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2002's heavy hitters go head to head
It's time again for SuperModels' annual World Championships of Momentum Investing, where the best-performing stocks in each major index battle for super-slugger status. Here are the contenders' stats so far.
By Jon D. Markman
All of you lily-livered value investors, please look away. The following meditation is for hardened speculators and spectators only.
As for the rest of you, welcome to Supermodels annual game in honor of the World Series. Its our world championship of momentum investing, in which 25 stocks from the major exchanges are pitted against each other in the final quarter of the year in a battle for price-change supremacy. This is the contest that separates the all-powerful from the also-rans, the giants from the goners.
By the middle of October, there are typically more than a dozen major companies (with a market capitalization of at least $1 billion) whose shares have advanced more than 250% year-to-date. This year, there is only one, Centerpulse (CEP, news, msgs), and its based in Switzerland, so it barely counts. Indeed, through Oct. 21, there were only three billion-dollar stocks that had doubled this year: Gold Fields (GFI, news, msgs), PetsMart (PETM, news, msgs) and MEMC Electronic Materials (WFR, news, msgs).
The purpose of the contest, as always, is to make money, either by wagering on the outcome or by sticking some dollars under the leading horses saddle. So before we handicap the race, lets take a look at the 17 big-cap and mid-cap contenders, plus eight small-cap wild cards.
| The NYSE League finalists | | Symbol | Company | % chg YTD | Mkt cap $ | 10/18/02 close | | CEP | Centerpulse | 261.9 | 1.6 billion | $15.80 | | GFI | Gold Fields | 105.6 | 4.7 billion | $9.95 | | WFR | MEMC Electronic Materials | 102.5 | 1.4 billion | $7.19 | | CVH | Coventry Health Care | 88.2 | 2.3 billion | $37.55 | | MME | Mid Atlantic Medical Services | 82.8 | 1.9 billion | $41.50 | | HOV | Hovnanian Enterprises | 72.3 | 1.1 billion | $36.66 | | WHI | W Holding Co. | 65.5 | 1.1 billion | $17.89 |
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| The Nasdaq League finalists | | Symbol | Company | % chg YTD | Mkt cap $ | 10/18/02 close | | PETM | PetsMart | 104.3 | 2.8 billion | $20.10 | | AMLN | Amylin Pharmaceuticals | 92.9 | 1.4 billion | $17.63 | | HGMCY | Harmony Gold Mining | 88.8 | 1.8 billion | $12.29 | | DRYR | Dreyer's Grand Ice Cream | 83 | 2.5 billion | $70.49 | | COCO | Corinthian Colleges | 80.9 | 1.6 billion | $36.99 | | AMZN | Amazon.com | 76 | 7.2 billion | $19.04 | | TTWO | Take-Two Interactive Software | 67.2 | 1.1 billion | $27.03 |
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| The Amex League finalists | | Symbol | Company Name | % chg YTD | Mkt cap $ | 10/18 close | | NVR | NVR, Inc. | 58.3 | 2.4 billion | $323.00 | | DVN | Devon Energy | 32.9 | 8.2 billion | $51.38 | | BTI | British American Tobacco | 14.1 | 21.1 billion | $19.40 |
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| The wild cards | | Symbol | Company Name | % Chg YTD | Mkt Cap $ | 10/18 close | Industry | Exchange | | RGLD | Royal Gold | 220 | 316 million | $16.61 | Gold | Nasdaq | | JAH | Jarden | 217.2 | 355 million | $24.90 | Rubber & plastics | NYSE | | CCCG | CCC Information Services | 182.2 | 451 million | $17.44 | Business services | Nasdaq | | HGR | Hanger Orthopedic | 178.3 | 326 million | $16.70 | Medical appliances & equipment | NYSE | | CBZ | Cobalt | 158 | 677 million | $16.46 | Health care plans | NYSE | | TSCO | Tractor Supply | 128.9 | 705 million | $39.00 | Specialty retail, other | Nasdaq | | SIE | Sierra Health Services | 142 | 564 million | $19.60 | Health care plans | NYSE | | BYD | Boyd Gaming | 138.2 | 997 million | $15.48 | Resorts & casinos | NYSE |
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I like these contenders because theres a little taste of everything that made 2002 unique for the stock-pickers who chose the right sectors to be long. (To run the screen yourself, click here. )
Gold glitters
For instance, all but the American Stock Exchange League have candidates from the gold-mining sector, which was red-hot at the start of the year, cooled off, then came on strong again during the worst days of a wretched summer.
