Future winners? We'll see
By John Dorfman
Published: 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 firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- McCutchen proposes to girlfriend on DeGeneres show
- Police: Driver fell unconscious before Seton Hill bus crash
- Pirates make inquiry into former Cy Young winner Johan Santana
- Starkey: NHL stuck in stone age
- Jeannette man accused in assault with tire iron
- Theft charges added against Penn Hills father, son accused in TV converter box scheme
- For the rest of us: Festivus pole put up at Florida Capitol
- PNC plans to do away with tellers
- RBS paying $100M to settle US, NY sanction claims
- Pirates sign Morton to 3-year extension
- Steelers defense’s rapid decline looks similar to that of Steel Curtain’s