The S&P 500 Index has risen 13 per cent in 2010 and is ending the year with a bang, as this month's gain is the best performance in almost two decades.
Every year has its big gainers, and this year's is a diverse group, ranging from the mundane -- two regional banks -- to the glamorous -- an international resort and casino owner.
And there is the usual representation of technology firms. Two of them are S&P 500 newcomers, F5 Networks and Netflix , which were added in mid-December.
Here is a look at the 10 best-performing S&P 500 stocks of 2010 and their prospects for next year. They are in inverse order based on their return.
10. Limited Brands is a specialty retailer of women's intimate apparel as well as beauty and personal-care products.
The company owns Victoria's Secret and Bath & Body Works, selling their merchandise through retail outlets, catalogs and Web sites. Revenue rose 13 per cent in the third quarter, compared to last year, beating analysts' 10% projection. Third-quarter net income more than quadrupled to $61-million.
Due to its strong cash flow and hefty cash balance, the company paid a $4 in special dividends this year. It also authorized a new $200-million stock-repurchase program. The company this week said it enjoyed a particularly strong holiday season, reporting a same-store sales increase of 10 per cent. Analysts had projected 4 per cent.
Outlook: Limited's stock has risen 86 per cent in 2010, including 22 per cent in the past three months. Analysts laud the company's effort to return value to investors via buybacks and dividends, but there is concern that the strength of its flagship Victoria's Secret brand could be eroded as discount retailers such as Target roll out their own line of undergarments.
Analysts' ratings are mixed, as nine rate Limited shares "buy," one "outperform," nine "hold" and one "sell." Janus Capital Management owns 8.9 per cent of its shares, about double that of the next largest investor.
9. Akamai Technologies designs software that accelerates the delivery of content over the Internet. In addition to its core cloud offering, Edge Platform, Akamai builds custom services for businesses. It runs an HD streaming network. Its mobile-focused subsidiary, Velocitude, was purchased in June.
Akamai operates a global network of servers that help large online shopping retailers. The rising trend in online shopping, as evidenced this holiday season by a 15 per cent increase in sales, bodes well for that segment. Since 2007, Akamai has increased revenue 19 per cent annually, on average, and boosted earnings per share 21 per cent a year. Akamai is in an outstanding position to grow in 2011, given that it holds $608-million of cash and has only $59-million of debt. Revenue for the third quarter grew by 23 per cent to $253.6-million, up 3 per cent from the second quarter.
Outlook: Akamai's stock is up 89 per cent this year, but is off 5 per cent over the past three months. Its forward price-to-earnings ratio is a high, 29.2, double that of the S&P 500. Morningstar analyst Imari Love writes that "Akamai is an ideal buyout candidate for a firm that wants to improve its infrastructure relationship with the premier content delivery provider."
Of the analysts that follow the company, five rate it "buy," two "outperform" and 17 "hold." T. Rowe Price owns 8.2 per cent of its shares.
8. Zions Bancorp is a financial holding company operating eight different banks. Through its 500 branches, it provides banking services for small and medium-sized businesses and individuals. Most of its $55-billion assets are in the economically hard-hit states of Utah, California, Texas, Arizona and Nevada.
Zions has about 50 per cent of its $40-billion loan book in commercial lending operations, 30 per cent in commercial real estate, and 20 per cent in consumer loans. It lost $80 million, or 47 cents a share in the third quarter, but that's an improvement from the $135-million loss in the second quarter.
Outlook: Regional-bank stocks have been boosted in recent weeks by merger speculation and Zions is no exception, gaining 26 per cent in the past month. Analysts are cautious about its prospects. Seven have it rated "strong buy," six "buy," 18 "hold," three "underperform" and one "sell," according to First Call/Thomson Financial. Their mean price target is $24.59.
7. Wynn Resorts began casino operations with the opening of Wynn Las Vegas in April 2005.
Steve Wynn, who as head of Mirage Resorts was responsible for building Treasure Island, the Mirage and the Bellagio in Las Vegas, spent roughly $2.7-billion to build the Wynn Las Vegas on the Strip. Wynn Resorts also holds one of six gaming concessions in Macau, a rapidly growing gaming hub in China. Wynn Macau opened in 2006 and Encore at Wynn Las Vegas opened in late 2008. Wynn is highly leveraged, with about $3.6-billion of debt on its balance sheet.
Outlook: Wynn shares are up 91 per cent this year, including 28 per cent in the past three months. The company reported a 42 per cent rise in revenue at its operation in Macau in November, but that news was offset by the local government's nixing of the company's expansion plans.
Analysts are turning cautious on the company. Although nine have it rated "buy" or better, there are 15 "hold" ratings, one "underperform" and one "sell," according to First Call/Thomson Financial. Their median price target is $109. Shares are currently trading at $101.78.
6. American International Group is one of the largest insurance and financial-services firms in the world. It operates through a wide range of subsidiaries that provide general insurance, life insurance, lending and other financial services.
The company is on the comeback trail after its near collapse in the 2007-09 financial crisis. It was bailed out by the government. Since then, it has sold off various units to raise cash and it was reported this week that its planned sale of Nan Shan Life, its Taiwanese life-insurance unit, is attracting bids of up to $3-billion. And this week AIG, said it now has $4.3-billion in bank credit lines in a deal struck with 30 lenders.
Outlook: AIG is slowly recovering from its near failure. Its rise of 91 per cent this year includes a 38-per-cent gain over the past month. Shares are up about 10 per cent in the past week because of the expectation that it now has a clear plan to extricate itself from its past problems and pay back the government.
