The U.S. stock market had an interesting 2016, to say the least, culminating with a Trump presidency and a late-year rally.
But despite what felt like plenty of volatility, 2016 was one of the calmest equity markets in years. JPMorgan Chase strategists Dubravko Lakos-Bujas and Marko Kolanovic predicted the tranquility that transpired:
“Risks for equities in 2017 are higher compared to 2016. We expect an increased level of geopolitical risk and increased uncertainties related to the new U.S. administration.”
It feels 2017 will be somewhat similar, albeit with some bouts of volatility thrown in for good measure. For what it’s worth, JPM expects the S&P 500 to gain 8% next year — slightly less than the index’s performance with a month to go in 2016.
The index is on the verge of double-digit returns — something it has done five times in the past decade, including three years in a row between 2012 and 2014. You don’t get there without some monumental successes throughout various reaches of the stock market.
The S&P 500 and other stock market indices might be on pace for an above-average performance, but these 10 stock market performances from 2016 are simply excellent:
The Biggest Stock Market Successes of 2016: Best Buy (BBY)
Many predicted that Best Buy Co Inc’s (NYSE:BBY) — America’s biggest electronics retailer — was on its way out thanks in large part to the unstoppable juggernaut that is Amazon.com, Inc. (NASDAQ:AMZN).
“Doomed” is the word often used in the not-to-distant past to describe the company’s efforts to modernize its business and meet the needs of consumers. Some thought Best Buy would go broke, slowly withering away to nothing.
Ever since Best Buy’s board hired Hubert Joly as CEO in 2012, I’ve been impressed by his ability to keep his eye on the prize — a successful turnaround. The company’s quarterly ups and downs could easily have sidetracked even the most seasoned of retail veterans.
Analysts were skeptical of the new CEOs qualifications. I wasn’t.
Four years later, with the help of a strong management team, Best Buy is taking the fight to Amazon. And its stock price is responding, up more than 50% by early December and sitting nearly triple where it stood when Joly took office in September 2012.
In fact, BBY is pummeling AMZN so far this year. But that’s not why Best Buy is a stock market success in 2016. It’s a success because of earnings — the thing that typically drives stock prices higher.
The Biggest Stock Market Successes of 2016: Time Warner (TWX)
Speculation about AT&T Inc.’s (NYSE:T) $85 billion deal for Time Warner Inc (NYSE:TWX) — this year’s biggest — continues to swirl both on Wall Street and in Washington. That’s because many in D.C. believe the FCC and the Department of Justice won’t approve the merger because it puts too much power in the hands of one company.
That uncertainty has created a rare arbitrage opportunity for investors.
AT&T is offering to pay Time Warner shareholders $107.50 in cash and stock, $16 (17%) more than its Nov. 30 closing share price of $91.82.
Donald Trump might hate CNN, but his Secretary of the Treasury nominee, Steve Mnuchin, is a big fan of Warner Bros. After all, he produced a bunch of movies through the studio. He’s likely going to have something to say about his business partner getting unfairly treated by the government.
Time Warner and AT&T view this deal as vertical integration, not diminishing competition, and will likely fight hard to push this through.
The deal was icing on a very filling 2016 pie. TWX is up 45% late in the year, and only half of that came on AT&T’s advances.
The Biggest Stock Market Successes of 2016: Morgan Stanley (MS)
It’s hard to argue with the success that bank stocks have had in 2016. In November alone, they were up nearly 19% as a group — their best month ever. Of all the sectors in the S&P 500, only service stocks have had more companies in positive territory year-to-date (69 to 68), suggesting it’s going to be difficult to deliver a repeat performance in the year to come.
Morgan Stanley (NYSE:MS) is no slouch, off 30% year-to-date. But the real success at MS is how the company is getting there.
Morgan Stanley, which has put a great deal of its future in wealth management, has seen the strategy pay off in a big way. Its Q3 earnings released in November were 81 cents per share — almost 30% higher than analyst expectations.
“This quarter we saw record revenues in wealth management and a strong performance in our sales and trading business,” Morgan Stanley CEO James Gorman said in a statement. “Overall the results reflect steady progress against our long term strategic goals.”
