The second quarter of 2019 has ended and that means we’re at the halfway point in the Best Stocks for 2019 contest.
Over the last three months, trade-war headlines and Federal Trade Commission announcements kept the markets interesting to say the least. But the S&P 500 and Dow are making new all-time highs, and the Nasdaq is close to doing the same.
In the Best Stocks contest, we had wild swings as marijuana stocks briefly fell out of favor and the trade war hit some stocks more than others. While the stock that finished in first place clearly broke away from the pack, the race was tight between second and fifth places.
So without further ado, let’s take a look at how each of the Best Stocks’ competitors did in Q2.
Syrah Resources (SYAAF)
Investor: Eric Fry
Year-to-Date Change Through Q2: -40%
Syrah Resources (OTCMKTS:SYAAF) is an all-in bet on the electric vehicle revolution — and revolution hasn’t come just yet. No matter which auto company ends up dominant and which battery they use, the anode on these batteries must be graphite. And SYAAF holds the largest graphite mine in the world.
Right now, however, Syrah is cash flow-negative and the current demand for graphite isn’t enough to drive it.
But Eric Fry points out two positives:
“Syrah has been narrowing its operating losses, mostly by mining its graphite more efficiently … Quarterly cash-flow from operations has improved from a low of -$41 million in September 2016 to -$8 million in the most recent quarter. But a minus sign is still not a plus sign.
SYAAF is in the process of issuing new debt and equity to raise an additional $78 million. But this new cash isn’t coming cheap. In order to attract these funds, the company is issuing stock at 56 cents a share — a steep 20% discount to where the stock was trading before the company announced this financing.”
However, the stock has one thing going for it in this contest. As of this writing, SYAAF trades at just 61 cents and has a market cap of $213 million. And the best stocks for 2019 contest counts percent gained. That means less is needed to move the needle here than with other stocks on this list — namely the Reader’s Choice.
Investor: Kyle Woodley
YTD Change: -28%
Those who follow the markets even casually won’t need an explanation for a nearly 35% drop in a Chinese stock over the last three months. Of course it was the trade war.
Weibo (NASDAQ:WB), the Chinese microblogging platform, has little to do with trade between the U.S. and China. But it has been caught in the crossfire nonetheless.
As Investorplace’s Luke Lango writes:
“Broadly speaking, Weibo is China’s Twitter (NYSE:TWTR). But, Wiebo has more users than Twitter, is more profitable than Twitter, and is growing more quickly than Twitter. Despite all that, Weibo has a market cap about half that of Twitter. Why? ARPU rates. Weibo monetizes its users less than Twitter. This is just a time issue.”
WB’s growth — particularly when it comes to digital ads — has stalled out as a result of the macro concerns surrounding the Chinese economy, largely as a result of the trade war.
Weibo reported earnings of 56 cents and revenues of $399 million for the first quarter, both beating expectations and showing large amounts of growth from the year-ago quarter. But WB fell on lowered Q2 guidance.
So WB stock’s outlook for the second half largely depends on the trade war. If it continues, the stock will likely stall out, but if an agreement is finally reached, look for a nice pop in the price.
Canada Goose (GOOS)
Investor: Will Ashworth
YTD Change: -11%
Canada Goose (NYSE:GOOS) had posted at 10% YTD gain by the end of Q1, and it has now swung just as far in the opposite direction. The main culprit? A May 29 earnings report that showed the clothing brand’s explosive growth is finally slowing.
But InvestorPlace’s Will Ashworth thinks that this slowing growth is not only okay, it’s inevitable:
“Canada Goose, like all growth stocks, is moving through a transitional period, where it goes from the ‘It’ brand to something more sustainable with the corporate infrastructure in place to meet the increased demand. ”
With the shock of slowing growth already priced into GOOS stock, the second half should hold more gains as margins improve and the company’s expansion into China continues to take hold.
