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  (Steven Hughes for the Globe and Mail)

 

(Steven Hughes for the Globe and Mail)

Investing

Stars and Dogs: The best and worst investments of 2013 Add to ...

An airline soared. A Canadian tech superstar crashed. Shaky gold prices forced one massive miner to shake things up. The gold standard of social media led a dot-com revival. From Bay Street, a story of heavyweights. From shopping malls to yoga studios, a story of a company stretched too thin.

In their annual look back, John Heinzl and David Parkinson explore the ups and downs of the year that was.

THE STARS

 Air Canada

AC.B-TSX

Dec. 27, 2013 close: $7.49; Year to date: up $5.74 or 328%

It wasn’t so long ago that putting money in an airline stock was akin to putting it in one of those high-powered airplane lavatories and pressing the flush button – complete with the frightening whooshing noise as it was jettisoned into oblivion. But airlines are back, especially in Canada, where the major carriers have enjoyed a year in which the levels of filled seats on their planes have hit records. Air Canada has gone from the brink of bankruptcy a few years ago to an efficient and profitable flying machine, no longer quite so weighed down by massive debts. And its stock, up a mouth-watering 328 per cent in 2013, is the year’s biggest success story on the Canadian market. A healthier world economy deserves considerable credit, but so does Calin Rovinescu, whose turnaround artistry in the company’s pilot seat earned him Report on Business Magazine’s CEO of the Year honours.

David Parkinson

 Facebook

FB-Nasdaq

Dec. 27, 2013 close: $55.44 (U.S.); Year to date: up $28.82 or 108.3%

For a while, Facebook’s initial public offering looked like a sign of an impending stock market apocalypse. It was an overhyped, overpriced social media IPO that flopped, reminding many investors of the ugly path traced by many dot-com stocks more than a decade ago. But then the company did something those earlier dot-coms didn’t: It made money, lots of it. It also discovered effective ways to squeeze revenue out of the surging audience of mobile device users. Now the stock is more than 40 per cent above its IPO price, and more than double its levels of just six months ago. Facebook’s turnaround opened the doors for a hugely successful IPO from another social media giant, Twitter. The dot-coms are back, baby.

David Parkinson

 Netflix

NFLX-Nasdaq

Dec. 27, 2013 close: $367.50 (U.S.); Year to date: up $274.91 or 296.9%

At $7.99 a month for all the movies and TV shows you can watch, Netflix is a steal for viewers who binge on shows such as House of Cards and Orange is the New Black. Its stock price, on the other hand, is no bargain. A favourite of momentum traders who pile into fast-growing companies with little regard for valuations, Netflix was the biggest gainer on the S&P 500 in 2013. Since bottoming out at $53.80 (U.S.) in 2012, it has soared a remarkable 411 per cent. But even Netflix CEO Reed Hastings, who has already lived through one boom-bust cycle in the stock, warned investors to be careful: He credited the gains to “solid results compounded by momentum-investor-fuelled euphoria. Some of the euphoria today feels like 2003.” With the stock trading at a multiple of more than 200 times estimated 2013 earnings, Nextflix will have to show massive earnings growth or this movie could end badly – again.

John Heinzl

 S&P 500 Index

SPX-I

Dec. 27, 2013 close: 1,841.40; Year to date: up 415.21 or 29.1%

Canada trails the United States on a number of measures – population, gross domestic product, Olympic medals and firearm deaths per capita, to name a few. Now, you can add stock market returns to that list: The S&P 500 – the benchmark gauge of U.S. large-capitalization equities – posted a gain of 29.1 per cent in 2013, blowing away the 9.3-per-cent advance of Canada’s S&P/TSX Composite Index. It was the third year in a row that U.S. stocks beat their counterparts to the north, and for Canadians who bought the S&P 500, the returns have been even more impressive thanks to the sinking loonie. With U.S. companies sitting on more than $1.25-trillion (U.S.) in cash, investors have also been treated to dividend hikes and share buybacks. According to Howard Silverblatt of S&P Dow Jones Indices, S&P 500 dividends reached a record $310-billion in 2013, up from $286-billion in 2012, and there’s more where that came from. O say can you see all the money being made?

John Heinzl

 iShares S&P/TSX Capped Fin. Index Fund

XFN-TSX

Dec. 27, 2013 close: $29.05; Year to date: up $5.17 or 21.6%

Top five reasons to invest in Canadian banks:

1) They basically run the country

2) They’re an oligopoly

3) They make obscene profits – $29.4-billion for the Big Five in 2013, or $840 for every man, woman and child in Canada

4) They’re too big to fail

5) They have all your money, and possibly own your house, too.

