At the beginning of the year, I authored an article laying out fifty predictions for 2013. The picks ranged from highly speculative to coin tosses that I believed had a better than average chance of going in my direction based on market strategies that have historically outperformed. Below I list the fifty predictions in bold with commentary on how this forecast has fared year-to-date. I have given myself letter ratings on each prediction. Feel free to assign your own grades in the comments section.
The S&P 500 (SPY) makes a new all-time high, but closes beneath that plateau for the year. The S&P 500 eclipsed its former all-time high close of 1565 on March 28th, faster than I anticipated. With the index now ending the week above 1700 for the first time, closing below 1565 for the year seems a distant memory. Not everyone was calling for a new all-time high to be reached in 2013, and investment bank equity analysts were targeting on average high single digit annual gains at the beginning of the year. I did not expect a 19.9% return through the beginning of August, but I will take it. Grade: BThe equal-weighted S&P 500 (RSP) outperforms its capitalization-weighted alternative. The equal weighted index has produced a total return of 23.34%, besting the market capitalization-weighted S&P 500. Long-time readers know that I have long extolled the virtues of equal weighting. The lagging performance of former top holding Apple (AAPL), which has 1/14th of the weight in the equal weighted index has contributed to the outperformance of the equal weighted strategy. Grade: AThe Russell 2000 (IWM) outperforms the S&P 500 as small caps outpace large caps. The Russell 2000 has bested the S&P 500 by nearly five percent with the small cap index producing an impressive 24.8% return year-to-date. Grade: AThe shares of Bank of America (BAC) outperform J.P. Morgan (JPM) and Wells Fargo (WFC) on both an absolute and risk -adjusted basis. Bank of America has outperformed the broade! r market, producing a 28% total return year-to-date, but it has lagged Wells Fargo (32.1%) and J.P. Morgan (31.1%) while exhibiting higher volatility. Grade: C-The banking sector (XLF) outperforms the S&P 500. The Financial Selector Sector SPDR has produced a 27.9% year-to-date, besting the S&P 500 by roughly 8%. Grade: AHomebuilders (XHB) outperform the S&P 500, but not when adjusting for their variability of returns, which is over twice that of the broader market. Homebuilders, often extolled as top picks for 2013 given the domestic housing recovery, have lagged the S&P 500, producing a 16% total return that trails the broader market by roughly 4%. Trailing 200 day volatility has been 22% as compared to 12.4% for the S&P 500. Lots of investors were crowding into homebuilders in 2012, and this forecast was meant to highlight that alpha is only generated when outperformance is not achieved through simply taking more than proportional risk. Homebuilders ha ve lagged and been much more risky than the market at large. Grade: B-Apollo Group (APOL), owner of the University of Phoenix, is taken private. Apollo Group is producing roughly the same amount of free cash flow as in 2006, but is trading at an enterprise value that is roughly one-sixth of its former level. Even despite the controversy over the efficacy of these for-profit learning institutions, and the wary eye of the federal government, I expect an investor to eventually lever up this still impressive cash generation machine. Grade: C-/IncompleteSafeway (SWY) spins off a portion of its real estate assets into a real estate investment trust, prompting a rise in the shares of the grocer. Safeway has produced a 40% total return and a 74% return over the last twelve months. When Seeking Alpha came out with its Alpha Rich article ideas, Safeway was going to be my first article, but my exposure as a lender to the company at my day job made this a conflict of interest to which I did not want to run afoul. I believed that the company, whi! ch had ag! gressively bought back shares in the past two years only to see its share price continue to swoon, would follow Canadian grocer Loblaw into the REIT concept. Low interest rates had increased the value of REIT equities, and a business that owned the company’s real estate assets and leased them to the grocer could command a premium value while freeing up an additional capital expenditure budget that the grocer could use to streamline its business, reduce debt, or return additional capital to shareholders. Instead in April 2013, Safeway IPO’d a minority portion of its prepaid and gift card network, Blackhawk (HAWK), and in June 2013 Safeway sold its Canadian grocery assets to Empire’s Sobeys Inc for C$5.8bn with proceeds used to buy back shares and reduce