These 10 big-name stocks have doubled this year. Can they keep it up?
Nov 10th 2009 3:35PM
Updated Dec 3rd 2009 1:52PM
The S&P 500 index is so far having a fine year, up a bit more than 20%. But several big-company stocks in the index have doubled, or better, over that time. Among the best-performers are some of Amerca's most well-known companies.
Here's a look at 10 of those and their prospects of advancing further -- or sliding back into the large pack of equities that have had only modest advances during the current bull market (all prices are as of the close on Nov. 9).
Ford (F) was left for dead when it traded at $1 last November. The market thought it would share the sorry fate of its rivals General Motors and Chrysler, and that common shareholders would get nothing. But Ford management was smart enough to take in over $20 billion in capital by pledging most of the company's assets before the car market fell apart. It was an audacious gamble, which eventually paid off. Ford then used the capital to quickly improve its domestic fleet with fuel-efficient cars. It has picked up market share most months this year and made a profit in the third quarter, which surprised most analysts.
Ford's challege? The U.S. car market may not recover next year, and Ford hasn't been able to get a United Auto Workers' deal that's as good as those Chrysler and GM have wrangled. That could pressure margins. Ford is also still just a small player in China, the world's largest car market and one of the fastest growing.
Amazon (AMZN) shares are up 150% so far this year, as founder and CEO Jeff Bezos continues to astound the market with new inventions. The latest is the Kindle e-book reader, which has the lion's share of this so-far niche market. Perhaps more important to Wall St., Amazon has been able to continue to post extraordinay growth despite its size. Third-quarter revenue rose 28% to $5.45 billion. Net income was up 68% to $199 million. Investors don't seem so concerned lately that Bezos couldn't control profit margins because of his large investments in tech infrastructure and free shipping.
Amazon's challenge? Kindle may never be a mass-market device because of its price and the uncertrain demand for e-books. The real problem Amazon faces is that e-commerce revenue across the industry has slowed the last two years, and Amazon may not be able to outperform the industry forever. It also has to face what's shaping up to be a dismal holiday sales season.
Whole Foods (WFMI) should be doing poorly. Expensive grocery sales are supposed to suffer during a recession. And the market wasn't fond of its last earnings report, which led S&P to put a sell rating on the stock because of disappointing guidance. Despite a stock-price drop after Whole Foods announced its latest quarterly numbers, the shares are up 200% since the beginning of 2009.
Wall St. traders seem to be willing to look at the recent results as an aberration. Indeed, in the quarter ending in June, net income had risen to $35 million from $33.9 million in the same quarter the year before. That pushed the stock up 21% in one day. In general, Whole Foods has been clever about pricing so that customers don't have to eat through their whole paycheck to shop there.
Whole Foods' challenges? The firm cannot hold onto believers if it has another disappointing quarter. The economy does seem to be doing well enough, but a sharp drop in consumer spending would hurt the food retailer. Also, agricultural commodity prices could move up as the economy recovers, and that could hurt Whole Foods' margins.
Motorola (MOT) wasn't supposed to get another lease on life, and the one it seems to have now may be short-lived. The cell-phone and telecom infrastructure company's stock fell below $3 in March, but shares are up well over 100% year-to-date. Motorola lost its crown as the No.2 handset company in the world by market share over two years ago when its flagship RAZR phone began to age and lose its cachet.
Motorola couldn't recover without a new model, and it went through a number of layoffs, a CEO departure and a raid by Carl Ichan. But Motorola brought in co-CEOs, and its prospects began to brighten. It posted an unexpected profit for the last quarter and raised guidance. It's now betting the company on its just-launched Droid handset, which runs Google's (GOOG) Android operating system and uses Verizon Wireless's network.
Motorola's chllenges? The first is that news about Droid sales are mixed, and definitive data on how the handset is doing may not be available until Motorola announces its next quarterly results. The highest hurdle Moto is facing can be said in a word: "iPhone."
Apple (AAPL), of course, is the maker of the iconic iPhone, and no list of big companies that have done remarkably well this year would be complete without it. Apple is riding so high that Fortune recently named Steve Jobs "CEO of the Decade." Apple's shares are up 140% this year and trade above $200. Its $183 billion market cap makes it one of the most valuable companies in the world.
