10 Stocks That Surprised Everybody Through Q3


Best stocks of 2017 - 10 Stocks That Surprised Everybody Through Q3

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There’s a big chance you haven’t heard of most of these stocks. On the opposite side, there’s a chance that you’ve heard of these stocks and their mere mention drives your blood to boil. These stocks were supposed to be nobodies, but instead they became something. Surprise!

10 Stocks That Surprised Everybody Through Q3Don’t blame yourself, though. Who could’ve anticipated one of America’s wealthiest, most beloved celebrities coming to the rescue of No. 1 on this list late last year?

Every year, the stock market loads up a surprise or two for investors. 2017 is no different, but you may be shocked to see just how many managed triple-digit gains.

What follows are the ten biggest surprises of 2017 through the third quarter that caught investors off guard.

Biggest Surprises of 2017: Weight Watchers (WTW)

Year-to-Date Gain: 276%

I don’t think any analysts sat down at the beginning of 2017 and picked Weight Watchers International, Inc. (NYSE:WTW) to be one of the top performing stocks on either the NYSE or Nasdaq for the year. However, that’s exactly where WTW stock sits.

According to Finviz.com, of all the stocks trading on the NYSE with a market cap of $2 billion or more, Weight Watchers has the second-best return year-to-date through Sept. 28, up 276%. Only Straight Path Communications Inc (NYSEMKT:STRP) has a better performance but it trades on the NYSE American small-cap exchange, so in actuality, WTW is the top stock so far in 2017.

What’s been the difference this year to last? Oprah Winfrey, Mindy Grossman and a little something called improving earnings.

“Mindy is proven as a successful visionary and entrepreneurial force in business and I look forward to working with her,” Oprah Winfrey stated in April on Grossman’s hiring. “She has the experience, the passion and the positive energy to take Weight Watchers to exciting new places.”

The fact that Oprah Winfrey was pumped about Mindy Grossman’s hiring back in April says a lot about the future direction of Weight Watchers, both the company and its stock.

Biggest Surprises of 2017: Fiat Chrysler (FCAU)

Source: Shutterstock

YTD Gain: 93%

Like many of its older products that aren’t on the road anymore, I’m sure a lot of investors are surprised that Fiat Chrysler Automobiles NV (NYSE:FCAU) is up 93% year to date through Sept. 28.

That’s significantly higher than its two Detroit competitors and even Elon Musk’s little electric car company.

Sergio Marchionne is a brilliant CEO and tactician. While his end game is to get the company married to a bigger global automobile company—the latest rumor has Hyundai teaming up with Fiat Chrysler to become the world’s largest automaker with 11.5 million vehicles sold in 2016—he continues to make moves to extract value for FCAU shareholders.

His latest plan is to hive off the company’s components business, which would reduce Fiat Chrysler’s debt by 38% with only an 8% reduction in its adjusted operating profit.

As for other spinoffs, Marchionne doesn’t believe Alfa Romeo or Maserati is ready to be independently run. However, recent interest by the Chinese suggests a Jeep spinoff could extract enormous value for shareholders. One analyst is suggesting Jeep alone is worth 120% of Fiat Chrysler’s market cap.

Biggest Surprises of 2017: Arcos Dorados (ARCO)

YTD Gain: 79%

If there were a stock hit harder by the general swoon in Brazil’s economy in 2014 and 2015, I’d be hard-pressed to find one. Over those two calendar years, Arcos Dorados Holding Inc (NYSE:ARCO), saw its shares lose 53% and 43% in 2014 and 2015 respectively leaving it with a market cap of less than $700 million entering 2016.

Since then, the world’s largest McDonald’s Corporation (NYSE:MCD) franchisee and largest quick-service restaurant operator in Latin America, has been on fire. A $10,000 investment in ARCO stock at the end of 2015 is worth more than three-fold that amount today.

In early January, I suggested to investors that Arcos Dorados was one of the top three restaurant stocks to buy in 2017. Up just shy of 80% through Sept. 28, I see ARCO climbing to the mid-teens in 2018, possibly higher on strong results in Argentina and Brazil, its two biggest markets. Even in Venezuela, its franchisees are optimistic.