a debt level that had taken the company to the cusp of below investment grade ratings. Safeway appeared ripe for a reorganization of its assets and capital structure to drive value, and that is what has occurred in 2013, albei t in a slightly different form than I envisioned. Grade: B+Groupon (GRPN) is taken private for less than half of the value Google (GOOG) had originally offered the firm pre-IPO. Groupon has soared by nearly 80% in 2012 taking the value of the firm to roughly three-quarters of the $6 billion offer from Google. The increased valuation and limited EBITDA ($150mm) makes a takeover far less likely. Grade: DAn activist shareholder takes a major stake in Hewlett-Packard (HPQ), driving the stock to a market beating annual return. Hewlett Packard has returned a scintillating 89% year-to-date. I believed that the company’s low valuation at the beginning of the year would invite activist shareholders, which failed to take place; however, lots of shareholders bought into the HPQ turnaround story, driving the stock to top percentile returns in the S&P 500. Grade: A-An activist shareholder takes a major stake in Dell (DELL), driving the stock to a market beating annual return. The MBO -led by Michael Dell and Silver Lake was proposed just weeks! after th! is article, and has made Dell one of the most topical stocks of 2013. The stock is up 35% year-to-date while the future ownership of the company remains in doubt. The stock returned 30% in the month after this article was written. Grade: AEither U.S. Bancorp (USB) or PNC Financial Services (PNC) makes a major acquisition to broaden their geographic footprint, spurring further consolidation in the banking sector. I thought that USB or PNC would use their strong balance sheets to buy a footprint in the U.S. Southeast and chase the majors, but this has not come to fruition and regional banks have rallied strongly, increasing the sticker price on such a transaction. Every year prognosticators look north to the handful of oligopolistic banks in Canada and assume that the thousands of banks in the U.S. will choose to consolidate… maybe next year. Grade C-Johnson & Johnson (JNJ) loses its heretofore sacrosanct AAA rating, choosing to re-lever its balance sheet and return cash to shareholders amidst record low borrowing levels. The company is in the midst of a $2 billion share repurchase program and again increased its dividend, but both moves were consistent with their long-term conservative capital allocation framework. JNJ was rumored to be in the bidding for Bausch & Lomb, whose $10 billion price tag may have triggered a ratings downgrade given the amount of debt that would have needed to be absorbed. I continue to believe that debt levels consistent with AAA ratings is not the optimal capital structure given that JNJ had the ability to issue long-term debt with an after-tax interest cost roughly equal to long-run inflation. That window has likely closed given the backup in interest rates, but would still likely be value accretive given that the debt tax shield outweighs the increase in credit spreads from a more levered capital structure. Grade C-Berkshire Hathaway (BRK.A) makes an acquisition in the $20 billion enterprise valuation rang e. Berkshire joined 3G Capital to buy Heinz (HNZ) for roughl! y $28 bil! lion (including assumption of debt) of which Berkshire’s share of the purchase price was roughly $12 billion. The company later bought NV Energy (NVE) for $5.6 billion. Grade: A-My guess is Cummins (CMI). I was wrong, but weakness in Cummins’ international markets for its diesel engines has seen the company grow comparatively cheaper (13.6% return year-to-date), and I think that this business would still be consistent with Berkshire’s long-term objectives. Grade: D+Alcoa (AA) is the Dow Jones laggard as persisting unfavorable supply/demand imbalance in aluminum further weakens results and prompts a cut of the company’s debt to junk. Alcoa is one of only two stocks (Caterpillar) in the Dow that have posted negative returns year-to-date, but Alcoa’s -7.6% return has trailed all thirty constituents. The company’s debt was cut to junk by Moody’s in late May. Grade: A+Aubrey McClendon, co-founder and CEO of Chesapeake Energy (CHK), follows up a disastrous 2012 with a strong 2013 as rising natural gas prices drive company results, and his part-owned Oklahoma City Thunder win their first NBA championship. Aubrey McClendon resigned under pressure in April due to a shareholder revolt by Carl Icahn and Southeastern Asset Management. Natural gas prices rose early in the year, but are now flat. Russell Westbrook injured his knee in the playoffs and the top seed in the Western Conference bowed out in the conference semifinals in ignominious fashion