The best stocks to buy in 2014 are easy to name in hindsight. After all, back at the beginning of the year we were talking about stocks like Amazon.com, Inc. (AMZN) and Wynn Resorts, Limited (WYNN), which could do no wrong in 2013 … and since have watched these big-name investments crash and burn big-time in 2014.
But when you look at the best stocks of 2014, based on the top-performing companies among the S&P 500 components, there is a pretty common theme here: the rise of consumers.
From apparel to travel to electronics, the power of consumers shines through among the best performing stocks of 2014.
Well, except for a few high-flying healthcare names, of course. It’s hard to discount the power of aging baby boomers driving up business for medical device companies and pharmaceutical stocks.
So what are these top performing investments of 2014? Take a look:
Best S&P 500 Stocks for 2014: Under Armour Inc (UA), #10
Industry: Apparel
Market Cap: $14.4 billion
YTD Returns: 56%
Under Armour Inc (UA) has been one of the hottest names on Wall Street for some time. In addition to being one of the top 10 S&P 500 performers in 2014, shares have roughly tripled since January 2013 and are up nearly four-fold since early 2012.
The reason for this growth is obvious: UA just posted its 18th consecutive quarter of 20%-plus revenue growth, an amazing feat. And with forecasts for growth between 20% and 30% across 2015, it doesn’t appear that UA stock is showing signs of slowing down anytime soon.
UA just leapfrogged sports giant Adidas AG (ADR) (ADDYY) as the No. 2 sportswear brand in the U.S., according to Sterne Agee and SportScanInfo data. And while Under Armour is far from unseating sports icon Nike Inc (NKE), the fast-growing market for performance apparel should continue to create a tailwind for UA in 2015.
Best S&P 500 Stocks for 2014: Marriott International Inc (MAR), #9
Industry: Hotel, Restaurants & Entertainment
Market Cap: $21.5 billion
YTD Returns: 60%
Marriott International, Inc. (MAR) is a hotel giant with some 4,000 properties in over 70 nations around the world. The stock had a decent start to the year, but really has soared after a strong snap-back from its October lows.
The company is expanding in all corners of the globe right now, with big plans for both China, Latin American and Africa expansion. The growth abroad is part of the reason for impressive earnings in October that showed a beat on both the top and bottom lines, as well as optimism about the company’s outlook in 2015.
Marriott has some of the best profit margins in the business, thanks to tight occupancy rates and little wasted spending across the hotel chain. The stock is trading for a forward P/E ratio of about 25, which seems rich but is actually lower than peer Hilton Worldwide Holdings Inc (HLT) that trades for over 29 times forward earnings.
Perhaps this is an indicator that MAR has more room to run in 2015.
Best S&P 500 Stocks for 2014: Royal Caribbean Cruises Ltd. (RCL), #8
Industry: Hotel, Restaurants & Entertainment
Market Cap: $17.6 billion
YTD Returns: 77%
After the bad press of the last few years for cruise operators, Royal Caribbean Cruises Ltd. (RCL) has really hit its stride in 2014.
A big reason for the jump in share price includes an ambitious plan to increase investment in new ships to $5.3 billion in an effort to increase profits significantly by 2017. The so-called “double-double” plan aims to double operating profit on hopes it can raise the ROI for new ships to double-digit levels through bigger margins.
Investors have been enthusiastic about this ambitious plan, and RCL stock has been on quite a ride ever since the news thanks to strong earnings and optimism about the future.
Best S&P 500 Stocks for 2014: Keurig Green Mountain Inc, #7
Industry: Consumer Staples
Market Cap: $21.7 billion
YTD Returns: 77%
Keurig Green Mountain Inc (GMCR) fell from grace in 2011 as the company’s iconic K-Cup system finally reached market saturation and investors gave up on this momentum stock. After all, how much hope can you pin to another kitchen countertop gadget?
But thanks to continued improvements in revenue and profits and a normalized valuation, the company has put on quite a second act after a modest rebound in 2013 has gathered momentum big-time in 2014.
Of particular note is the big partnership with Coca-Cola Co. (KO) to start the year, adding both a good springboard to GMCR in the near term as well as fueling the continued chatter about a buyout from Coke or some other beverage giant.
GMCR has posted earnings surprises like clockwork, but that could all be over in 2015. The company has drifted lower lately on news that its CFO is stepping down in the new year — and at the same time, earnings forecasts have drifted lower.
Best S&P 500 Stocks for 2014: Delta Air Lines, Inc., #6
Industry: Airlines
Market Cap: $38 billion
YTD Returns: 80%
While the airline industry has long been challenged thanks to high regulatory hurdles in the wake of the Sept. 11, 2001, terrorist attacks and the overhang of expensive pension plans, Delta Air Lines, Inc. (DAL) has been steadily gaining altitude for some time. After climbing out of its 2005 bankruptcy, the company has been much better run and has slowly outdistanced its more challenged peers.
In 2014, the success for DAL stock was a combination of this general stability, the slow improvement in both consumer and business travel as the U.S. economy mends, and low jet fuel prices as crude oil has cratered.
But throw in the recent merger between a bankrupt American Airlines and US Airways consolidating power (and boosting fares) in the industry, and it all adds up to a powerful performance for this airline stock.