A big assist for its wealth management business in the future will be what comes of the pilot project it’s currently conducting with its financial advisers that join high-tech with high-touch to build a better client experience — one that can unlock additional business not otherwise obtainable.
Wealth management is changing at a rapid pace, and Morgan Stanley’s quasi robo-adviser is leading that change. It is moves like these that will bring future accolades — and profits — for the bank.
The Biggest Stock Market Successes of 2016: Leucadia National Corp. (LUK)
Leucadia National Corp. (NYSE:LUK) was founded by well-known value investors Joseph Steinberg and Ian Cumming. Now, it’s run by Richard Handler — the CEO of investment bank Jefferies Group, which Leucadia bought in 2012 — and it looks to be getting its mojo back after several years underperforming the markets.
LUK is up 28% year-to-date through Nov. 30. Handler and the rest of his team are working hard to make up lost ground — Leucadia lost more than 20% in both 2014 and 2015 — and return shares to their usual place atop most stock tables. Between 1979 and 2012, LUK stock compounded at 19% a year, or 8 percentage points better than the markets themselves.
One of Leucadia’s big investments — a 23% stake in HRG Group Inc (NYSE:HRG) — had a fantastic fiscal year, growing operating income 1,200% on better revenue and lower impairment charges from businesses it’s exiting as part of its plan to simplify its operations.
HRG, which itself owns 58% of Spectrum Brands Holdings, Inc. (NYSE:SPB) — whose consumer brands include Rayovac and ArmorAll — could end up controlled by Leucadia, or alternatively, sold in pieces to strategic buyers. Either way, Leucadia benefits from having paid $10.21 per share for SPG’s shares.
The worm has indeed turned for Leucadia in 2016.
The Biggest Stock Market Successes of 2016: Hewlett Packard Enterprises (HPE)
Meg Whitman has sliced and diced the former Hewlett-Packard into a couple of S&P 500 winners in 2016. And she’s still not done working her spinoff magic, with a couple of moves to take place sometime in 2017.
You can’t argue with her success this year.
Hewlett Packard Enterprises Co (NYSE:HPE) and its former stablemate, HP Inc (NYSE:HPQ), are up 58% and 33%, respectively, through Nov. 30. Of the 57 S&P 500 technology stocks up year-to-date, HPE has the fourth-best performance; HPQ is not too far behind, at 18th.
Not bad for a company that was left for dead just two years ago.
It will be difficult for HPE and HPQ to replicate this past year’s performance. Sales are slowing — a problem that has plagued Hewlett’s business in the past — and analysts are skeptical that the move to deliver higher profits at the expense of revenue growth is a sustainable strategy.
Ultimately, they might be right. But you have to tip your hat at the value extracted from splitting its business in two.
For me, this is the tech story of the year.
The Biggest Stock Market Successes of 2016: Albemarle (ALB)
Like many basic materials stocks, it’s feast or famine, and lithium supplier Albemarle Corporation (NYSE:ALB) is no different.
Albemarle is benefiting from rising lithium prices as a result of increased demand brought on by more electric vehicles (lithium is a key component of batteries) being produced. As a result, ALB is having banner year, up 58% through Nov. 30 — its best performance since 2009 and its first year with double-digit returns since 2012.
No question 2016 has been a stock market success for Albemarle, but the question most investors want to be answered is, “Where are lithium prices headed next?”
In 2009, they were approximately $2,000 per metric ton; today, they’re close to $7,000. Lithium expert Joe Lowry suggests that lithium prices next year could rise to $10,000 per ton with some price easing later in the year.
“Based on recent statements by Albemarle management, it looks like they are trying to become a pure play lithium producer as the growth prospects in their other businesses pale in comparison to that of lithium,” Chris Berry of House Mountain Partners recently said.
Look for good things from Albemarle in 2017.
The Biggest Stock Market Successes of 2016: PVH Corp (PVH)
PVH Corp (NYSE:PVH) — the owner of Tommy Hilfiger and Calvin Klein — managed to rebound this year despite little other good news in the retail sector. That’s after its stock went on a two-year downward spiral that saw PVH lose 6% of its value in 2014 and 42% in 2015.