Respected Fairholme Fund manager Bruce Berkowitz has a big bet on AIG, making it 7 per cent of his fund's assets.
Others are less optimistic about AIG's prospects. Analysts project five-year earnings growth of 9 per cent versus 10.8 per cent for the S&P500. It garners three "hold" and two "sell" ratings from analysts, according to FactSet.
5. Qwest Communications serves about 9.7 million phone lines across its 14-state territory. It is a provider of local- and long-distance phone services to households, businesses and other carriers, which generates more than two-thirds of total revenue. Qwest also claims about 900,000 wireless resale customers and 3 million high-speed Internet-access customers.
Qwest agreed to a merger with CenturyTel in April, which expanded its long-distance footprint nationwide and is seen as helping the company's already strong cash flow. In the third quarter, adjusted free cash flow was $554-million, bringing the total to $1.5-billion this year. It projects 2010 operating earnings of $4.4-billion.
Outlook: Shares are up 92 per cent this year to $7.63. Qwest's five-year earnings growth forecast by analysts is 5 per cent, versus 11.3 per cent for its industry.
Of the analysts that follow the firm, seven rate it "buy," one "outperform" and nine "hold," according to FactSet.
4. Huntington Bancshares is an Ohio-based regional bank with $50-billion in assets and more than 600 branches, making it one of the Midwest's largest banks.
Retail banking accounts for about 80 per cent of the company's operating income. The rest is split between auto financing and private banking and insurance. The company received a government bailout and wrote off its troubled loans since then. Early this month, it announced its plans to repay the $1.4-billion it holds in Troubled Asset Relief Program funds, which will require it to issue $1.2-billion in stock and debt, including $920-million in new common stock.
Outlook: Huntington Bancshares is up 92 per cent this year to $6.92, including a 20-per-cent jump in the past month, indicating the shares may be gathering steam as investors flock back to the financial sector and bet on the survivors. Keefe, Bruyette & Woods analyst Jefferson Harralson has the company on his recently released list of potential acquirers of other banks.
Of the 22 analysts that follow the company, nine rate it "buy," two "outperform," seven "hold," one "underperform" and three "sell," according to FactSet.
3. Cummins makes diesel and natural-gas engines, electric-power-generation systems and engine components. Its products are used in industrial equipment and agricultural and construction machinery.
Cummins has benefited from government-infrastructure spending on big projects such as bridges, roads and the like, particularly in emerging markets. It is also getting a boost from the huge demand for mining equipment. The company is known for its quality and it maintains a low-cost business model by manufacturing nearly all its own engine components. In the third quarter, revenue increased 34 per cent including a 56-per-cent jump in sales outside the U.S. Cummins' trailing 12-month profit has more than quadrupled from a year earlier.
Outlook: Cummins shares have risen 143 per cent this year, including 21 per cent in the past three months, reaching a record $111.70 on Dec. 23. Although its long-running contract to supply engines to Navistar is running out, Cummins is expected to benefit from demand for new trucks as the economy recovers. Commercial vehicles haven't been replaced during the recession at normal intervals, meaning there is significant pent-up demand.
Also, the company is expanding its footprint internationally via joint ventures. This month it announced an engine plant in India with Tata Motors, and it is building one in China. The company's forward price-to-earnings ratio of 16.3 is beginning to look pricey as its historical norm is 14. Eight analysts rank its shares "buy," one "outperform" and nine "hold," according to FactSet.
2. F5 Networks' Application Delivery Controller (ADC) products help companies manage their computer network traffic more efficiently. It also has products that address security concerns.
F5's customer base has evolved from an initial focus on Internet service providers, Web sites and e-commerce sites to the Fortune 500 corporate IT market. Its clients now include Citigroup and General Motors.
F5 is taking market share from bigger competitors such as Cisco Systems . In fiscal 2010, revenue grew 35 per cent as operating margins expanded to 26.1 per cent from 19.3 per cent.
Outlook: In the fourth quarter, revenue rose 45 per cent, which bodes well for 2011 as the pace of revenue growth increased throughout the year. Analysts' consensus five-year annualized earnings growth forecast is 23.5 per cent, roughly double that of the S&P 500. Analysts give the company mixed reviews, with 14 rating it "buy," two "outperform" and one "sell," according to FactSet.
1. Netflix has millions of subscribers in its DVD-rental-by-mail program, but its most exciting growth prospect is as a provider of a streaming service to deliver digital movies to PCs, Internet-connected TVs and consumer-electronic devices.
The company aims to convert its existing subscribers to streaming services, but industry analysts say that may be a tough to hold on to them because new providers of digital distribution of content are cropping up. Still, Netflix has been expanding its streaming offerings, signing deals with content providers such as NBC Universal and, most recently, Walt Disney. In the third quarter, the company reported that profit jumped 26 per cent to $38-million, as its streaming service for its subscribers grew.
Outlook: Although its shares have risen a whopping 227 per cent this year to about $180, they're down about 9 per cent over the past month as competitive concerns have rattled some investors.
The market for in-home entertainment is rapidly evolving and Netflix's role in that is unresolved. It remains the leading player in the market for DVD-rental-by-mail, but that business model is under attack as digital delivery gradually replaces DVDs as the dominant home-entertainment distribution channel.
So, it's key that the company's evolving streaming-service business can capture those customers. Its price-to-earnings ratio is a whopping 68, double its industry's average. Fidelity owns 9.6 per cent of its shares, about double that of the next largest investor. Analysts are clearly split on its prospects as six rate it "buy," 15 "hold," two "underperform" and six "sell," according to FactSet.