Bank of America Merrill Lynch traders work on the floor of the New York Stock Exchange, Tuesday, Aug. 23, 2011, in New York.Henny Ray Abrams
U.S. stocks have tumbled almost 15 per cent from a 52-week high three months ago, as investors moved out of riskier assets on signs the economy is slowing. Still, a diverse group of S&P 500 stocks, from MasterCard to Lorillard, have climbed as much as 84 per cent this year.
The S&P 500, the benchmark for equity investments in the U.S., is now down almost 8 per cent in 2011 after two years of strong gains. The decline is largely the result of a tumultuous August, when the U.S. saw its triple-A credit rating downgraded by Standard & Poor's for the first time in history following a tense debate over the debt ceiling. Stocks, as measured by the S&P 500, have slumped 10 per cent this month.
The poor handling of the debt issue by Congress is only one reason investors are more pessimistic than optimistic today, as many other concerns emanating from around the globe keep piling up. Europe's debt woes, driven by Greece, threaten to stall economic growth. Japan fell back into a recession after the earthquake and subsequent tsunami in March, and China, the engine of global growth, is stalling amid higher interest rates.
Banking and technology stocks have borne the brunt of declines in the U.S. Hudson City Bancorp, AIG and Bank of America are down more than 40 per cent this year, while Akamai Technologies, F5 Networks, Juniper Networks and Tellabs have plunged more than 44 per cent.
On the other hand, some large-cap stocks from a variety of sectors are posting big gains this year, supported by fat profit margins and increasing revenue growth. The 10 best-performing constituents of the S&P 500 are presented on the following pages, ranked by total return through the first eight months of the year. (Year-to-date returns are as of Aug. 25)
10. Discover Financial
Company Profile: Discover is a U.S. credit card issuer, and offers customers other consumer loans and deposit products.
2011 Total Return: 32.3 per cent
Unlike most financial stocks that have been mired in the red, shares of Discover have outperformed the market this year. In July, the stock hit a 52-week high of $28 shortly after Discover reported a 133 per cent increase in second-quarter net income. The jump in profit came thanks to an increase in card sales volume and total loans, as well as a decline in provisions for loan losses.
The conservative lending approach has made the stock a favorite among analysts. Thirteen researchers have a "buy" rating on shares, including FBR Capital and Sandler O'Neill, and another 10 say investors should hold onto shares. No Wall Street firm has a "sell" rating on the stock, according to a Bloomberg survey of analysts. The average price target of $29 represents upside potential of 17 per cent.
9. Wynn Resorts
Company Profile: Run by Steve Wynn, Wynn Resorts is the owner of the casino resorts Wynn Las Vegas, Encore at Wynn Las Vegas and Wynn Macau.
2011 Total Return: 33 per cent
Wynn continues to benefit from strength in Macau, with revenue in the Chinese gambling hub growing 37 per cent in the second quarter. However, Vegas was also a driver of earnings in the second quarter, as revenue climbed 23 per cent. Shares hit a 52-week high of $173 in July shortly after Wynn reported the results.
Analysts expect that shares will reverse the recent pullback, with the average price target of $165 representing upside potential of 17 per cent. Ten research firms have "buy" ratings on Wynn, including Jefferies, while another 17 have a "hold" rating on the stock.
8. Intuitive Surgical
Company Profile: Intuitive Surgical designs, manufactures and markets its da Vinci robotic surgical systems, EndoWrist instruments, and surgical accessories.
2011 Total Return: 34.5 per cent
Shares of Intuitive Surgical briefly topped $400 in July after the company posted second-quarter financial results. The company posted earnings of $2.91 a share on revenue of $426-million, which both topped analysts' expectations. The report was strong enough to push Goldman Sachs analysts to upgrade the stock the next day to "neutral" from "sell."
Another 11 analysts rate the stock "hold," according to a Bloomberg survey, while the remaining eight say investors should buy the stock. The average price target of $407.73 means analysts expect the stock to rise another 17.5 per cent from current levels.
7. Biogen Idec
Company Profile: Biogen Idec is a biotechnology company, developing drugs for neurological disorders.
Total Return: 35.2 per cent
Approval of a five-year marketing plan for multiple-sclerosis drug Tysabri in Europe and a positive study for Avonex, another MS treatment, have impressed Biogen's investors. Biogen's treatments have been delivering solid sales growth. The stock rocketed higher in April on first-quarter results and again in July on second-quarter earnings and sales, pushing to a 52-week high of $110.
Analysts are calling for upside of nearly 25 per cent, based on an average price target of $114.80. Fourteen analysts, including those at RBC Capital and Oppenheimer, say Biogen is a "buy." Another 10, including Goldman Sachs and R.W. Baird, say investors should sit tight. Only one firm recommends selling shares of Biogen.