to the Memphis Grizzlies. Chesapeake’s stock is up fifty percent on the year, but this was a bad year for the former CEO and co-founder. The stock performance keeps this prediction above an F, but just barely. Grade D-Best Buy (BBY) outperforms Amazon (AMZN), which has only 60% of the EBITDA of its bricks and mortar retail competitor, but has a market capitalization 28x higher. Best Buy has returned 167% in 2013, and is the top stock in the S&P 500. Amazon has market performed with a 21% return. While everyon e bemoaned the fate of brick-and-mortar retail, they forgot ! to notice! the impressive free cash flow that the company still produces. Grade A+J.C. Penney (JCP) outperforms Macy’s (M). In an additional high beta bet on a big box rebound, J.C. Penney has been a failed turnaround story and was forced to jettison their ballyhooed CEO, draw down on their revolver due to a meteoric cash burn, and lost a long-term major shareholder in Vornado. The JCP stock has returned -28% as Macy’s has continued to be a shining "star" up 27% year-to-date. Grade FDomestic automakers outperform their Japanese competitors as the strong yen and the territorial dispute between China/Japan hurts auto exports of the Japanese firms. The domestic automakers are off to a strong start with Ford (+35%) and General Motors (+28%) outpacing the market. Toyota (+61%), Nissan (+32%), and Honda (+18%) have all benefited from a yen weakened by Abe’s aggressive monetary accommodation that has benefited exporters. Grade B-Newspapers lose their taint as troubled investments a s online subscription growth of local and regional periodicals expands. John Henry, owner of the Boston Red Sox, announced the purchase of the Boston Globe today for $70 million, a far cry from the $1.1 billion that New York Times paid for the paper twenty years ago. Berkshire continues to buy strong local papers, but newspapers continue to be a place for deep value investors only. McClatchy (MNI) is down 5.2% on the year. Grade C-Property and casualty companies finally see a mild year for weather catastrophes, boosting results. Not sure why I was trying to predict the weather other than the bad catastrophes we have seen over the past several years were bound to normalize. The S&P Property and Casualty Index is up 27.3% year-to-date, strongly outperforming the broader market. I can not think of a named storm in 2013. Grade: A-
Hot Dividend Stocks For 2014: Intel Corporation(INTC)
Intel Corporation engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. The company also provides system on chip products that integrate its core processing functionalities with other system components, such as graphics, audio, and video, onto a single chip. In addition, it offers chipset products that send data between the microprocessor and input, display, and storage devices, including keyboard, mouse, monitor, hard drive, and CD, DVD, or Blu-ray drives; motherboards designed for desktop, server, and workstation platforms, and that has connectors for attaching devices to the bus; and wired and wireless connectivity products consisting of network adapters and embedded wireless cards used to translate and transmit data across networks. Further, the company provides NAND flash memory products primarily used in portable memory storage devices, digital camera memory cards, and solid-state drives; software products comprising operating systems, middleware, and tools used to develop, run, and manage various enterprise, consumer, embedded, and handheld devices; and software development tools that enable the creation of applications. Additionally, it develops computing platforms, which are integrated hardware and software computing technologies designed to offer an optimized solution. The company sells its products principally to original equipment manufacturers, original design manufacturers, PC components and other products users, and other manufacturers of industrial and communications equipment. It has a strategic alliance with Scientific Conservation Inc. Intel Corporation was founded in 1968 and is based in Santa Clara, California.
- [By Rich Duprey]
Intel (NASDAQ: INTC ) had previously provided the chip architecture for the Xbox, so this land grab comes at a crucial juncture for the chipmakers. The PC is dying a slow, painful death, and despite the weakness in the video-game market as developers move on to mobile platforms, the console remains an important growth outlet and AMD’s new apparent dominance breathes new life into it.
- [By Justin Loiseau]
As retail sales rose 9.8%, McDonald’s (NYSE: MCD ) shares jumped 35%. As the Purchasing Managers Index increased 11.9%, General Electric (NYSE: GE ) shares grew 41% while Intel (NASDAQ: INTC ) rocketed 110% on 42% sales increases.