Investor: Charles Sizemore
YTD Change: 3.7%
LyondellBasell (NYSE:LYB) has jumped from 9th place to 7th over the course of Q2. With a gain of just 3.7% YTD, this just goes to show the current volatility of the market. So what happened for LYB this quarter?
First, and best for LYB stock price, LyondellBasell walked away from a merger with Brazilian chemical company Braskem in early June. Shares ripped higher on the news. LYB shares hit a multi-year low on May 31, and gained 16% in the month of June.
Is there more growth ahead for LYB? It’s a plastics company, so it’s rightfully under increased scrutiny and regulation when it comes to environmental impact. But Sizemore believes LYB is positioning itself well for a more environmentally conscious world:
“LYB is not quietly waiting for its business to be regulated into extinction. The company recently announced a partnership with Finnish refiner Neste to begin commercial-scale production of bio-based plastic from renewable materials, and the company has numerous other green initiatives. Environmentalists may never love the company. But LYB is giving fewer reasons to hate it with every passing day.”
LyondellBassell also has a dividend payout of 4.8%. The higher yield is at least partially attributable to stock price, the company has steadily increased its dividend since its introduction seven years ago and still has a low payout ratio of just 36%.
Viper Energy Partners (VNOM)
Investor: Neil George
YTD Change: 21%
Petroleum-company landlord Viper Energy Partners (NASDAQ:VNOM) has fallen from third place to sixth over Q2. This isn’t great. But since VNOM is a property holder, not directly a petroleum producer, it misses a lot of highs and lows of the industry.
Consider Diamondback Energy (NASDAQ:FANG), which originally set up the company. It’s stock chart for the year looks more like a rollercoaster than most stocks described as such — and it’s only up 16% in the first half. If you’re looking for a thrill ride, go with a more traditional petroleum play, but if you’re looking for an investment, VNOM is safer, albeit less exciting. Neil George writes:
“Petroleum prices never, ever keep going in one direction for long. There is a constant flow of supply and demand estimates and news and analysis that send prices for crude oil and natural gas up or down day by day and week by week … So, zero or infinity pricing just isn’t in the cards for petroleum products. Rather than placing bets on oil soaring or plummeting, I’ve focused primarily for the longer-term on companies that go about their businesses whether crude oil prices are popping or dropping”.
George also points out that at current prices, VNOM is cheap. It trades at just 2.37 book value. VNOM also has a dividend yield just below 5%, which is incredible for a stock that’s doubled in value since just June 2017.
VNOM may have fallen this quarter, but it definitely still has the potential to take the crown.
Investor: Readers’ Choice
YTD Change: 29%
Readers’ Choice stock Amazon (NASDAQ:AMZN) waned in the last few days of Q2. When I wrote the update on June 26, the e-commerce giant was a hair’s breadth from second place, but it ultimately finished the first half in fifth. That just shows the close nature of the Best Stocks for 2019 contest.
Readers don’t need to wonder if Amazon has more to come in 2019. It’s Amazon, of course it does. Next week, Amazon has its now two-day long Prime Day. Last year, AMZN sold $1 billion worth of profits in 36 hours with a site outage.
Furthermore, the company’s famous two-day Prime shipping is being cut to one day. The initial cost will hit Amazon’s profit in the Q2 report, but the move should further establish dominance for the company over Walmart (NYSE:WMT), Target (NYSE:TGT) and other traditional brick-and-mortar retailers.
Of course the threat of government regulation looms large, especially when President Donald Trump targets Amazon by name at random. But will the current government manage to enact any regulation in the next two quarters? How efficiently has the current administration accomplished other pet projects for the president?
Regardless of whether regulation comes this year, next year, or in a future presidential administration, the back half of 2019 is unlikely to be boring for AMZN stock.
Investors: John Jagerson and Wade Hansen
YTD Change: 33%
After holding the second spot for some time, software company Adobe (NASDAQ:ADBE) finished the quarter in fourth. John Jagerson and Wade Hansen still believe ADBE stock is undervalued based on its fundamentals.
