By now, everyone knows the stock market has made a tremendous comeback from the market lows set during the Great Recession. The Dow Jones is up 85% since March 9, 2009, with the S&P 500 index up over 90% and the tech-heavy Nasdaq up over 100% as of this writing. But many investors missed out on much of the two-year bull market run that some experts say will continue into next year.
While there are plenty of theories suggest this year will be a good one for stocks, deciding which stocks will continue rallying at very high levels is crucial for investors. After all, how much upside can possibly be left in stocks that have rallied substantially higher for two years in a row?
The truth is, there could be considerable upside left in stocks — even the hot stocks that have increased five times or more over the last two years. That’s especially true for investments that have emerged from the recession positioned to capitalize on major consumer trends and increasing market demand for specific products and services. The idea is that stocks that have staged a comeback over the last two years amid unstable economic conditions should be able to pick up even more momentum when the economy generates higher levels of growth.
With the help of Morningstar Research Analyst Andrew Webb, I screened for stocks that enjoyed the highest cumulative returns since the market hit bottom on March 9, 2009, through March 31, 2011, to see which might have good prospects to continue on a profitable run I focused on stocks that had a market cap of at least $15 billion, ensuring that any companies with high returns would also be strong brand names with solid track records of success. Finally, I selected companies that had multiplied their stock price five times or more in the two years since the 2009 market lows, achieving accumulative returns of at least 400%.
Most investors wouldn’t mind investing in a company that grew its stock price five times in two years, so here is a list of seven stocks that I think have a chance of continuing that growth at least a year into the future:
Ford Motor Co. (F) – 777%
Ford (NYSE: F) stock price increased eight-and-a-half times over in two years, jumping from $1.74 on March 9, 2009 to $14.91 at the end of the first quarter this year (March 31, 2011). The automaker continues to benefit from smart management and a strong product line that has definitely connected with the general public. Ford has stepped up its production of hybrid cars, and the Ford Fusion hybrid placed third in hybrid sales in February and its Escape hybrid placed seventh. With gas prices spiking, Ford’s hybrid sales should continue to increase, keeping its growth prospects for the next 12 months strong.
CBS Corporation (CBS) – 679%
The price of CBS (NYSE: CBS) stock has increased nearly than eight times in two years, jumping from $2.99 on March 9, 2009 to $25.04 at the end of the first quarter this year. Broadcasting advertising revenues have increased over the last two years and CBS has content choices in multiple genres that will likely be advertising winners for the foreseeable future. CBS Sports continues to be a leader, and the broadcaster has top entries Survivor and Amazing Race in the reality show area, top dramas such as the CSI series and the hot new series Hawaii Five-O, and it even had the top comedy Two and a Half Men before Charlie Sheen imploded. With all these shows expected back next year, ad revenues should continue to be strong.
Capital One Financial Corp. (COF) – 532%
While I disapprove of its cheesy advertisements for Capital One (NYSE: COF) and its generally high percentage rate credit cards, Capital One is one financial services company that has a real opportunity for growth coming out of the recession. Capital One stock price increased six times in two years, jumping from $8.63 on March 9, 2009 to $51.96 at the end of the first quarter. Since the bank wasn’t in the “too big to fail” category before the recession, it has been able to expand its number of branches over the last two years when times were tough, growing profits at the same time. As consumers begin using credit cards again as the economy improves, Capital One stands to benefit.
Priceline.com Inc. (PCLN) – 505%
Priceline.com (NASDAQ: PCLN) stock price increased six times over in two years, jumping from $78.36 on March 9, 2009 to $506.44 at the end of the first quarter. The company’s growth has primarily been fueled by its breakthroughs into travel and leisure sales (mostly airline tickets, hotel rooms and vacation bargains) and international sales, which grew some 68% over the last year. If the world economy strengthens as expected over the next year, Priceline’s international revenues (which have not yet been maximized) should continue to produce a tidy profit.
Cummins, Inc. (CMI) – 482%
While trucking manufacturing Cummins (NYSE: CMI) is hardly a sexy stock, fleets of environmentally friendly trucks will be essential for many world economies to remain competitive as they slowly make their way out of the last recession. The price of Cummins’ stock has increased more than five and a half times in two years, jumping from $19.09 on March 9, 2009 to $109.62 at the end of the first quarter this year. As world economies begin to improve, transportation companies will begin replacing trucks so that they can move higher volumes of products more efficiently, and Cummins will benefit.
The Dow Chemical Co. (DOW) – 464%
Dow Chemical (NYSE: DOW) stock increased nearly six times over in two years, jumping from $5.95 on March 9, 2009 to $37.75 at the end of the first quarter. As economies begin to heat up, more companies will need to increase the use of chemicals used in their products in order to keep up with demand. Dow Chemical should benefit. New breakthroughs, like its effort to produce an acrylic acid that is not made from petroleum, could produce outsized profits for Dow in 2011 and beyond.
Prudential Financial (PRU) – 460%
Retiring Baby Boomers could make Prudential Financial (NYSE: PRU) a strong performer for years to come. Insurance products like its line of guaranteed income annuities have given it an edge over rivals and it continues to make inroads into other areas of investing. Prudential’s stock price increased more than five times over the last two years, jumping from $11.20 on March 9, 2009 to $61.58 at the end of the first quarter.
As of this writing, Matthew Scott did not own a position in any of the stocks named here.