The stock market looks like it is having a great year once again, with the S&P 500 up about 8% since January and setting new highs like clockwork.
And given the recent momentum, the market is looking to power even higher by the end of the year.
But it’s important to remember that not all investments are equal. Some stocks can underperform or even suffer big losses even in a market uptrend. And conversely, the best stocks with powerful growth stories can put up even better numbers than the major indices.
Most people probably aren’t looking to change things up in their portfolio, given the roaring success of stocks in 2013 and the good performance so far in 2014.
However, past performance is not a guarantee of future returns — and it may be wise to reassess your portfolio to cut out the laggards and perhaps take some profits off the table on companies that have run up big but are now running into a wall.
If you’re looking to make a move as we race towards the finish line for this year, here are seven big-name stocks with big-time potential for the rest of 2014 and into the New Year.
Best Stocks for 2014: Chipotle (CMG)
Market Cap: $21 billion
YTD Return: +27%
Chipotle (CMG) is one of those stocks that gets eye rolls from investors because of its big price tag, and big growth that seems ripe for a slowdown.
But while buying and holding Chipotle may not be the wisest move at these levels, there’s a very good chance CMG stock will keep chugging higher for the next 6-12 months.
Chipotle plunged about 20% from its March peak to its April lows, in part because of higher food costs that led to earnings pressure. But the stock has recovered from the fall with blowout earnings for Q2 that pushed shares to new highs.
The million-dollar question, of course, is whether that outperformance will continue in 2014. I think it will because higher food costs were temporary, due to a severe drought in California, and have started to ease. The company had been conservative in its forward guidance, too, which was part of the reason for such an amazing response after second-quarter earnings.
The market also probably isn’t paying enough attention to just how phenomenal Chipotle’s growth is. Q1 results showed a massive 13% increase in same-store sales, and Q2 results saw that number move even higher to 17% growth! A lot of fad restaurant stocks or retailers can keep growth numbers looking good by simply popping up in new locales, but the fact that the company already has more than 1,500 restaurants and the existing properties are performing so well is a testament to the power of its brand and corporate strategy.
There aren’t a lot of growth options out there, but Chipotle keeps putting up great top-line and bottom-line results. The forward price-to-earnings ratio, like the nominal share price, is rich at about 39 … so tread lightly. But investors should feel comfortable paying a decent multiple — at least over the next several months — on what seems like a sure-fire growth story at Chipotle.
Best Stocks for 2014: Cisco (CSCO)
Sector: Information technology
Market Cap: $127 billion
YTD Return: +10%
Cisco (CSCO) gets a bad rap because of a rather sluggish performance in recent years. The stock is up just 12% since August 2009 while the broader stock market has doubled, and is up just 27% in the last 10 years.
But for long-term dividend investors, CSCO could hold serious potential as a value play — especially at current pricing.
For starters, Cisco yields 3% in dividends for a better payout than 10-year Treasuries and a higher yield than many other income favorites like Colgate-Palmolive (CL). Those dividends are very sustainable too, with payouts at just 35% of this year’s earnings — and with a cushion of $50 billion in cash and short-term investments to boot. Given that the dividend has already tripled since being instated in 2011, there’s a good chance distributions will keep moving higher.
Cisco earnings did rattle some folks with news of layoffs, and reports of flat revenue again. But the company continues to boost profitability through efficiencies and that should help future earnings, as will what appears to be an uptick in business spending on IT infrastructure across the end of 2014 and into 2015.
And with a forward price-to-earnings ratio of just under 11, Cisco seems to be a fair value at current pricing with a lot of negativity priced in. For long-term dividend investors who want to ride a recovery in business spending next year, CSCO stock is a strong buy right now.
Best Stocks for 2014: Under Armour (UA)
Market Cap: $15 billion
YTD Return: +58%
Under Armour (UA) is the smallest stock on this list, but also the one with the most explosive potential if you’re willing to take on a little risk.
This leader in athletic apparel has managed the unthinkable over the last several years, and took the fight to brand powerhouse Nike (NKE) with its own line of sportswear and branded gear. Revenue doubled in three years, from just under $1.1 billion in FY2010 to $2.3 billion as of FY2013. Earnings have been equally impressive, with EPS of 34 cents in 2010 jumping to 75 cents last year.
Under Armour stock is driven not only by its strong management, but also a secular tailwind thanks to big consumer demand for premium active wear; The industry is growing, and UA is growing even faster.
Shares of Under Armour are up an amazing 58% year-to-date in 2014, and up more than ten-fold in the last five years when accounting for two stock splits.
Bears will claim the forward price-to-earnings ratio of more than 50 based on FY2015 earnings is way too rich. It’s also a bit of a knock against UA stock that it’s a mid-cap still very much in growth mode still, meaning more volatility and no chance of dividends anytime soon.
But investors are paying big premiums for growth in the stock market right now, and Under Armour stock continues to prove that it is a powerful engine of both top-line growth and earnings expansion in an otherwise difficult environment.
Consider that Under Armour stock just posted its 17th consecutive quarter of 20%-plus revenue growth. If that isn’t enough to impress you, back in July, management also raised guidance for FY2014 … for the third time this year!
When you beat this consistently but still consistently raise targets, that says a lot.
If you’re looking for growth but you’re skeptical of Silicon Valley fads, UA stock is a great company to look into.