Hot Dividend Stocks For 2014: Littelfuse Inc.(LFUS)
Littelfuse, Inc. designs, manufactures, and sells circuit protection devices for use in the automotive, electronic, and electrical markets in the Americas, Europe, and the Asia-Pacific. The company offers electronic circuit protection products, such as fuses and protectors, positive temperature coefficient resettable fuses, varistors, polymer electrostatic discharge suppressors, discrete transient voltage suppression diodes, TVS diode arrays and protection thyristors, gas discharge tubes, and power switching components, as well as fuseholders, blocks, and related accessories under PICO II, and NANO2 SMF, TECCOR, SIDACtor, and Battrax brand names. It offers its electronic circuit protection products for use in wireless telephones, consumer electronics, computers, modems, telecommunications equipment, telephones, data transmission lines, and alarm systems. The company also provides automotive fuses that are used in automobiles, trucks, buses, and off-road equipment to protec t electrical circuits and the wires that supply electrical power to operate lights, heating, air conditioning, radios, windows, and other controls, as well as offers fuses for the protection of electric and hybrid vehicles. It markets its automotive fuse products under ATO, MINI, MAXI, MIDI, MEGA, MasterFuse, JCASE, and CablePro brand names. In addition, Littelfuse manufactures various low-voltage and medium-voltage circuit protection products, such as power fuses that are used in the protection from over-load and short-circuit currents in motor branch circuits, heating and cooling systems, control systems, lighting circuits, and electrical distribution networks to electrical distributors and their customers in the construction, original equipment manufacturers, and industrial maintenance and repair and operating supplies markets. Littelfuse sells its products through direct sales force and manufacturers? representatives. The company was founded in 1927 and is headquartered in Chicago, Illinois.
- [By Rich Smith]
Littelfuse (NASDAQ: LFUS ) has signed an agreement to acquire Key Safety Systems’ Hamlin subsidiary for $145 million in cash, Littelfuse announced Monday.
Best Cheap Companies To Buy Right Now: China Nepstar Chain Drugstore Ltd (NPD)
China Nepstar Chain Drugstore Ltd. operates retail drugstores in the People?s Republic of China. The company?s drugstores provide pharmacy services and other merchandise, including prescription drugs; over-the-counter drugs; nutritional supplements, such as healthcare supplements, vitamins, minerals, and dietary products; herbal products, including drinkable herbal remedies and packages of assorted herbs for making soup; and private label products. Its stores also offer personal care products, such as skin care, hair care, and beauty products; family care products, including portable medical devices for family use, birth control products, and early pregnancy test products; and convenience products, such as soft drinks, packaged snacks, other consumables, cleaning agents, and stationeries, as well as seasonal and promotional items. The company operates its stores under the China Nepstar brand name. As of December 31, 2009, its store network comprised 2,479 retail drugstores located in approximately 71 cities in Guangdong, Jiangsu, Zhejiang, Liaoning, Shandong, Hunan, Fujian, Sichuan, and Hubei provinces, as well as in Shanghai, Tianjin, and Beijing municipalities of the People?s Republic of China. The company was founded in 1995 and is headquartered in Shenzhen, the People?s Republic of China.
Hot Dividend Stocks For 2014: Progress Energy Inc.(PGN)
Progress Energy, Inc., a utility holding company, engages in the generation, transmission, distribution, and sale of electricity in North Carolina, South Carolina, and Florida. It uses coal, oil, hydroelectric, natural gas, and nuclear power to generate electricity. The company also engages in various alternative energy projects to generate electricity from swine waste and other plant or animal sources, biomass, solar, hydrogen, and landfill-gas technologies. Progress Energy serves various industries, including chemicals, textiles, paper, food, metals, wood products, rubber and plastics, and stone products, as well as phosphate rock mining and processing, electronics design and manufacturing, and citrus and other food processing. It has approximately 22,000 megawatts of regulated electric generation capacity and serves approximately 3.1 million retail electric customers, as well as other load-serving entities. The company was formerly known as CP&L Energy, Inc. Progress En ergy, Inc. was founded in 1925 and is headquartered in Raleigh, North Carolina.
- [By Holly LaFon] ess Energy shares climbed over 2011 as the company announced in January it would merge with Duke Energy. Together, they will form the nation