2016 hasn’t been the most generous year for hot stocks. A dark cloud hangs over the broad indices and the hottest equities of previous years have simply been shut out, leading to questions about the long-in-the-tooth bull market. There are, however, some stocks heating up and waiting to be exploited — you just have to look beyond the usual fare.
Apple Inc. (AAPL), long considered one of the hottest stocks of the decade, nosedived last month, dropping 15%. If that wasn’t bad enough, renowned activist investor Carl Icahn excoriated the tech giant by cutting loose every single share owned. Despite previous recommendations, Icahn simply couldn’t handle the lack of growth in key markets, namely China.
Buying and holding a market fund hasn’t been the solution, either. The benchmark exchange-traded fund SPDR S&P 500 ETF Trust (SPY) is barely into positive territory as we rapidly head toward the second-half of the year. The Apple dilemma is simply a representation of the greater whole — companies are finding their revenue base declining under a weakening global economy.
In such circumstances, most hot stocks aren’t going to be found in sectors that are chasing the same markets as everybody else. Instead, think secular. While spending may get downsized, there are certain expenditures that people can’t (or don’t want to) avoid. This year, some of the hottest stocks have come from three sectors — trash, junk and jalopies.
Here are three unexpected surprises that are taking Wall Street by storm!
Wall Street’s Hot Stocks: McDonald’s Corporation (MCD)
Fast food fans, rejoice! Despite high-profile efforts to promote healthy lifestyle choices, there’s simply no stopping the iconic McDonald’s (MCD). Despite an onslaught of social criticism against the junk food industry — perhaps most notably by hedge fund manager Bill Ackman — MCD continues to be one of the hottest stocks in the markets.
Just how hot is McDonald’s? On Wednesday, MCD stock finished the session at $129.33 — a new, all-time closing record. After blasting through the psychological resistance level of $100 last October, there’s been no looking back. Year-to-date, MCD is up more than 9%, suggesting that there’s still momentum behind the rally. Unlike other hot stocks this year, McDonald’s has had a steady rise as opposed to a one-off speculative burst.
Investors have every reason to believe in the sustainability of the MCD rally. The fundamental catalyst for the bulls was a strong earnings report in the third quarter of fiscal year 2015. It marked the first time in roughly two years in which McDonald’s quarterly sales increased. Since then, MCD has produced two solid earnings beats. It also doesn’t hurt that when MCD started its joyride, indirect competitor Chipotle Mexican Grill, Inc. (CMG) began its journey into market and public relations hell.
Sure, McDonald’s has its challenges, but the health-food movement has been more bark than bite. That at least opens the door for MCD to build on its prior gains.
Wall Street’s Hot Stocks: Waste Management, Inc. (WM)
Trash is big business — and no one can appreciate this more than Waste Management, Inc. (WM). According to its company website, WM owns the “largest network of recycling facilities, transfer stations and landfills in the industry,” giving it a market share advantage over its competitors. In fact, the landfill assets alone are good enough reason to invest in WM, considering that land earmarked for waste management isn’t exactly cheap.
Investors have apparently noticed the same thing and are buying WM stock in droves. With a YTD gain exceeding 13%, WM is the hottest of the hot stocks mentioned on this list. Like McDonald’s, WM shares are currently sitting on an all-time closing record. The rally was largely driven by a Q4 earnings report that exceeded expectations thanks to stricter cost control initiatives.
If the most recent financial data is anything to go by, WM has a brighter future yet. Its Q1 earnings report also resulted in a solid beat, supported by top-line growth in its core businesses. In particular, the company’s landfill revenue increased 11% to $707 million from $635 million in the year-ago quarter. But the best part of all was that WM stayed true with its guidance for the rest of 2016, giving investors a measure of confidence in a shaky earnings season.
In WM’s eyes, trash is cash — and recent quarterly reports indicate there’s plenty of it!
Wall Street’s Hot Stocks: KAR Auction Services Inc (KAR)
The company with the ingeniously simple ticker name, KAR Auction Services Inc. (KAR) is an auctioneer of salvage and secondhand vehicles. However, KAR sets itself apart from the competition by offering financial, warranty and logistical services.
KAR also happens to be in a pretty favorable position. Due to the less-than-confident economy, more people are willing to consider a used car purchase. As confirmation, new car sales have hit a plateau in the U.S., causing problems for major automakers.
Wall Street certainly likes what they see. While corporate giants like General Motors Company (GM) and especially Toyota Motor Corp (ADR) (TM) are struggling to gain traction this year, KAR is up nearly 7% YTD. However, shares really started to come to life in mid-February after KAR hit rock bottom. Over the past three months, KAR is up 16%, rivaling the performance of some of this year’s hottest stocks.
What will really get motors running is KAR’s growth potential. In less than ten years time, the company has more than doubled its revenue. Further, the past three years has seen a significant uptick in business, with annual sales growth averaging 10%. To the company’s credit, they’ve achieved the higher sales without exploding costs and expenditures, resulting in strong earnings growth.
When times are tough, people will look to save wherever they can — and that bodes well for KAR stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.