With the first half of 2015 behind us, it’s time to take a look at market performance and the state of the stock market today.
In a nutshell, most stocks have been going sideways. The S&P 500 is breakeven for the year, while the Dow Jones Industrial Average is down about 1%. Currently Wall Street is obsessed with the prospect of a Greek default. Last October, the Ebola virus took center stage as fears of contagion spread.
In a few months, it’ll be something completely different.
Unpredictable events will always happen during the course of any one year, and some of them pose systemic threats to the stock market’s health. But if an individual stock is robust enough, it’ll overcome all the macro concerns and generate great returns anyway.
That’s what InvestorPlace‘s annual stock-picking contest is all about, and when we asked 10 stock market gurus in late December which stocks would beat the market in 2015, they didn’t disappoint. An equally weighted portfolio of their picks is up more than 16% year-to-date, beating the S&P by … well, 16 percentage points.
Without further ado, here are the stocks chosen in the 10 Best Stocks for 2015 competition, listed from worst to best.
Best Stocks for 2015 (#10): Yahoo! (YHOO)
YTD Performance: -22%
Investor: Greg Harmon
Yahoo! (YHOO) hasn’t had the best 2015, but that’s not stopping the company from trying new things going forward. Coming into the year, investors were worried about how Yahoo’s core business could carry YHOO stock forward in the post-Alibaba (BABA) era.
Yahoo still owns a big stake in BABA, but it’s planning to spin that off, so the question is still relevant.
It seems as if Yahoo itself doesn’t know how best to proceed from here, but it’s making moves. In an effort to gain prominence in online video and news, YHOO reportedly renewed Katie Couric‘s contract, said to be worth up to $10 million annually. Yahoo also struck a three-year deal with Oracle (ORCL) to improve search, which, let’s be honest, is a bit of an uphill battle when you’re going up against Google (GOOG).
With the attractive technicals that Dragonfly Capital’s Greg Harmon saw going into the year now gone, YHOO might not be such a good pick anymore.
Best Stocks for 2015 (#9): Old Dominion Freight Line (ODFL)
YTD Performance: -12%
Investor: Mike Turner
The Thomasville, North Carolina-based freight trucking and logistics company Old Dominion Freight Line (ODFL) has seen better days, too.
When Signal Investor Editor Mike Turner named this underdog one of the best stocks to buy for 2015, he did so on the thesis that oil prices would continue to trend lower. Remember: At the time, that was what you might call a prevailing idea, and there was truly no catalyst in sight to cause oil prices to rebound, at least in the short term.
Oil prices would bottom out in March and go on to trade 10% to 20% higher from there — not exactly what a freight trucking company like ODFL would call good for business.
“ODFL is starting to flatten out and shares should start to move higher again. This is especially true when you consider the company has strong growth estimates for the second quarter: Analysts estimate earnings of 99 cents per share on revenue of $771 million. That’s a 15% year-over-year increase in EPS. In addition, Old Dominion increased its growth estimates in LTL (Less Than Truck Load) tons per day from 9%-10% to 9.5%-10%.”
Best Stocks for 2015 (#8): iShares U.S. Oil Equipment & Services ETF (IEZ)
YTD Performance: -6%
Investors: David and Michael Fabian
David and Michael Fabian went a little off the beaten path by selecting an ETF as their pick in the 10 Best Stocks for 2015 competition. Their pick? The iShares U.S. Oil Equipment & Services ETF (IEZ), which tracks some of the biggest names in (you guessed it) oil equipment and services.
Their thesis was more than sound: An uptick in oil prices over the course of 2015 would surely lift many of IEZ’s holdings — stocks like Schulmberger (SLB), Halliburton (HAL) and National-Oilwell Varco (NOV) — which they believed to be unfairly beaten down.
Unfortunately, while oil has rebounded modestly, it hasn’t been a sharp enough rebound to get the major players spending big bucks with those firms. The Fabians aren’t in love with IEZ’s current technicals, but tend to think its underperformance will be short-lived:
“After examining recent price fluctuations, IEZ has slightly underperformed the sideways price movement of oil, which could indicate weak-handed bottom-feeders are losing interest. From a contrarian point of view, this bodes well for a re-emergence of its prior uptrend, and new investors could also be presented with a relatively good entry point near current levels.”
