The year 2016 didn’t exactly start off on the right foot. In fact, at the sound of the closing bell on the 10th day of trading this year, Jan. 15, markets were off to their worst start to a year in history.
Sparked by a slowdown in China that caused another scare in Chinese markets, Wall Street was jittery. Depressed oil prices weren’t helping, and investors were bracing for corporate results. If the holiday quarter was unimpressive, some worried we were heading for another recession.
It was in this wild environment that 10 stock market gurus, investment professionals and financial journalists came together for the InvestorPlace Best Stocks for 2016 contest — the latest iteration of our annual stock-picking competition.
Let’s take a look at the resulting picks, and how they fared through the first three months of the volatile year. From worst to first …
Best Stocks for 2016 (#10): Energy Transfer Equity LP (ETE)
YTD Performance: -49%
Investor: Charles Sizemore
Yikes. It has been one rough quarter for Energy Transfer Equity (ETE), with shares of the pipeline partnership down an eye-popping 49% to-date. Hopefully Q2 will be better.
On the surface of it, it looks like it’d be tough to have a worse quarter than Q1.
As a pipeline company, falling oil prices shouldn’t directly impact Energy Transfer Equity, since it simply acts as a toll-taker for the oil and gas flowing through its pipes. In practice though, the depressed energy sector certainly hit ETE stock, along with virtually every other energy stock.
The biggest developments in Q1, however, were both negative: The CFO unexpectedly left (it was later revealed to be a firing), then serious troubles with Williams Companies Inc (WMB) emerged. One notable headache: Projected synergies cratered from $2 billion to a mere $170 million.
Despite the stumble out of the gate, Sizemore thinks ETE stock is an even more compelling than it was to start the year. With a dividend yield of 16%, you’ll certainly get paid to wait and find out.
Best Stocks for 2016 (#9): Globant SA (GLOB)
YTD Performance: -17%
Investor: Jon Markman
Surprisingly, shares of Globant (GLOB) have fallen steeply to start the year even after reporting blowout fourth-quarter earnings during the first quarter.
Q4 revenue shot up nearly 30% to $71.6 million, topping expectations for $68.7 million. And CEO Martin Migoya issued full-year 2016 revenue guidance above consensus as well, notes Jon Markman.
So why the fall? Well, Globant stock sort of entered 2016 after a rip-roaring, 140% rally in 2015. Sometimes a pullback is due, and the chaotic environment of the first quarter certainly provided that.
Markman considers GLOB stock a great way to play the Internet of Things, where he believes investors are better off investing in tech consultants like Globant than flashy hardware makers. After its pullback, he considers it a buy at current levels:
“GLOB is currently trading at 22 times forward earnings, which is below many of its peers. Annual revenue as well as the average revenue per client is accelerating, and for the first time the company now has over 50 separate clients with revenues of $1 million or more.”
Best Stocks for 2016 (#8): Rave Restaurant Group (RAVE)
YTD Performance: -16%
Investor: Rick Rouse
That first-quarter event, as it turns out, was simply the release of fourth-quarter earnings.
Rick Rouse gets straight to the point in his recent Q1 update on his pick for the Best Stocks contest. Rick writes that RAVE “announced a surprise loss for the recently-ended quarter that was much larger than expected. RAVE reported a loss of $0.45 a share versus estimates for a $0.04 loss, while revenue came in a tad light at $15.3 million compared to the forecast of $15.4 million.”
Rave owns both the Pizza Inn and Pie Five brands, with Pie Five ostensibly representing the growth part of the company. However, Rave’s most recent report showed a modest decrease in average weekly sales at Pie Five stores. Not good.
Rouse warns that “Rave is still a solid company for speculative accounts, but it may be another three to six months before shares regain momentum.”
Best Stocks for 2016 (#7): American Express Company (AXP)
YTD Performance: -12%
Investor: Paul R. La Monica
CNNMoney’s Paul R. La Monica is the returning champion of the Best Stocks contest, which we here at InvestorPlace hold every year. As the returning winner, he entered the 2016 competition with a certain amount of swagger and clout, and everyone was anxious to see what he was going to pick.
Those are two very different companies, and so far they are yielding him two very different results. But Paul’s logic was sound. In his article explaining his pick to begin the year, he said that AXP’s bad performance in 2015 wasn’t a good reason to avoid the stock. In fact, he said,
While that thesis hasn’t played out yet, AXP still trades at a steep discount to its rivals, so don’t be surprised if AmEx charges back and Paul once again vies for the Best Stocks crown.
Best Stocks for 2016 (#6): Snap-on Incorporated (SNA)
YTD Performance: -8%
Investor: John Divine
Coming in at No. 6 in the InvestorPlace Best Stocks for 2016 contest is yours truly, John Divine. My pick for the competition was tool retailer and manufacturer Snap-on Incorporated (SNA), which I picked due to its solid financials, reasonable valuation, multiyear momentum and impressive corporate improvement efforts.
