Looking for the best performing stocks? You’re not alone.
The worst bear market since the Great Depression ended March 9, 2009. Since then, stocks have been on a roll, with the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 all up at least 100%.
As expected, some shares climbed in step with those indices, others soared and plunged, and some still continue to climb.
With Wall Street set to make another run at a four-year high, retail investors are increasingly on the lookout for today’s best performing stocks. More importantly, with investors’ hopes pinned to economic stimulus from the central banks, everyone is also looking to find tomorrow’s best performing stocks.
Finding the best performing stocks, before they climb into the best performing stocks category, is not an easy task. If it were easy, we would all be millionaires. But the truth of the matter is it’s difficult to find what we hope will become best performing stocks.
With an endless stream of economic data, earnings results, analyst reports, and technical trends to follow, it’s easy to see why so many investors are at a loss to figure out where the market is going at any given time…and where the best performing stocks are going to surface.
Add to that the fact that investors are not the most rational group of people, and you can see why finding the best performing stocks is difficult. Further, related and seemingly unrelated events can affect a stock’s price for whatever reason.
A couple of years ago, The New Yorker magazine ran a cartoon that shows a man in Manhattan running after a fedora that the wind swept off his head. The image’s caption reads: “Stocks tumble as market reacts to man losing his hat at Broadway and Forty-Second Street.”
Sadly, in these tough economic times, it’s easier to stumble onto the worst performing stocks than it is the best performing stocks. With fewer indexes performing well, it might be more difficult to find untapped gems in the Dow Jones U.S. Footwear Index than it would be in the Dow Jones U.S. Platinum & Precious Metals Index.
Where do you point your diving rod when searching for the best performing stocks? You should be able find the best performing stocks almost anywhere; it’s just going to take some work and patience.
The truth of the matter is that most stocks have yet to regain the prices they sported before the Dow Jones Industrial average peaked on October 9, 2007 at 14,164. While the recession justifiably sucked the wind out of some over-bloated stocks, there are still a large number of undervalued stocks out there; some that will, over time, rise into the best performing stocks category.
On the one hand, that means that there are a lot of well-managed, fundamentally solid stocks out there with plenty of room to run. On the other, some stocks have already had a field day. Of the 500 stocks in the S&P index, 31 have doubled or better since the market, as a whole, peaked on October 9, 2007. (Source: The Star-Ledger, July 29, 2012.)
Since then, which have been or are now the best performing stocks? Not Apple; they did do exceptionally well, just not well enough to beat these best performing stocks. Think of the Negotiator…William Shatner.
Here are four of the best performing stocks from the last five years.
priceline.com Incorporated (NASDAQ/PCLN) – Based in Norwalk, Connecticut, priceline.com offers an Internet marketplace that allows people to find bargains on hotels and airline tickets. Actor William Shatner, of Star Trek and T.J. Hooker fame, is this best performing stock’s spokesman.
Since October 9, 2007, priceline.com has seen its share price climb over 700% in value. While it currently sells for 10 times book value (corporate net worth per share), six times revenue, and roughly 25 times earnings, JPMorgan believes the firm has room to grow its European market and continues to like the shares on the recent post-earnings pullback.
Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN) – The second best gainer and best performing stock in the pharmaceutical sector is Alexion, having gained 459%. Based in Cheshire, Connecticut, Alexion is expected to post about $1.1 billion in revenue this year, quadruple the total of four years ago. It specializes in drugs related to the immune system.
While Alexion’s share price has been on a tear lately, it could still have legs. The company’s share price powered higher on takeover talks suggesting that Roche Holding AG (OTCBB/RHHBY) could bid as high as $128.00/share for the company. Even without this news, this is a solid, fast-growing company with earnings per share (EPS) growth of 37% and revenue growth of 46%. (Source: Seeking Alpha, August 23, 2012.)
Ross Stores, Inc. (NASDAQ/ROST) – Thanks to the depressed economy, a number of discount retailers have climbed into the best performing stocks category. Ross Stores, which sells clothes and household items at a discount, has appreciated 397% while the economy sputtered. With more than 1,000 “Ross Dress for Less” stores in 29 states, the Pleasanton, California company has posted a 25% earnings growth rate the past five years. Analysts expect more of the same.
Flirting with a new 52-week high, Ross Stores could continue to benefit from thrifty shoppers and continued pressure on the U.S. economy.