Best Stocks for 2015 (#7): Noble Corp (NE)
YTD Performance: -5%
Investors: John Jagerson and Wade Hansen
It should come as no surprise that another one of the laggards in the 10 Best Stocks for 2015 competition was a play on rising oil prices. While the price of black gold is trading meaningfully above its lows from last year, oil prices are basically breakeven year-to-date.
In other words, not the best situation for shares of an offshore drilling contractor like Noble (NE) to thrive.
Coming into 2015, Jagerson and Hansen believed — much like David and Michael Fabian — that oil services stocks were unfairly beaten-down. In addition to that, the technicals seemed to be going Noble’s way. From their late-December article touting the stock:
“From a technical perspective, NE stock has formed a large bullish divergence over the last three months that was confirmed just recently. Generally, the mid-point of a big divergence like this is a good initial estimate for upside potential, which would put prices near $22 in the short term.”
In fact, John and Wade now believe NE may be primed for a bearish trade.
Best Stocks for 2015 (#6): Prospect Capital (PSEC)
YTD Performance: -4%
Investor: Charles Sizemore
A somewhat obscure stock, Prospect Capital (PSEC) invests in first- and second-lien secured loans and unsecured debt, typically for companies looking to leverage themselves up to make an acquisition.
Two-time winner of the annual InvestorPlace Best Stocks competition, Charles Sizemore lives to make picks like this. And the year’s only half over, so while I doubt PSEC will be able to vie for the top spot this year, a top-five finish (or at least a finish in the black) is doable.
Best Stocks for 2015 (#5): Google (GOOG, GOOGL)
YTD Performance: -1%
Investor: Paul R. La Monica
Google (GOOG, GOOGL) has its hands in just about everything nowadays: Driverless cars, smartwatches, streaming music — you name it, and the search engine giant probably has a whole team of geniuses devoted to making it a reality.
Some investors argue that Google’s attempt to broaden its horizons isn’t necessarily a good thing. “Disworsification” can occur when you try to do too many things at once and lose focus on your core competency. That could be happening with GOOG, sure, but can you really blame a company that still depends on advertising for 90% of its revenues for wanting to branch out?
Wall Street can, and that’s precisely why Paul R. La Monica, hunting for the best stocks to buy for 2015, tapped GOOG as his pick:
“I couldn’t pass up on Google. The stock now trades for just 17 times 2015 earnings estimates. Its P/E is pretty much in line with its expected earnings growth rate.
It’s also worth noting that Google has been through periods where investors have shunned it before. And the company has always had the last laugh.”
With Google now trading at just 18 times 2015 earnings estimates, Wall Street clearly hasn’t come on board yet. But with Morgan Stanley’s (MS) CFO Ruth Porat leaving her position to take the CFO role at Google, she may very well bring some fiscal discipline to GOOG.
Best Stocks for 2015 (#4): ABM Industries (ABM)
YTD Performance: +16%
Investor: Hilary Kramer
Perhaps you were starting to wonder how a portfolio with a bunch of stocks in the red could be walloping the S&P 500 this year. Well, the top four performers in the 10 Best Stocks for 2015 competition are beating the market so mercilessly that the six ho-hum picks don’t make much of a difference — that’s how!
Hilary Kramer, editor of financial advisory service GameChangers, is doing well with her pick this year, ABM Industries (ABM). “ABM” is short for American Building Maintenance, and that’s precisely what this company does, specializing in janitorial, facility services, managing parking facilities and more.
When you’re hunting for the best stocks to buy, how exactly do you come across that one? (Seriously, we’d like to know, because it’s doing pretty darn well.) Hilary recently explained what she saw in ABM stock:
“I chose ABM as my pick for the year because the company was growing earnings and was reasonably valued at a time when many valuations were still somewhat stretched. Plus, it had a 2.3% dividend yield at the beginning of the year, which added to its appeal.