Best S&P 500 Stocks for 2014: Allergan, Inc. (AGN), #5
Industry: Pharmaceuticals
Market Cap: $62 billion
YTD Return: 92%
Allergan, Inc. (AGN) is a biotechnology company that produces niche neurology drugs as well as its its popular Botox anti-aging products. Its more recent blockbusters and pipeline of potential cures make it attractive not just as a growth opportunity, but also as a buyout target.
A proposed buyout from rival Valeant Pharmaceuticals (VRX) resulted in a big move back in April. But Allergan shareholders rebuffed the buyout, a shrewd move that in fact led to a bigger premium via a November offer from Actavis PLC (ACT) for $66 billion — a total price tag of about $210 per share.
Thus far, Wall Street has been reluctant to bid AGN much lower than $200 or so seemingly expecting the acquisition is a foregone conclusion. There is a risk that the courtship could fall apart, but investors don’t appear to believe that’s the case.
Either way, there’s not much to be gained trading AGN going forward. Either the deal is done with the premium priced in, or it doesn’t happen and there’s a risk of a pullback in the next few months.
Best S&P 500 Stocks for 2014: Avago Technologies Ltd (AVGO), #4
Industry: Semiconductors
Market Cap: $25 billion
YTD Returns: 93%
While mobile players are all the rage, semiconductor supplier Avago Technologies Ltd (AVGO) continues to power higher despite its primary business serving rather old-school communications and industrial technologies.
And even after 2014’s run, Wall Street continues to discount the electronics company with a forward price-to-earnings ratio of just 12.4!
AVGO is a diversified business, serving the electronics needs of healthcare companies, the military, automakers and dozens of other businesses in between. In today’s wired world, the demand for chips and circuitry in all manner of products is very strong, and AVGO is cashing in on this baseline demand.
Additionally, restructuring in 2013 has paid off through big profitability in 2014, and investors have ridden this tech stock to big success as a result.
The profits speak for themselves.
Best S&P 500 Stocks for 2014: Edwards Lifesciences Corp (EW), #3
Industry: Medical devices
Market Cap: $13.6 billion
YTD Return: 94%
Edwards Lifesciences Corp (EW) is a cutting-edge medical company that makes artificial heart valves and other 21st century healthcare products that serve terminally ill patients with cardiovascular disease.
It’s an amazing story, with countless lives saved by the innovative scientists developing devices for Edwards. But it’s not just the narrative that captivates investors, considering the high-flying stock performance lately and significant growth in both the top and bottom lines.
Look at the numbers and you’ll see a medical stock that has gone from roughly breakeven a few years ago to soundly profitable — and despite tremendous performance of its stock in 2014, a company that is pretty fairly valued at just 31 times forward earnings.
Healthcare is a great industry because it’s stable, and with heart disease as one of the top causes of death in the U.S., it is safe to say Edwards isn’t going anywhere. Bake in continued growth from new products and treatments, and you understand the enthusiasm for this high flier as we enter 2015.
Best S&P 500 Stocks for 2014: Electronic Arts Inc. (EA), #2
Industry: Software
Market Cap: $14.2 billion
YTD Return: 105%
Electronic Arts Inc. (EA) is the iconic video game company behind such console-based hits like the Madden football series and the Battlefield action combat series.
This latter series has long been a cash cow, but EA stock took it on the chin last December on fears that the video game company had botched the latest incarnation (Battlefield 4) through a host of technical bugs that created big headaches for players. However, sentiment rebounded on both the game and on Electronic Arts as a result, making EA one of the best stocks in 2014 as it snapped back from woes about a year ago.
Additionally, there’s high hopes for a recent partnership with Microsoft Corporation (MSFT) to provide hit EA titles directly to Xbox users for a fee of $4.99 per month. Cutting out the middle man of retailers means better margins and less overhead as content is delivered electronically, and a steady revenue stream from subscriptions is nice for stability.
Video game stocks are a feast-or-famine affair because consumer tastes can change fast. But right now, EA stock holders are feasting, as shares have bounced 40% off their October lows.
With some powerful franchises and earnings that are at multiyear highs, there could be continued success ahead for Electronic Arts stock in 2015.
Best S&P 500 Stocks for 2014: Southwest Airlines Co (LUV), #1
Industry: Airlines
Market Cap: $27 billion
YTD Return: 126%
Much like the aforementioned Delta, Southwest Airlines Co (LUV) has had a roaring 2014, with shares more than doubling. To make matters even more impressive, this comes after a gain of 85% last year.
The reason Southwest has been red-hot again is the same as with DAL — a combination of less competition, increased ticket demand and a drop in fuel prices.
But what makes LUV so much better than Delta? Well, perhaps the simple fact that Southwest remains one the best-run airlines out there, as both a model of efficiency and continued dominance at the top of customer satisfaction surveys. For instance, to start the year, the American Customer Satisfaction Index once again put Southwest on the top of the heap, tied with JetBlue Airways Corp. (JBLU) but marking its third consecutive year in the No. 1 spot.
When your industry has a tailwind and you’re the favorite among all customers, it’s hard not to have a great year. And that’s just what Southwest has done in 2014.
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 editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