Dollar Tree, Inc. (NASDAQ/DLTR) – With numbers like these, you may become a tree hugger. Dollar Tree is a discount retailer selling in-store items for a dollar. Whether you need sandwich bags, toilet cleaner, party favors, or pencils…Dollar Tree is all you need. Hard times have been kind to Dollar Tree. While some think an outbreak of prosperity could hit Dollar Tree’s bottom line, it is also possible that consumers like the idea of saving money. In a sagging market, this best performing stock gained 272%.
What does this all mean? For starters, these best performing stocks would be perfect for your portfolio if you had a time machine. Buying these stocks right now means getting in near their current top. Chances are you want to buy the best performing stocks before they actually become the best performing stocks. You want to predict what the best performing stocks are before they rise 200%…not after.
That said, there are a few things you can look at when searching for tomorrow’s best performing stocks. Three of these stocks outperformed the market because their products fit with tough economic times. Chances are…if you knew the markets were going to start crashing in 2008, you would have probably checked out priceline.com, Ross Stores, and Dollar Tree. (Alexion filled a niche market.)
If you want to find the best performing stocks, you’re going to have to do some due diligence. It’s not fun, but it is a necessity.
When considering a stock, consider what it is the company actually does and if there’s a growing need for it. Is the stock following the herd or is it a leader in a niche market? This may seem obvious, but when you look at some of the stocks investors throw their money at…you can see that informed investing is not obvious.
Now that we’re half way through the third quarter, it might be prudent to look at some of the best performing stocks year-to-date on the Dow Jones Industrial Average. Instead of simply listing the top-5 best performing stocks, it is more advantageous to look at the best performing stocks from some of the best performing industries. Otherwise, we could end up with a list heavy with pharmaceuticals or precious metals or stocks from another market sector. When it comes to finding the best performing stocks, diversity is important.
Also, the list will skip tiny penny stocks with no volume and bad fundamentals. After all, it doesn’t take much unfounded hype for a $0.02 penny stock with daily volume of 2,005 to climb to the top of the list of best performing stocks. Besides, stocks that have low volume are easy to buy…but in some cases, virtually impossible to sell.
When looking for the best performing stocks, take a look at what the company is offering and its market potential. The best performing stocks are those companies that will grow over time because their products have real potential.
For example, a pharmaceutical company that has a late-stage development drug that tackles Parkinson’s disease has real market potential. A company selling a kit that includes a ruler, nails, and a hammer and tells you the picture frame-hanging business has a U.S. target audience of over 311 million, may indeed have a potential market…but it doesn’t have real revenue potential.
For Arena Pharmaceuticals, Inc. (NASDAQ/ARNA) investors, the size of the potential market for its FDA-approved weight-loss drug, “Belviq,” is huge. According to the Food Research and Action Center, 63.7% of American adults are overweight or obese. (Source: FRAC.org). That means Arena has a massive U.S. target audience of 198 million. Or, to put it another way, that’s nine times larger than the U.S. market for erectile dysfunction. (Source: urologyhealth.org.)
With just two drugs approved by the FDA for weight loss in the last decade, the market for Arena’s Belviq is enormous. This may explain why this best performing stock has seen its share price climb 331% since the beginning of the year. Currently trading around $8.50, Arena’s share price could surge higher after the Drug Enforcement Administration (DEA) reviews the FDA’s recommendation and determines the final scheduling designation.
Once Belviq becomes available to patients and physicians in the U.S., Arena could continue its reign as one of the market’s best performing stocks.
High gas prices may have hurt some vacationers, but it hasn’t prevented Patrick Industries, Inc. (NASDAQ/PATK) from being one of the best performing stocks in the Dow Jones Building Material and Fixtures Index. The company makes and distributes a range of building materials and prefinished products, primarily for the manufactured home (MH) and recreational vehicle (RV) industries.
The company’s robust revenue growth, solid stock price performance, impressive record of EPS growth, notable return on equity, and attractive valuation levels have all helped the company’s share price climb 209% year-to-date and made it one of the industry’s best performing stocks.
Patrick Industries reported significant year-over-year second-quarter revenue and EPS growth; in addition, it demonstrated a pattern of positive EPS growth over the past two years.
During the past fiscal year, Patrick Industries increased its bottom line by earning $0.81 versus $0.11 in the prior year. This year, the market expects an improvement in earnings ($1.45 versus $0.81). (Source: The Wall Street Journal online, July 6, 2012.)