It didn’t hurt either that SNA paid a modest 1.5% dividend either.
Like several of the underperformers on this list, much of Snap-on’s misery came when the company reported fourth-quarter results. Despite typically impressive earnings per share numbers (another reason for my pick), Q4 revenue missed by a longshot, coming in at $851.7 million vs. $886.6 million.
Weighing down revenue was sales to customers in the oil & gas industry, as well as foreign currency headwinds. The foreign exchange nonsense alone would’ve put SNA over on revenues in a flat-currency world, so considering the dollar has weakened in Q1, I like the way Snap-on is positioned to rebound in the second quarter and beyond.
Best Stocks for 2016 (#5): Buffalo Wild Wings (BWLD)
YTD Performance: -7%
Investor: Charles Payne
InvestorPlace‘s Charles Payne picked Buffalo Wild Wings (BWLD) for the Best Stocks contest this year, expecting earnings to stabilize in 2016 after a number of consecutive lackluster showings in 2015.
That, said Payne, meant BWLD stock was trading on the cheap going into 2016, and with more money in the pockets of consumers due to low gas prices, restaurants like BWLD should benefit.
His prediction hasn’t played out just yet, as holiday sales and EPS came in below expectations. That said, revenue was still up a healthy 20%, despite some challenges regarding the timing of major holidays:
“Management said part of the shortfall was due to ‘holiday shifts’ in both Halloween and Christmas as both fell on Fridays this year — one of the company’s biggest revenue days.”
Despite this, Payne’s pick remains in the top half of the Best Stocks competition performance-wise.
Best Stocks for 2016 (#4): Total System Services, Inc. (TSS)
YTD Performance: -4%
Investor: Louis Navellier
A knee-jerk reaction to a slight earnings miss is mostly to blame for the YTD underperformance, even though TSS managed to beat consensus revenue estimates by 4%. Don’t get discouraged, though, Navellier notes that the credit services company got even stronger in the first quarter after acquiring payment technology provider TransFirst for $2.35 billion.
The optimistic outlook doesn’t end there, though:
On top of this, Total System Services remains a leader of the credit services industry. For the next two quarters, analysts are calling for earnings growth in the low-teens, and sales growth in the mid-single digits. To put this into perspective, this quarter analysts expect the financial sector to post a 7.9% year-over-year drop in earnings.
Best Stocks for 2016 (#3): Chipotle Mexican Grill, Inc. (CMG)
YTD Performance: -2%
Investor: Mike Turner
Picking Chipotle (CMG) for the Best Stocks for 2016 competition was a bold move by veteran investor Mike Turner. After a series of serious health scares at various Chipotle locations across the country, CMG stock was beaten-down and unpopular going into 2016.
And that’s precisely why Turner pounced on shares.
Going forward, Turner reiterates that Chipotle is far from the first publicly traded restaurant business to suffer through a health crisis. Jack in the Box Inc. (JACK) and McDonald’s Corporation (MCD) both went through similar issues, recovered, and now the incidents are a distant memory.
Chipotle’s loyal customer base is another reason Turner’s a fan. Additionally,
“Chipotle is very optimistic about its own future. In December, the restaurant repurchased 401,137 shares of its own stock (which is well above its usual buyback numbers), and its board of directors recently raised the company’s buyback authorization.”
Best Stocks for 2016 (#2): Domtar Corp (UFS)
YTD Performance: +9%
Investor: Hilary Kramer
GameChangers Editor Hilary Kramer picked a rather obscure stock, the paper products company Domtar (UFS) to outperform the market in 2016. Through the first three months of the year that hasn’t been a problem.
That’s not surprising considering the stellar fourth-quarter results UFS announced in February. Domtar reported EPS of 91 cents per share, a full 26 cents better than Wall Street estimates.
“Firmer commodity prices coupled with growing optimism on the global economy should help push the industry higher as a whole, and while we likely haven’t seen the last of the volatility, the stock still offers a solid dividend yield and an attractive valuation. And with the company producing a minimum of $150 million to $200 million in free cash flow versus its $2 billion market capitalization, additional downside is limited from here.”
Best Stocks for 2016 (#1): Ellie Mae Inc (ELLI)
YTD Performance: +46%
Investor: Jason Moser
Jason Moser is the runaway winner of the InvestorPlace Best Stocks for 2016 competition. The market-stomping returns were pretty apparent from the start of the year: On Jan. 15, Wall Street had just undergone the worst two-week start to a year ever, with the S&P down 8% in the first 10 trading days.
Moser’s pick, the mortgage software company Ellie Mae (ELLI), was already up 8%.
Then, in February, ELLI stock shot nearly 20% higher in a single day after blowout fourth-quarter results. Shares have only gone stubbornly higher from there.
“An all-in-one solution with high regulatory (and technical) barriers to entry along with high switching costs that grow over time yields a business that should be able to squeeze out a little pricing power down the line if management continues to execute.”