Over the past few years, Adobe has been shifting most of its software to a subscription model, which has done wonders for ADBE’s top and bottom lines. But as John and Wade said:
“Revenue and EPS have been rising with the stock’s price, but its earnings multiple remains near historical lows … The point behind a value-price comparison like this is to determine if investors are paying more, or less, for each dollar of earnings than they have in the past. Because growth is still strong, paying less for the stock now indicates the likely probability that the shares are still undervalued.”
This means there’s likely more growth ahead for ADBE stock. But will it be enough to beat out the competition?
Investor: Jason Moser
YTD Change: 40%
Teladoc (NYSE:TDOC) made a last-minute sprint for third place as the first half drew to a close. TDOC rallied 10% in the last three sessions of June, winning the tight race for third among ADBE and AMZN.
Teladoc reported some great Q1 earnings and crossed 1 million doctor’s visits for the first time, despite a weaker flu season. This company specializes in telehealth, or remote doctors’ visits and other healthcare services. This places it at the forefront of the evolving healthcare industry, and its explosive growth shows that.
“The business is still unprofitable but what else is new? Profitability will come in time and management reiterates that the company will be cash flow positive for the first time in 2019 so we’ll hold them to that target,” wrote Jason Moser of The Motley Fool.
TDOC has a growing business and investors are excited about it. Moser also anticipates additional partnerships with more traditional healthcare companies to be announced in the remainder of the year, meaning there’s likely share price growth ahead as well.
Investor: Louis Navellier
YTD Change: 52%
In Q2, the race was close … for second place. Lululemon (NASDAQ:LULU) was previously in first.
The athleisure company, which Louis Navallier called “the North Star of retail clothing stocks,” reported a remarkable double-beat-and-raise Q1 that showed the company is still growing — and fast. The company also reported same-store sales of 14% compared to the expected 11.6%.
Navellier cautioned that the ongoing trade war could lead to disappointing Q2 earnings for LULU, but also talked about many upcoming growth areas for the company:
“LULU is now in expansion mode. It has built out its e-commerce business and is expanding its brick and mortar presence.
Along with that expansion Lululemon has begun to offer yoga classes in some stores. It also keeps a tight rein on its brand, so it has complete control of its margins. This is one of the secrets of its success.
Lululemon has even expanded its brand to include men’s and children’s lines as well. It has also launched a membership program that’s still in beta testing, and just this week announced that it’s going to begin a line of personal care products with Sephora.”
Can LULU reclaim the top spot? Definitely.
Charlotte’s Web Holdings (CWBHF)
Investor: Matt McCall
YTD Change: 71%
A 71% gain for a stock at the halfway point doesn’t seem disappointing — unless the stock was up 81% at the end of Q1. This is the case for Charlotte’s Web holdings (OTCMKTS:CWBHF). But, as Matt McCall wrote, marijuana isn’t just the hot sector of the moment, it’s a sector at the beginning of a long-term growth narrative.
“Interest in sectors and asset classes ebbs and flows, and because the marijuana industry has been flying so high in recent months, we were overdue for a short-term correction.
We’re seeing that now. But don’t make the same mistake a lot of people are making. Don’t sell your holdings because some idiot tells you ‘the marijuana bubble has popped.’
Instead, focus on the long-term picture.”
A number of things happened in Q2 that should help CWBHF in Q3. The company named a new CEO, Adrienne Elsner, a former Kellog’s (NYSE:K) executive. As McCall pointed out, her former position will help Charlotte’s Web focus more on branding going forward. In Canada, CWBHF is now trading on the Toronto Stock Exchange. The next stop is the Nasdaq or New York Stock Exchange.
In the days since Q2 ended, CWBHF has already reclaimed the top slot, meaning this is definitely one to watch for the rest of the year.
As of this writing, Regina Borsellino held no positions in the aforementioned securities.