The best performing stock in the Computer Hardware Index is 3D Systems Corporation (NYSE/DDD). Based out of Rock Hill, South Carolina, 3D Systems helps product designers and engineers bring their concepts to life. The company’s stereolithography apparatuses and other machines create 3-D prototypes of everything from toys to airplane parts.
Strong financial results and an encouraging outlook has helped 3D Systems’ share price climb 198%. In late July the company announced that revenue for the first six months was up approximately 57% at nearly $162 million; net income was up 52% at $27.1 million; and EPS was up 44% at $0.52 per share. The company has a one-year projected EPS growth rate of 25.5%.
Will 3D Systems continue to be one of the best performing stocks? Or, having recently hit a new 52-week high, is the company’s share price taking a breather?
The Mortgage Finance Industry may not sound like the most exciting index, but pick the right stock and your portfolio will thank you. Since January, Tree.Com, Inc. (NASDAQ/ TREE) has seen its share price climb 174%. This best performing stock allows users to comparison-shop for home loans through its most prominent branch, LendingTree.com, which helps match home buyers with lenders.
In July, Tree.Com announced that ten lenders joined the LendingTree.com network, growing the lender network by 56 members since January 2012. Currently, the LendingTree.com lender network has 329 members.
In June, the company consolidated operations when it finalized the sale of its Home Loan Centre, Inc. business for $49.5 million. An influx of cash and streamlined business model should help improve Tree.Com’s bottom line going forward.
Following strong gains, Tree.Com’s share price could give up short-term ground to profit taking; but the company’s strong balance sheet and positive outlook means it could continue to be one of the industry’s best performing stocks.
Running to keep up in the U.S telecom race, Sprint Nextel Corporation (NYSE/S) may be the third top wireless carrier, behind Verizon Communications Inc. (NYSE/VZ) and AT&T Inc. (NYSE/T), in terms of subscribers, but it’s the telecom leader when it comes to being the best performing stock. Since the beginning of the year, Sprint’s share price has climbed 117%. Over the same timeframe, Verizon’s share price has gained 11%; AT&T’s is up 26%.
In July, Sprint raised its earnings forecast for the year and reported higher-than-expected quarterly revenue, as its wireless customers increased spending, and its shares rose nearly 16%. The company also posted a wider quarterly loss, because it took hefty charges for the planned shutdown of its old Nextel network.
Because the company is shutting down its Nextel network earlier than it had previously expected, it may be able to generate savings from the change sooner than anticipated.
“Give credit where credit is due,” wrote analyst Jennifer Fritzsche at Wells Fargo Securities. “…[M]ore than any in recent history [Sprint’s results] illustrate that the fruits of Sprint’s labor are finally being seen.” (Source: Kansas City Star, July 26, 2012.)
What does the future hold for one of the best performing stocks in mobile telecommunications? Sprint is the proverbial Wall Street underdog—a comeback story that is just getting started. Sprint is presenting more upside than at any period over the last number of years. And for that reason, this best performing stock should stay on your investing radar.
Finding the best performing stocks after they’ve made strong triple-digit gains and have been discussed ad nauseam by Jim Cramer and others is not a difficult task. Unfortunately, by the time we hear about them the chance for really great returns has vanished. In fact, by the time we get any hot tips about a stock, chances are it’s too late to enjoy any gains.
The best time to add the best performing stocks to your portfolio is to do it before they are actually crowned the best performing stocks. The future best performing stocks are the ones that are mostly ignored today, either because they have been deservedly kicked to the curb, or because someone dropped their fedora on Broadway.
The key to tracking down future best performing stocks is to pay attention to the news and trends; keep your eyes open when you go for a walk, go shopping, or go to the movies, a restaurant, or bar. You might be surprised with what’s actually publicly traded on Wall Street. The future best performing stocks are waiting in plain sight.
If the market crash of 2008 showed us anything, it’s just how irrational investors can be. People were selling the market’s best performing stocks with reckless abandon…for pennies on the dollar…for no good reason. The herd said “Sell,” and everyone did, leaving a bevy of undervalued stocks waiting for more optimistic, rational days. Some have rebounded into the best performing stocks; others are lying in wait.
With good analysis and a little (lot) of luck, you too might select one of the year’s best performing stocks.