TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Future winners? We'll see

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

Daily Photo Galleries

'American Coyotes' Series

Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

Tuesday, Jan. 29, 2013, 12:01 a.m.
 

Some of the stocks that led the stock market's rally the past two weeks probably will be among the market's leaders in the future.

At least, that's what a little study I did over the weekend suggests.

The current rally featured eight straight up days, ending Friday.

The last time the stock market saw a streak like that was in 2004, when the market rose nine days in a row in the fall.

This weekend, I studied the fate of the 10 stocks within the Standard & Poor's 500 Index that led that 2004 rally. Most of them have gone on to continued gains — often huge gains.

Intuitive Surgical Inc. (ISRG), which was the third-hottest stock in the 2004 rally (up 29 percent in nine days) has gained an additional 1,774 percent from Nov. 4, 2004, through Jan. 25, 2013.

F5 Networks Inc. (FFIV), which was up 29 percent in the 2004 rally, has added 396 percent since.

The leader in the 2004 streak was Nvidia Corp. (NVDA), up 32 percent in nine days. Since then, it has tacked on an additional 112 percent.

As a group, the 10 stocks that led the rally eight years ago have advanced 269 percent since then, compared with 53 percent for the S&P 500 Index, which is a decent proxy for the stock market as a whole.

Of course, not every leader in the fall of 2004 has gone on to greater heights. Two of the 10 best stocks in that rally are down since then. Zimmer Holdings Inc. (ZMH) has declined 7 percent, and Harman International Industries Inc. (HAR) has fallen 59 percent.

Cardinal Health Inc. (CAH) has advanced 48 percent, but failed to beat the S&P 500. Express Scripts Holding Co. managed only a 1.5 percent return.

Eight-year returns for the three other stocks that led the 2004 rally were 242 percent for Humana Inc. (HUM), which I own personally and for clients; 102 percent for Aetna Inc. (AET); and 85 percent for PerkinElmer Inc. (PKI).

These are mixed results, but are enough to suggest that it's worth taking a look at the leadership in the market's latest streak.

In the latest rally, the 10 best gainers within the S&P 500 are: Netflix Inc. (NFLX), up 64 percent; Genworth Financial Inc. (GNW), up 18 percent; Life Technologies Corp. (LIFE), up 18 percent; KLA-Tencor Corp. (KLAC), up 15 percent; H&R Block Inc. (HRB), up 15 percent; Nabors Industries Ltd. (NBR), up 15 percent; Chesapeake Energy Corp. (CHK), up 14 percent; PulteGroup Inc. (PHM), up 13 percent; Morgan Stanley (MS), up 13 percent; and Intuitive Surgical (ISRG) up 13 percent.

The gains cover the period from the Jan. 14 close through Friday.

Look who's in the No. 10 spot: It's none other than Intuitive Surgical, a leader in the 2004 rally and a leader in the 2013 one as well. The Sunnyvale, Calif., company makes surgical instruments such as endoscopes, retractors and ultrasonic cutters.

Because I'm a value investor who seeks out undervalued situations, Intuitive Surgical is not for me. The stock sells for 36 times earnings, 6 times book value and 10 times revenue. I look for stocks at less than 15 times earnings, less than two times book value, and/or less than two times sales.

The biggest winner lately has been Netflix, which posted a 13-cent-a-share gain for the fourth quarter when analysts had expected a 13-cent-a-share loss. Selling at more than 500 times earnings, Netflix isn't my cup of tea either. But there are a few stocks among the rally leaders that I like.

I see potential gains in Genworth Financial Inc. The Richmond, Va., company offers life insurance, mortgage insurance and long-term-care insurance. Its stock sells for less than book value.

Nabors Industries Ltd., an oil and gas drilling company based in Bermuda, is also selling below book. It looks attractive to me, although most analysts rate it only a “hold.”

I think KLA-Tencor is a good purchase for long-term investors, though I wouldn't expect much action in the next six to 12 months. The Milpitas, Calif., company makes process-monitoring equipment for semiconductor manufacturers. It has been consistently profitable except in fiscal 2009, the heart of the Great Recession.

More timely but more speculative is PulteGroup Inc. of Bloomfield Hills, Mich., a homebuilder. Pulte's valuations fail my normal tests, but I believe that homebuilders are in the early stages of a long and strong comeback.

John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at jdorfman@thunderstormcapital.com.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Stories

  1. Rossi: Looking at the next great Steeler
  2. After early criticism, Haley has Steelers offense poised to be even better
  3. Steelers swap draft pick for Eagles cornerback
  4. McCullers’, McLendon’s prowess in clogging trenches crucial to Steelers defense
  5. Reds solve Cole, stave off Pirates’ 9th-inning rally
  6. Penguins not alone in top-heavy approach to salary cap
  7. Roman Catholic Church in midst of culture clash over gays
  8. Shell shovels millions into proposed Beaver County plant site
  9. High school notebook: Baseball standouts showcase their skills for pro scouts
  10. Steelers notebook: Injuries finally become issue at training camp
  11. Pirates notebook: New acquisition Happ more than happy to fill spot in rotation