In the end, this stock stood out to me as a sound combination of solid upside potential and reasonable downside risk.”
That logic checks out in my book.
That said, investors should know that this opportunity may be all mopped up: Considering the quick run-up and exposure to rising interest rates, Hilary now believes ABM stock is valued pretty fairly.
Best Stocks for 2015 (#3): Apple (AAPL)
YTD Performance: +16%
Investor: Louis Navellier
Large-cap growth connoisseur Louis Navellier — the editor of several popular stock picking newsletters, including Blue Chip Growth, Emerging Growth and Ultimate Growth — knows a thing or two about how to beat the markets. So it’s no surprise his pick is ahead of most of the pack in this year’s Best Stocks competition.
It doesn’t get any more blue-chippy and growthy than Apple (AAPL), and while it may not score points for originality, if you’re investing in stocks based on originality and not potential, you’re playing the game wrong. And despite its massive $725 billion valuation, AAPL still has plenty of potential, as its most recent quarter demonstrated.
“AAPL’s most recent quarter was the best March quarter in Apple’s history, with iPhone, Mac and App Store sales leading the way. Apple sold 61.2 million iPhones last quarter, a 40% increase from a year ago. Apple also sold 4.56 million Macs, which marked a 10% increase over last year. Company-wide sales jumped 25% to $58.01 billion, while net income increased 33% to $13.6 billion, or $2.33 per share. This was the fifth quarter in a row that Apple increased earnings.”
With Apple Music, the Apple Watch, an anticipated Apple TV and potentially even an Apple Car to look forward to, AAPL could be a real contender for next year’s Best Stocks competition, too.
Best Stocks for 2015 (#2): Rave Restaurant Group (RAVE)
YTD Performance: +86%
Investor: Rick Rouse
The top two performers in the Best Stocks for 2015 competition have gone absolutely bonkers, boasting the sort of six-month returns every investor dreams of.
In second place is Rave Restaurant Group (RAVE), which began the year under a different name: Pizza Inn Holdings. It’s still the same company, of course, and thank God for that. Rave, which consists of two separate brands — Pizza Inn and Pie Five Pizza — is focusing on the latter as its engine for growth.
“Pie Five’s goal is to have you stuffing your face with the perfect pie in less than five minutes. If you were wondering how Pie Five can cook a pizza in under two minutes, it’s due to their patented ovens. They heat up to 700 degrees and can bake a pie in one minute and 45 seconds.”
Rick likes to think of it as the Chipotle (CMG) of pizza shops. Having just opened its 51st location, RAVE is currently “on track to open 500 Pie Five restaurants in the next five years,” so you can see why Wall Street would be excited by its tremendous growth potential.
Best Stocks For 2015 (#1): Ambarella (AMBA)
YTD Performance: +100%
Investor: Jon Markman
In our 10 Best Stocks for 2015 Q1 update, we checked in on how the stock gurus’ picks were going through the first quarter of the year. Things were a little different then.
Ambarella (AMBA) in particular was a lot different then.
At the time, AMBA had already established itself as one of the best growth stocks in the market, and was sitting on incredible 45% gains in just one quarter. But it still trailed RAVE, which had nearly doubled, so it sat in second place.
Jon Markman’s pick, which still is best known for being the chip supplier to wearable action camera powerhouse GoPro (GPRO), got Wall Street’s attention. But as Markman explained in a Q1 checkup on AMBA on April 2, the company deserves more credit than that. He noted that it shouldn’t be thought of as a pure GPRO play because it’s actually pretty diversified:
“Its low-power, high-definition video compression and image processing solutions are also used in network-attached security cameras, drones, wearable cameras and automotive cameras.”
Those are all hot markets, and the fact that Ambarella is diversified not only across those markets but within them is pretty remarkable.
With Wall Street’s loudest talking head, Jim Cramer, touting AMBA as a “genius” stock and emphasizing its exposure to drones as its most compelling bullish catalyst, the stock isn’t nearly as anonymous as it was six months ago.
As of this writing, John Divine was long AAPL stock and Jan 2017 $25 AMBA calls. You can follow him on Twitter at @divinebizkid.