Best Stocks for 2014: Teva (TEVA)
Market Cap: $50 billion
YTD Return: +30%
Teva Pharmaceuticals (TEVA) isn’t a household name like blue-chip drugmakers, and it isn’t a high-powered biotech darling researching impressive new cures, either.
Teva is actually quite boring, as the world’s largest manufacturer of generic medications. After a big company has run its course with a patented medication, TEVA steps in and makes the same drug, then sells it for less to patients who need it.
The margins are thinner, but you can make up for this with scale — and with more than $20 billion in sales annually in all corners of the globe, Teva certainly has scale.
While there’s no breakout potential in TEVA stock, don’t think there isn’t any growth. Teva has big emerging-market operations where prescription drug use is growing nicely as people seek out the latest medical options. That exposure is growing, too, as Teva makes a big push towards acquisitions — including a $6 billion bid for an India-based drug company earlier this year in order to maintain market share in the region.
In addition to this growth opportunity, unlike some other pharma stocks out there, patent expiration will never be an issue that weighs on its margins thanks to the generic focus of TEVA.
With a nice dividend yield, too, TEVA stock has a lot to offer investors who are looking for solid and reliable income plays for the long term.
And given the crash-proof nature of healthcare — since consumers cut back on just about any other spending before passing on prescriptions and treatment — investors worried about a correction can have confidence TEVA will hang tough.
Best Stocks for 2014: First Solar (FSLR)
Sector: Alternative energy
Market Cap: $7 billion
YTD Return: +27%
First Solar (FSLR) is quite a volatile stock, and anyone who has looked at a long-term chart knows that shares are down big-time from pre-recession highs … down about 75%, to be precise.
Also, in full disclosure, FSLR posted pretty ugly earnings in its most recent report, with profits of just 4 cents per share on sales of $544 million vs. forecasts of 33 cents on $800 million in revenue.
But while this stock admittedly has its risks, there is a lot to be optimistic about in the next several months and into 2015.
Part of the reason for the short-term dip in earnings was the sale of some assets last period, and project delays that resulted in failure to replace that revenue yet. But First Solar continues to ambitiously build out large solar installations for electric utility companies, and the pace of these projects isn’t slowing even if there have been some setbacks.
First Solar will ultimately see profits and sales from these projects hit the balance sheet — and as proof of this, the company has reiterated full-year targets despite its second-quarter setback. That message should give investors confidence for the second half of the year.
Furthermore, even though alternative energy continues to be a very fashionable place to invest and there’s optimism about FSLR stock, the valuation of this solar player is still fair. FSLR has a forward price-to-earnings ratio of 15, and if growth continues briskly then investors can expect the share price to march steadily higher.
The solar sector was damaged big-time by a glut of oversupply and the Great Recession slashing demand, particularly from governments offering grants and big public works projects to companies like First Solar. But the industry has right-sized itself and learned its lesson, and with some players going under that leaves less competition for FSLR.
First Solar is not a fad, but a profitable company that is fairly valued and with good growth prospects for the second half of 2014 and beyond.
Best Stocks for 2014: Discover (DFS)
Sector: Financial Services
Market Cap: $29 billion
YTD Return: +12%
Discover Financial Services (DFS) has a lot going for it right now.
The stock has a lot of momentum in both the short-term and the long-term, outperforming the S&P in 2014 and quadrupling since 2009. DFS has also increased its dividend from just 2 cents per quarter to 24 cents per quarter in the last five years.
That great performance is all thanks to great profit growth, where earnings per share have soared from about $4.06 in 2011 to a projected $5.23 in EPS this year. And even after that big-time growth, the forward price-to-earnings ratio is just above 11.
The evidence of Discover’s strength most recently comes in its Q2 earnings, where profits grew 13% year-over-year to top expectation.
Add in the fact that Discover continues to connect with consumers, with J.D. Power putting DFS in a tie for first place among customer satisfaction, and the hope of organic growth as emerging markets continue to see brisk growth in “cashless” transactions, and DFS has a very bright future.
Best Stocks for 2014: Google (GOOG)
Sector: Internet Services
Market Cap: $127 billion
YTD Return: +2%
Google’s (GOOG) first-quarter earnings were disappointing, and shares have underperformed year-to-date as a result of disappointing ad sales. However, investors should note that Google shares have actually added back 15% since the stock’s low in early May and has a good tailwind right now after bottoming in spring.
There are admittedly challenges in the online advertising space, holding back the rate GOOG can charge advertisers. However, the company is more than making up for this via volume. Consider that while Wall Street has been disappointed lately, Google revenue is still tracking double-digit revenue growth this year, and is expected to see profits jump about 20% this fiscal year.
Google has a lot going for it, including the most dominant smartphone OS in the world with some global market share estimates as high as 85%. And while it doesn’t get paid for the hardware, with third-party providers actually manufacturing the smartphones that run the software, its Android app and content marketplace known as Google Play is throwing off millions in revenue each day.
Beyond Android, there are also big hopes for projects like its Google Fiber internet access as well as quirky ideas like self-driving cars that could drive growth long-term.
Google is pretty fairly valued with a forward P/E of around 18 right now, and continues to growth briskly even as the online ad environment remains rough. The expansion into new areas of business and the continued dominance of Android will surely help GOOG diversify and keep winning over investors in the months and years ahead.
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 hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.