The best-performing gold-digger in our crew so far has been Royal Gold (RGLD, news, msgs), a Denver-based company that buys the right to collect royalties from mine operators in exchange for investments. The company owns stakes in mines owned by major gold producers such as Placer Dome (PDG, news, msgs), Rio Tinto and Newmont Mining (NEM, news, msgs), plus operations in Argentina, Australia and Bulgaria. Its sort of a gold-mining real-estate investment trust. Sounds pretty weird to me, but you cant argue with its success, as its current price around $16.60 is near all-time highs.
Penny-stock crazies, take note: Its up from late 1991 lows around 6 cents. If you had bought shares back then, youd be up 55,000% today. Youd probably also be either an idiot or in a coma if you held this long without selling. Royal is the only domestic gold name in contention: Much-larger Gold Fields and Harmony (HGMCY, news, msgs) are both based in South Africa; they pretty much trade in tandem, so toss a coin to choose between them. I think the big move in gold is over for this year and would steer clear, anyway.
Tech's dynamic duo
The only technology-complex stocks in the race couldnt be much more different:- MEMC Electronic Materials is 90% owned by buyout firm Texas Pacific Group and is largely a restructuring story. Its pretty expensive at this level, so be wary from a fundamental point of view -- especially considering the sorry state of semiconductors. But the chart looks interesting, and it seems theres ample opportunity for a move to $10, where it crested in April. (The all-time high is $49, back in 1996.)
- Amazon.com (AMZN, news, msgs) has had a fantastic year, defying the skeptics and steadily improving its financial position to become one of the three major survivors of the dot-com wars, along with Yahoo! (YHOO, news, msgs) and eBay (EBAY, news, msgs). The 76% gain might not impress people who recall its 996% advance in 1998, but after a 79% decline in 2000 and 30% decline in 2001, any double-digit surge comes as welcome relief. The stock may have a hard time making much more progress, however, as it is bumping up against highs made in both May 2002 and January 2001. And there are doubtless plenty of people who invested at those levels and would love to sell to get out flat. If bulls somehow push past that level, theyll next set their sites on the mid-2000 highs around $30. From a fundamental point of view, though, the stock is already expensive among retailers, with a price-to-sales multiple of 2.13, compared to the 1.07 multiple given to the best stock in the sector, Wal-Mart Stores (WMT, news, msgs). Only true high-margin specialty retailers, such as Tiffany (TIF, news, msgs) or Coach (COH, news, msgs), generally get price-to-sales multiples greater than 2.5. So Amazon investors are probably closer to the end of this years chapter than the middle.
Home sweet home stocks
Home builders and the banks that finance home buying have been a big story this year, so its appropriate that three of our names come from those ranks. Hovnanian (HOV, news, msgs) builds homes in the Northeast, and its still pretty cheap. If you think the sector hasnt topped out, you could back this horse without holding your nose.
NVR (NVR, news, msgs), a home builder in the South and the Washington D.C. area, has hammered home solid gains all year but looks like its ready to drop down and rest a spell. Likewise, W Holding (WHI, news, msgs), the parent of WesternBank Puerto Rico. I wrote earlier this year that W was one of my top personal holdings from the summer of 2001 through the spring, as regional banks with strong commercial and personal lending franchises benefited from falling interest rates. I sold it back in late August as it appeared to double-top, but long-term holders will probably add to it on future dips.
Plays on health care and economic woes
The surge in health-care service providers and medical-device makers has become one of the most powerful stock stories of 2002, so you have several choices: Coventry Health (CVH, news, msgs) and Mid-Atlantic Health (MME, news, msgs) have traded in lockstep for the past three years as theyve recovered from October 1999 lows. Sierra Health (SIE, news, msgs) bottomed much later, in August 2000, so it has seen the sweet spot of its recovery come just this year. The company operates an HMO and provides life insurance throughout the fast-growing state of Nevada, and its still the cheapest of the bunch. Its trading off its August highs but still well within its three-year uptrend. Cobalt (CBZ, news, msgs), the biggest HMO provider in Wisconsin, had the latest bottom of this group, in December 2000, and is also still relatively cheap. Its been the years best performer of the four but also seems to have lost steam. Ill give the nod to Coventry, as it is the best diversified geographically and appears to have the best momentum heading into the years final months.