It was hard to go wrong with bank stocks this year, which explains why XFN – an ETF that holds a diversified basket of banks, insurers and asset managers – posted a return roughly double that of the S&P/TSX Composite Index. It’s not clear if the Big Five will pull down record profits again in 2014 with the housing market possibly correcting, consumers tapped out and several banks announcing new CEOs. But for long-term investors, betting against these monolithic money-makers has been a bad idea.

John Heinzl

THE DOGS

 Barrick Gold

ABX-TSX

Dec. 27, 2013 close: $18.68; Year to date: down $16.14 or 46.4%

Gather ‘round, young uns, let me tell ya about the good old days. Way back in 2011-12, it was. The streets were paved with gold! Bullion was selling for $1,800 (U.S.) an ounce, not the crummy $1,200 it is today. Everyone wanted a piece of it, gold producers like Barrick were raking in the bucks, and they couldn’t keep the investors off with a stick. Big gold companies could buy all kinds of crazy-expensive assets, could cut their executives big fat compensation cheques, and no one would blink. We didn’t have these multibillion-dollar writedowns and mothballed projects and angry mobs of investors with torches and pitchforks screaming things like “new blood on the board” and “better governance,” like you kids have today. We also didn’t have these stock prices – why, a year ago, Barrick’s stock was worth almost double what it is today! I blame Obamacare.

David Parkinson

 BlackBerry

BB-TSX

Dec. 27, 2013 close: $7.83; Year to date: down $3.97 or 33.6%

Some dogs eat your slippers and pee on your rug, but they look up at you with those sad puppy-dog eyes and you forgive them. BlackBerry is more like one of those scary, wild-eyed disaster dogs with chronic behaviour problems that no amount of obedience training can rehabilitate; you’re tempted to just drive it out to the woods and set it free to fend for itself. The maker of high-tech paperweights topped a dreadful 2012 by being even worse in 2013 – stumbling from product flops to slumping sales to massive losses to executive dismissals to bungled efforts to find new ownership. Investors are hoping that new CEO John Chen and a recent cash injection can somehow rescue BlackBerry before it completes a final chapter in what has become the biggest disaster story of the smartphone era. They’d better hope Mr. Chen is another Hemingway, because that’s going to take some brilliant rewriting.

David Parkinson

 Lululemon

LULU-Nasdaq

Dec. 27, 2013 close: $59.16 (U.S.); Year to date: down $17.07 or 22.4%

Annus horribilis. Total bummer. Whatever you call it, 2013 was the year that cracks – both literally and figuratively – started to show in Lululemon’s growth story. First came the sheer yoga pants debacle that led to product recalls and sullied the brand’s image. Then founder Chip Wilson added to Lululemon’s woes by suggesting that “some women’s bodies just actually don’t work” with its pants. Distracted by PR embarrassments and under attack from lower-priced competitors, Lululemon’s results sagged: After years of hefty increases, same-store sales are expected to be flat in the fourth quarter. With new CEO Laurent Potdevin coming on board and Mr. Wilson poised to step down as chairman, it’s anyone’s guess if Lululemon will again be the butt of jokes in 2014 or if its bottom line will firm up.

John Heinzl

 Potash Corp. of Saskatchewan

POT-TSX

Dec. 27, 2013 close: $35.36; Year to date: down $5.12 or 12.7%

I’ve always been suspicious about the whole idea of mining for fertilizer – the stuff we used back home came from the back end of a horse, and I wouldn’t want to be on that mining crew. Still, potash has been a hot commodity as booming emerging markets sought to ramp up food production, and Canada is one of the few places you can get the stuff. So Potash Corp., as one of the world’s leading producers, was looking pretty good because of it. But this year, the potash market tumbled like a house of cards. Demand slumped from major markets such as China and India amid a sluggish economy, which was bad enough; but even worse was the breakup of the Belarus/Russia potash cartel, which essentially destroyed the global pricing system for potash and triggered a nasty price war. Now Potash Corp. is scrambling to slash capacity, costs and jobs.

David Parkinson

 Reitmans

RET.A-TSX

Dec. 27, 2013 close: $6.74; Year to date: down $5.31 or 44.1%

Tempted by stocks with plus-sized yields? The sorry saga of women’s clothing merchant Reitmans ought to serve as a wake-up call. The retailer – which operates Reitmans, Smart Set, RW & Co., Penningtons, Addition Elle and Thyme Maternity – has watched its same-store sales slide for years, hammered by a weak economy and growing competition from Target and other chains. Yet, until recently, Reitmans maintained its juicy dividend. Result: As the stock price plunged, the yield soared to more than 13 per cent. Under attack from short sellers and burning through cash to fund the payout, Reitmans finally chopped its dividend by 75 per cent in early December. Some investors think there’s value in the beaten-up stock – Prem Watsa’s Fairfax Financial scooped up 13.8 per cent of the class A shares – but it’s hard to see Reitmans rebounding without a complete makeover.

John Heinzl

Follow on Twitter: @johnheinzl

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