 12 months as this stock has doubled when you account for dividends. Sure, 2013 saw continued revenue declines at the struggling tech giant as it continues to evolve beyond laptop and printer sales. But investors seem to believe in the evolution … or at least they think the doom-and-gloom crowd is overdoing it.
It’s easy to see why some traders were willing to take a shot on this value play turning around. Even now, Hewlett-Packard stock trades for a forward earnings multiple of about 7.5 right now — roughly half the average for tech stocks. It also yields about 2% even after this run, with a dividend that’s just 16% of next year’s earnings. That means plenty of headroom for a dividend increase in 2014. Throw in $12.1 billion in cash and operating cash flow north of $10 billion annually and you have a compelling case for stability in HPQ, even if revenue remains challenged in a post-PC age.
Yahoo (YHOO) is another stock that was languishing at the end of last year but is sitting pretty at the end of 2013. The company was roundly criticized for poor U.S. operations, declining ad sales and serious challenges in the age of social media and mobile web browsing. But Marissa Mayer went on a buying spree, snatching up two dozen stocks in 2013 including the buyout of video startup Ptch just a few weeks ago.
Investors also cheered the fact that YHOO managed to post its first year-over-year revenue growth in four years. Of course, the biggest catalyst for Yahoo stock wasn’t any of these domestic moves at all, but rather a stake in the fast-growing Asia internet company Alibaba. If and when Alibaba goes public in 2014, YHOO’s 24% stake in the company will result in a mammoth payday — and likely a special dividend to shareholders, if reports are right.
Gilead Sciences (GILD) is a biopharmaceutical giant that focuses on rare and hard-to-fight diseases, including HIV/AIDS. These sophisticated medicines are often of the only treatments of their kind, and can be very costly — and very profitable as a result.
How profitable? Well, revenue is set to grow by 12% this year and 31% next year. Profits for fiscal 2013 will finish up about 15%, and are expected to grow by a whopping 60% or better in fiscal 2014 thanks to the hopes of a new hepatitis C drug that recently performed very well in clinical trials. A strong drug pipeline an strong performance of its existing medications will ensure Gilead keeps chugging higher in 2014 … though it might be hard for this stock to double again after the brisk growth of 2013.
Boston Scientific (BSX) manufacturers a wide array of medical devices for use in cardiovascular treatments, diagnostic tests, women’s health and other areas. And unlike the high-growth story of Gilead, BSX is instead a healthcare turnaround story. Shares remain down about 70% from their all-time highs in 2004 and still down significantly from 2007 highs. But a combination of cost-cutting and industry-wide trends have conspired to lift the stock.
A 2011 restructuring strategy and subsequent job cuts have helped improve margins, and at the same time investors are very optimistic about the Affordable Care Act (a.k.a. Obamacare) providing greater access to Boston Scientific devices. After all, if more people have more health insurance than this medical device stock will have more “customers.” Boston Scientific is soundly profitable in 2013 after a few years of losses, and investors have noticed.
Celgene (CELG) is a specialized biotech company that focuses on treatments for small patient pools suffering from cancers and blood disorders. While there may not be a whole lot of candidates for Celgene’s drugs, the reality is that there aren’t a lot of alternatives out there and the treatments are very costly — and thus, high-margin products.
Revenue is set to grow 16% this year, and earnigns are expanding even faster with 60% growth expected by the end of fiscal 2013. And looking ahead to the New Year, Celgene announced a partnership with OncoMed (OMED) to work on new cancer drugs and stem cell therapies that could generate even more growth. With a plush product pipeline, tremendous earnings momentum and a pretty fair forward price-to-earnings of about 24, there is a good chance that we are only seeing the beginning of what Celgene has to offer.
The story of Delta Air Lines (DAL) is a story of one company’s success, but also very much a story of the entire airline industry bouncing back after some rough years for the sector.
After American Airlines (AAMRQ) declared bankruptcy in 2011, it merged this year with US Airways (LCC) to form the largest carrier in the industry. That had many investors optimistic about the lack of competition and the likelihood of higher fares and efficiency — something flyers may not like, but Wall Street does. All stocks in this sector got a tailwind as a result, but as one of the better-run airlines Delta benefited most.
In fiscal 2013, it could see four times the profits it saw in 2010 if projections hold. The company even instituted a dividend in the last year — a rare feat for any stock in the airline sector. New money probably can’t expect the same return Delta shares have already delivered in 2013, but a cyclical recovery could help boost overall air traffic and thus DAL profits in 2014.
Best Buy (BBY) is one of the most impressive gainers on Wall Street this year, and also one of the most surprising. Its embattled big-box store locations continue to suffer amid e-commerce competition from the likes of Amazon (AMZN) and sales of CDs and movies are plummeting thanks to digital content distribution. But while sales have mostly flatlined since 2010, Best Buy still has found a way to turn a good profit on its electronics retail business.
Most analysts expect that when this year’s holiday sales are tallied up, BBY will finish with its first annual profit three years. This turnaround coupled with buyout chatter early in the year, when founder Richard Schulze made some noise about taking his undervalued company private, helped Best Buy stock log a 100% gain by springtime. But the returns have kept up thanks to a modest rebound in its core retail business.
It appears the biggest gains have already been made for Best Buy investors … but given the fact this stock has kept running for months, you never know what 2014 may hold.
Semiconductor manufacturer Micron Technology (MU) makes a host of high-tech products found in computers, cars and mobile devices. While investors typically aren’t too happy about semiconductor stocks broadly in a “post PC age,” Micron has shown that it knows how to adapt. After regular quarterly losses over the last few years, MU returned to profitability in Q3 and isn’t projected to operate in the red anymore thanks to leaner operations, acquisitions and modest revenue growth.
Going forward, the picture is still murky for Micron. But considering the negativity that remains out there, it’s possible for MU to move even higher if upcoming results show that the company is beating expectations with its turnaround tale. Even after this amazing run, MU stock is pretty fairly valued with a forward P/E around 12 based on 2014 earnings forecasts.
Netflix (NFLX) got out to a great start in 2013, after posting a surprise profit in January when Wall Street expected a loss. The streaming video giant had invested big in international growth and new original programming, and it appears to be paying off. Since then, NFLX has never looked back. Its original show “House of Cards,” starring Kevin Spacey, won an Emmy Award.
Expansion has continued at a breakneck pace, with 20% revenue growth this year and another 20% forecast across 2014. And, of course, the stock has continued to push ever higher. Of course, whether the gains can be sustained is anybody’s guess. Competition is heating up from Amazon’s Prime Instant Video, joint venture Hulu and even paid YouTube channels from Google (GOOG). And with a forward forward P/E of about 100, it’s easy to make the case that Netflix is overbought.
Of course, betting against Netflix in 2013 proved painfully wrong. So who knows what 2014 will hold?
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not own a position in any of the stocks named here. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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