Of the rest, Amylin Pharmaceuticals (AMLN, news, msgs) may hold the most promise, as biotech stocks tend to do well at the end of the year. This company has made impressive progress on a type 2 diabetes treatment that is now in Phase 3 trials with the U.S. Food and Drug Administration. Biotechs are always a calculated roll of the dice until the FDA has given its final nod, but in this case, Eli Lilly (LLY, news, msgs) has already made its bet by setting a rich co-marketing agreement with the company.
And for an indirect play on the worsening job market, Corinthian Colleges (COCO, news, msgs) offers an interesting twist: The company runs more than 65 colleges in 20 states focused on people who either want to start or change careers in health care, business, technology and criminal justice. Some of its brand names are Bryman College and the National Institute of Technology. Revenue has been rock solid, but at this level the price is rich and insiders have been unloading like mad. Thats about what youd expect from a momentum stock, so with shares still tracking higher in a three-year uptrend, demand from investors should carry it higher at least through the end of the quarter. Its now mostly owned by small-cap and mid-cap growth mutual fund companies, so to the extent that the category becomes a big story over the next few months, this stock will undoubtedly continue to find favor.
To register your opinion on the likely top finisher for the year among these 25, vote in our poll. Ill follow up periodically through the rest of the year, then announce the winner in my year-end column.
Fine Print
Longtime readers of my column should recall that its time to go fully long the Flare-Out Growth model when the 15-day moving average of the Nasdaq Composite ($COMPX) crosses above the 50-day moving average. That happened on Monday, Oct. 21. It was time to put your toe in the water when the 5-day moving average of the index crossed up over the 15-day moving average. That happened on Oct. 15. Here is the Flare screen, in case you have lost it: Click here. The top three names on Oct. 21 were United Online (UNTD, news, msgs), Danka Business Systems (DANKY, news, msgs) and Blue Rhino (RINO, news, msgs). To learn more about the models and my timing system, check out my book, Online Investing: Second Edition via the link at left. The two market-timing technical analysts that I mentioned in my Oct. 9 column -- Phil Erlanger and Paul Desmond -- issued intermediate-term buy signals late last week and early this week. Im enjoying the World Series from the unique perspective of a Dodgers fan. It is so cool to see 1980s-era players Mike Scioscia and Dusty Baker oppose each other as managers, and to watch Angels batting coach Mickey Hatcher, another former Dodger, ham it up in the dugout. Im also a big Barry Bonds fan, though, purely out of admiration for the glorious way he plays the game. So, for the first time that I can recall, Im rooting for both teams. Several hundred of you e-mailed following my last column to request my NYSE 10-year moving average chart and list of mutual funds that have beaten the S&P 500 ($INX). If I havent gotten to your request yet, you can find the documents at my personal Web site. Click here and visit the links on the left. Anthony R. Muller, chief financial officer at JDS Uniphase (JDSU, news, msgs), said he appreciated that columns spicy, catchy language but complained that I omitted some important facts. He notes that even though JDSUs shares fetch less than $2.50, its market capitalization is still higher than 115 of the companies in the S&P 500. He also points out that Pep Boys (PBY, news, msgs), the company that JDSU replaced in the index, has a market cap of only $607 million -- less than a quarter of JDS Uniphases $3.2 billion cap. He concludes: Your story does correctly state that some professional money managers are precluded from owning shares priced below $5 per share, although I can assure you that many currently own JDS Uniphase. In these difficult financial times, it is imperative that the press provide balanced, fair and insightful reporting to enhance the financial literacy and understanding of its readers. The low-priced, highly shorted S&P 500 stocks that I listed in that column have soared, as expected, amid the rally. The leaders were the two most heavily shorted stocks, Advanced Micro Devices (AMD, news, msgs), up 48%, and Xerox (XRX, news, msgs), up 39% in the past week. Of the group, only one is down substantially: Calpine (CPN, news, msgs), at -19%.
At the time of publication, Jon D. Markman neither owned nor controlled shares in any equities mentioned in this column.
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