PVH is only one of two companies to be up this year out of a group of six S&P 500 apparel stocks UBS reiterated its buy rating Dec. 1 after PVH announced earnings a day earlier that were higher than analyst expectations, both on the top and bottom lines.
“PVH reported a quality 3Q EPS beat (with the strongest gross profit dollar growth rate since 4Q13) of $2.60 per share,” wrote UBS analyst Michael Binetti in a note to clients. “PVH guided below our consensus estimates in Q4, but we believe the business is trending well above plan Q4 to date.”
Most importantly, its two major brands both saw healthy sales growth in the third quarter — Calvin Klein and Tommy Hilfiger up 10% and 6%, respectively.
So not only was 2016 good — it wasn’t a fluke, either.
The Biggest Stock Market Successes of 2016: Caterpillar (CAT)
The Cat is back. Sort of.
Caterpillar Inc. (NYSE:CAT) stock is less than 5% from trading in triple digits, something it hasn’t done since November 2014. Before that, you have to go all the way back to February 2012 to see CAT over $100.
What pushed up its stock price in 2016? Well, if you ask the company, it will tell you wishful thinking on the part of investors.
“Not much recent change in the industries we serve with the exception of North American Construction,” wrote Caterpillar in its Q3 2016 presentation at the Credit Suisse conference Dec. 1. “More stable commodity prices, but no significant rebound in order activity in mining or oil and gas yet … rail continues to be weak in North America.”
Perhaps the $2 billion in costs it has cut in 2016 are the driver of its 45% year-to-date return through Nov. 30. Maybe investors figure this puts it in a great place once commodity prices recover.
Whatever the reason, CAT is one of this year’s biggest stock market success stories.
The Biggest Stock Market Successes of 2016: Oneok, Inc. (OKE)
Although this article isn’t meant to simply highlight the top performers year-to-date, you can’t help but be impressed with pipeline operator Oneok, Inc.’s (NYSE:OKE) 133% return through 11 months of the year.
Only one other S&P 500 stock has done better this year — Nvidia Corporation (NASDAQ:NVDA) was up 180% through the end of November — and things could be looking even brighter for 2017 as natural gas prices improve.
InvestorPlace contributor Charles Sizemore considers Oneok — which boasts an earnings growth rate of 8.2% — one of the 10 best growth stocks to buy for 2017.
“At current prices, OKE yields a healthy 5%. And while dividend growth has been non-existent for the past year, I expect that to change in 2017,” Sizemore wrote on Nov. 15.
While it’s doubtful OKE stock can double in price for a second consecutive year, it looks as if there’s enough gas in the tank for some kind of positive return in 2017. That’s good news for shareholders.
The Biggest Stock Market Successes of 2016: Intuitive Surgical (ISRG)
Last year was a bit of an off-year for Intuitive Surgical, Inc. (NASDAQ:ISRG) — the maker of da Vinci robotic surgical systems. ISRG generated a measly 6% return for investors, the first year without double-digit gains since 2011.
But it has bounced back in a big way this year, up 20% with little left to go in 2016.
The big driver for these gains is recurring revenue. In 2013, recurring revenue accounted for 63% of Intuitive Surgical’s overall revenue; today, that’s up around 71%. In the first nine months of 2016 ended September, Intuitive’s recurring revenue was $1.4 billion — 17% higher than a year earlier.
The more da Vinci systems it sells, the more recurring revenue it generates from the sale of instruments, accessories and services. Its recurring revenue is reverse from the Gillette business model, but effective just the same.
In Q3 2016, ISRG sold 134 systems compared to 117 in the same quarter the year before. Each of those systems is going to need instrument replacement, among other things, making the 15% increase in system sales that much more important.
The future might be a little blurry with Donald Trump in the White House, but no matter what the president-elect does with the Affordable Care Act, ISRG has $4.6 billion in cash to cushion the blow from hospitals cutting back.
So far, though, it hasn’t stopped Intuitive Surgical from selling more systems.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.