Stock Market Winners in a Trendless Market

Stock Market Winners in a Trendless MarketCan the stock market go higher? Absolutely, it can. There’s no particular reason why it should, but because the market is appropriately valued, an earnings multiple expansion is fair game. Investor sentiment is decent right now and the bad news flow on the sovereign debt crisis in the eurozone has temporarily abated. And while it’s more difficult to make money in a stock market without any real trend, there have been some major stock market winners recently.

Take, for example, Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN), which is one of those stock market winners only selling one drug. The company has made a pile of money for shareholders. Currently, the company has one approved drug called “Soliris,” which is the only drug in the world right now that can treat patients with paroxysmal nocturnal hemoglobinuria (PNH), a rare, life-threatening blood disease. Alexion reported sales of Solirisof nearly $275 million for the second quarter of 2012, compared to almost $186 million for the same quarter in 2011. Generally Accepted Accounting Principles (GAAP) net income was $36.3 million, or $0.18 per share, in the second quarter of 2012, compared to GAAP net income of $34.7 million, or $0.18 per share, in the second quarter of 2011. This stock more than doubled over the last 12 months and has quadrupled over the last two years.

Then there’s Ross Stores, Inc. (NASDAQ/ROST), which is an “off-price” discount retailer, operating over 1,100 stores in the U.S. Ross is one of those unique stock market winners; it’s made a pile of cash for shareholders in retail—which is a hyper-competitive, tough business to begin with. The firm’s position has doubled on the stock market over the last year, and it’s quadrupled over the last five years.

No doubt, major stock market winners are rare in a market like this. Most of today’s stock market winners are actually large-cap, dividend paying stocks in mature industries. (See “Stock Market Leaders Producing Solid Earnings Reports.”) They are the reason why the stock market averages are holding up so well.

We did have good speculative opportunities in resource stocks. There were many stock market winners in gold stocks before the correction in the spot price. Gold stocks have now corrected more than the actual spot price, and many are very reasonably priced on the stock market. As a group though, gold stocks require a rising spot price to advance, and institutional investors typically are late to the game and not very interested to begin with.

In this kind of market, existing winners are likely to be next month’s stock market winners. The leaders have the momentum in an otherwise trendless stock market. I think this market is poised to go a little higher over the next month or so, unless the Federal Reserve does nothing. If the Fed stands pat, another correction is likely.