“Our brand in Venezuela is as strong as it is in Brazil and Argentina, and we have a number of franchisees who continue to trust their investment decision,” CEO Sergio Alonso said recently. “We’re waiting and hoping the situation there will evolve positively.”

Biggest Surprises of 2017: Wayfair (W)

Wayfair W stock

YTD Gain: 100%

The biggest surprise of 2017 could well be the performance of Wayfair Inc (NYSE:W), the online home furnishings retailer, that’s spending marketing dollars like a drunken sailor trying to get the word out.

Losing money, investors seem to believe there is light at the end of the tunnel. I don’t see it that way which is why I’m so surprised W stock is up 100% through Sept. 27. If there’s a bigger surprise in retail, I’m not aware of it.

In its second-quarter report, Wayfair’s revenue increased 43% to $1.1 billion while its non-GAAP loss dropped by 17 cents, or 40%, to a loss of 26 cents from a year earlier. While that’s progress, I’m not sure it’s enough to push W stock any higher.

The fact that both its average order value dropped seven dollars in the first six months of the year to $241 and its net revenue over the past 12 months per active customer dropped by two dollars to $402 suggests to me that its business is slowing slightly. On the plus side, its operating expenses as a percentage of revenue dropped by 280 basis points in the second quarter to 27.3%.

However, its gross margins barely budged in Q2 2017, which suggest it’s going to continue to have a tough time becoming profitable.

Biggest Surprises of 2017: Shopify (SHOP)

YTD Gain: 174%

Maybe it’s because I’m Canadian, but the fantastic stock returns in 2017 for Ottawa-based Shopify Inc (US) (NYSE:SHOP) have come as a complete surprise to me. That’s not to say I don’t think Shopify’s e-commerce business is a world-beater, because it is.

“The cloud-based e-commerce platform for small- and medium-sized businesses (SMBs) is Canada’s greatest growth-stock story at the moment, and deservedly so,” I stated May 5. However, even though I picked it as one of the ten best growth stocks to buy now back in May, I’m still a little surprised its up more than 174% through Q3.

Normally, I don’t like to invest in companies that don’t make money, but I’ve thrown the rulebook out with Shopify because its scenario is much like Amazon.com, Inc. (NASDAQ:AMZN), where it’s sacrificing profits for scale. Long-term, like Jeff Bezos, Shopify founder, and CEO Tobi Lütke will be proven correct.

Of all five of these surprises on the upside, Shopify is probably the most deserving.

Biggest Surprises of 2017: National Beverage (FIZZ)

National Beverage Corp. (NASDAQ:FIZZ)

YTD Gain: 132%

It appears that National Beverage Corp. (NASDAQ:FIZZ) has become the new Monster Beverage Corp (NASDAQ:MNST), a company and stock that can do no wrong in the eye of investors. FIZZ stock is up 130%-plus this year through Q3, and 23% annually over the past 15 years. By comparison, Monster is up 24% year to date and 54% annually over the past 15 years. The big beverage companies die for this kind of performance.

So, if FIZZ has been performing for some time — it hasn’t had a down year since 2007 — why am I calling it one of the ten surprises of 2017? Well, if you look at Monster’s best year in the markets over the past decade — up 76% in 2011 — you’ll notice that it had gross and operating margins of 53% and 27% respectively, considerably lower than today, yet MNSTR stock hasn’t done nearly as well in recent times.

Meanwhile, you’ll see that National Beverage has gross and operating margins that are much lower than Monster Beverage’s yet it can do no wrong in the markets. National Beverage might be growing the top line faster, but even with the energy-drink scare facing consumers, Monster Beverage has much better margins and is still the better company in my opinion.

FIZZ stock is surprisingly resilient.