6. AutoNation
Company Profile: AutoNation is the largest auto-dealership chain in the U.S. The company offers a range of automotive products and services, including new vehicles, used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
2011 Total Return: 35.9 per cent
Shares of AutoNation sit near an all-time high, but the stock is actually among the S&P 500 constituents with the largest negative gap between share price and analyst targets. According to a survey by Bloomberg, analysts have an average price target of $32.50, 17 per cent below current levels. Most analysts are neutral or bearish on the stock; AutoNation garners no "buy" ratings from the 14 analysts following the stock.
Despite the dour view of analysts, AutoNation continues to perform. Second-quarter revenue increased nearly 8 per cent, although that fell short of estimates due to shortages from Japanese manufacturers following the tsunami and earthquake.
5. Chipotle Mexican Grill
Company Profile: Chipotle Mexican Grill operates fast-casual Mexican food restaurants in 35 states throughout the U.S.
2011 Total Return: 36 per cent
Shares of Chipotle have pulled back from the stock's record high of $337 set in July. Last month, Chipotle missed Wall Street's profit expectations for its latest quarter because of higher costs. Operating margins shrank due to higher food costs, the company said.
Even so, analysts expect Chipotle to rebound to an average price of $333, which would be an increase of 11 per cent from current levels. Ten research firms following the stock, including Morgan Keegan and R.W. Baird, rate the stock a "buy." Another 14 say investors should hold shares, while two firms suggest dumping Chipotle stock.
4. Lorillard
Company Profile: Lorillard makes cigarettes and tobacco in the U.S., marketed under the brand names of Newport, Kent, True, Maverick and Old Gold.
2011 Total Return: 36.7 per cent
Lorillard garners eight "buy" ratings and four "hold" ratings from analysts. Goldman Sachs among the most bullish with a $123 price target, and Deutsche Bank is among the most skeptical with a price target of $103. The comes after Lorillard beat quarterly profit and sales expectations on improved cigarette volume and higher selling prices.
Lorillard made headlines as it was one of a group of tobacco makers suing the U.S. Food and Drug Administration, alleging that new graphic labeling rules are unconstitutional. Lorillard said requiring cigarette makers to display one of the nine new warning labels on each package is "an unconstitutional way of forcing tobacco manufacturers to disseminate the government's anti-smoking message."
3. MasterCard
Company Profile: MasterCard services and supports credit, debit and related payment programs to financial institutions.
2011 Total Return: 44.3 per cent
Shares of MasterCard have been gaining ground all year, but they really took off earlier this month after the company reported second-quarter results. Earnings were up 33 per cent as revenue jumped 22 per cent. Even the big investors are piling into MasterCard: During the second quarter, billionaire investor Warren Buffett doubled his stake in the card processor.
MasterCard is a darling among analysts, garnering a whopping 27 "buy" ratings from firms like Wells Fargo, Sterne Agee and RBC Capital. Another seven analysts have a "hold" rating on the stock, while one lone research firm says investors should sell the stock. Even after the rally this year, analysts expect the stock to rise 10 per cent to an average price target of $360.74, according to a survey by Bloomberg.
2. National Semiconductor
Company Profile: National Semiconductor designs and manufactures a range of semiconductor products, most of which are analog and mixed-signal integrated circuits.
2011 Total Return: 81.5 per cent
While many technology stocks have languished this year, National Semi has bucked the trend to be the second-best performer among all stocks in the S&P 500. The strong performance has little to do with how well National Semi is performing operationally. In April, Texas Instruments announced a deal to acquire the company for $25 a share in an all-cash transaction of about $6.5-billion.
For that reason, most analysts who still cover National Semi rate the stock "hold" with an average price target of $25. The deal is expected to close sometime later this year, according to the companies.
1. Cabot Oil & Gas
Company Profile: Cabot Oil & Gas produces and stores natural gas for resale. The company is involved in the Marcellus shale project.
2011 Total Return: 84 per cent
Oil prices have dropped as growth forecasts have been pared back, but Cabot should still see longer-term demand for natural gas. Unlike oil, natural gas is in abundance in the U.S. The company has been performing well, with revenue up 20 per cent in the second quarter. Cabot also reported a doubling of profits.
Even with this dominant performance in 2011 thus far, 12 analysts covering Cabot rate the stock "buy," including analysts at Brean Murray and Canaccord Genuity. Another eight research firms say investors should hold on to shares. Only one researcher has a "sell" rating on Cabot shares. The average price target of $93 suggests upside potential of more than 30 per cent.