Apple's success this year has been based on a simple gamble: Three lines of business are better than two. By adding the iPhone to the iPod music player line, and Mac computers, Apple accelerated both its sales and growth. The iPod is already 8 years old, and its sales are no longer moving up quickly. But adding the iPhone to the company's suite of products has more than offset that.
Apple's challenges? The Mac and iPhone are among the most expenseive products in their respective sectors. Ongoing weakness in the economy is always a threat. Chief among Apple's problems is Christmas. It has never had a good year without a breakout holiday season.
Office Depot (ODP) is an improbale company to be on this list. The small-business sector that it caters to is seriously ill. In some ways, Office Depot shareholders haven't gained much if they held the shares for two years. The stock trades at $5.86 now, up from a low of below $1 in March. But two years ago, the shares changed hands at close to $20. In the June quarter, sales dropped 17% to $3 billion, and the company lost $413 million.
Two things have helped Office Depot since the spring. The first is that it didn't go out of business. When it was in deep trouble in June, it raised $350 million. Office Depot has also benefited from one of the odd aspects of being in the retail industry during a recession. It has done badly, but not as badly as expected.
Office Depot's challenges? The first is to stop losing money. The other, which is related, is to bring down a cost base that Wall Street thinks is too high.
Expedia's (EXPE) share price is up about 200% this year, even though any travel-related company should be doing poorly. Expedia is taking advantage of the problems in its industry to make money. Booking hotels and air tickets online tends to be cheaper than through travel agents or directly with airlines. And Expedia has increased its attractiveness to travelers even more by sharply cutting its user fees.
One of the smartest things it has done over the last few years is to move away from being a place to buy just airline tickets. Its hotel business is still growing. In the last quarter, Expedia said the amount of time people spend in hotels booked though the service is rising. Total revenue was up 2% in the third quarter to $852 million. Net income rose 23% to $117 million.
Expedia's challenge? Airlines and hotels are becoming more aggressive about getting customers to book directly online with them so that they control the relationship with their clients. Expedia also has several other large e-commerce travel sites as competition.
Nordstrom (JWN) is up over 160% so far in 2009, but it's another company where investors are worse off than they were two years ago. JPMorgan recently raised its price target on Nordstrom by $3. That's because Nordstrom said October sales in stores open at least one year rose 6.5%, which topped analysts' expectations.
The company has also been clever about fixing its balance sheet, which had too much short-term debt and was threathening the firm's viability. Nordstrom obtained a new three-year $650 million senior unsecured revolving credit facility to replace a prior facility of the same size that was scheduled to mature in 2010. It has also been aggressive cutting costs -- and people. In the period ending Aug. 1, the retailer eported net earnings of $105 million while many rivals were posting losses.
Nordstrom's challenge? Christmas, Chrstmas, Christmas.
Salesforce.com (CRM) shares have doubled this year. The company, which provides "customer relationship management" services online, particularly sales and marketing, has done as well as any other tech firm at capitalizing on the trends toward "cloud" computing and "software as services." Businesses are moving away from hosting software on their own PCs and servers, which is what made Microsoft (MSFT) the world's biggest software maker. Google has been pushing the model with businesses using its Apps suite of products. Oracle (ORCL) and IBM (IBM) are also proponents of cloud computing.
But SaleForce was in the business early, and it shows. Revenue doubled from fiscal 2007 to 2009, when it reached over $1 billion. Net income rose even faster. Salesforce has also been a rumored buyout target for Dell (DELL).
Salesforce's challenges? Google, Oracle, and even Microsoft want to steal its customers. And many potential clients view cloud computing as a security nightmare and much prefer to store information in-house.
Tenet Healthcare (THC) has had a rough ride. Its shares fell below $1 in February and March. But they now trade at $5.44. Tenet's major business is owning hospitals and other health-care facilities. The firm -- and its shareholders -- benefited because management was able to pull back from the brink of disaster. Tenet closed some of its facilities, and it announced in Auguest that the rest of 2009 looked better than expected, perhaps to the tune of earning as much as $60 million this year.
Tenet's propects are now strong enough to do some repair work on its balance sheet. The firm raised $300 million in preferred stock and was able to use the money to pay back senior notes in September. Patient investors were reward again earlier this month when it raised guidance a second time and said cost cuts were helping earnings.
Tenet's challenges? Its entire industry remains unsure what the still-pending $1 trillion health-care reform package might do to the bottom line.
Douglas A. McIntyre is an editor at 24/7 Wall St.