Biggest Surprises of 2017: Universal Display (OLED)

Universal Display Corporation (NASDAQ:OLED)

YTD Gain: 127%

Back in December 2013, I called Universal Display Corporation (NASDAQ:OLED) one of the five best stocks to own for the next 20 years. Since then it’s up 44% on an annualized basis through Q3 and 127% year to date.

What’s surprising isn’t that the OLED market continues to grow, a market that Universal Display helped pioneer, but rather that the company’s best days are still ahead of it.

In the first six months of 2017, OLED saw operating income increase by 98% to $73 million on a 68% increase in sales to $158 million. Most importantly, operating margins rose by 700 basis points in the first half of the year compared to the same period in fiscal 2016.

With OLED displays making its way to the new iPhone X and OLED lighting ready to make a splash in the lighting market, Universal Display could just be one of the best stocks to own in perpetuity.

Biggest Surprises of 2017: Stamps.com (STMP)

YTD Gain: 78%

It’s hard to believe that any company with the word “stamp” in the name is doing well in 2017, but that’s precisely the case for Stamps.com Inc. (NASDAQ:STMP), the California company that got its start back in 1996 selling postage online.

STMP stock is up 78% through Q3 and an astonishing 24% annually over the past 15 years, almost three times the S&P 500.  It got to this place by understanding its customers and making the acquisitions necessary to service its clients properly.

As e-commerce grew, Stamps.com acquired ShippingEasy, ShipWorks, and ShipStation between 2014 and 2016, three services that allow it to provide multi-carrier shipping solutions to those participating in this growing sector of the retail industry. No longer just about stamps, although its customized postage business is booming, Stamps.com should continue to benefit from the transition to an omnichannel retail industry.

In August, I called STMP one of the seven best momentum stocks to buy in this current market environment that appears to be shifting to value.

Did I see an old-school play deliver as it has in 2017? Not on your life.

Biggest Surprises of 2017: IAC/InterActive (IAC)

YTD Gain: 81%

Barry Diller’s five years from octogenarian status and yet the long-time media owner and executive continues to make things happen in the world of business; IAC/InterActiveCorp (NASDAQ:IAC) shareholders are the direct beneficiaries of his latest moves.

IAC stock is up 80%-plus through the third quarter, its best annual performance in more than a decade. More surprising is the fact that its stock’s come alive after three years of moribund returns. What’s gotten into the collection of media properties?

Well, the market’s finally starting to recognize the value of its media properties other than its ownership stake in both Match Group Inc (NASDAQ:MTCH) and the soon-to-be-merged entity between Home Advisor and Angie’s List. Whether we are talking about Investopedia or the Daily Beast, Vimeo or SlimWare Utilities, investors have come to realize that those assets are worth more than the markets were valuing them.

To a certain extent, the market’s still not valuing its other assets appropriately. According to IAC’s Q2 2017 shareholder letter, those other assets now have a negative enterprise value of more than $800 million.

IAC is not Yahoo.

Biggest Surprises of 2017: Mercadolibre (MELI)

Mercadolibre inc meli stock

YTD Gain: 71%

I wouldn’t find it surprising, but many investors probably do. Mercadolibre (NASDAQ:MELI), what some call the Amazon of Latin America but has more in common with Alibaba Group Holding Ltd (NASDAQ:BABA), is up 71% year to date through Q3.

It seems odd that an e-commerce company can flourish in a place with so much political, economic, and currency instability, but that’s what MELI’s been doing, and it shows on the score sheet. Over the past decade, Mercadolibre’s growing its earnings from $85 million in 2007 to $1.1 billion in the 12 months ended June 30, 2017. At the same time, operating earnings grew from $22 million to $212 million over the same period.

Stock prices follow earnings. That’s why it’s returned 22% annually over the past decade for shareholders.  In early September I suggested that MELI was a more conservative play on e-commerce and the emerging markets than BABA. I still feel that way although I think BABA is going to be the bigger winner long term.

I believe MELI could be one of the best investments you could make in Latin America. Only time will tell if I’m right.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Article printed from InvestorPlace Media, https://investorplace.com/2017/09/10-stocks-that-surprised-everybody-through-q3/.

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