Submitted by George Putnam, III as part of our contributors program.
Year-End Stock Picks Outperformed All Market Indices
With Thanksgiving just around the corner and the blinding glare of 2014’s headlights staring us down, it is already time to start thinking about prudent year-end investment strategies. My turnaround investing philosophy typically follows a long-term approach; however, each year around this time I suggest that investors also consider a shorter-term strategy based on calendar quirks and tax law.
- What Happens To AMD’s Valuation If Embedded & Semicustom Revenue Declines To $2 Billion In 2016?
- What’s AMD’s Fundamental Value Based On Expected 2016 Results?
- AMD: The Year 2015 In Review
- How Is AMD’s Revenue & EBITDA Composition Expected To Change In The Future?
- AMD’s Q4’15 Earnings Review: What’s In Store For 2016
- AMD’s Q4’15 Earnings Preview: Things Could Turnaround In 2016
To illustrate this point, I wanted to see how the year-end bounce stock picks recommended back in December 2012 have performed. As detailed in the graphic below, eight of these ten companies have seen gains of 20% or greater—with Hewlett-Packard (HPQ) rising 104% and Best Buy (BBY) enjoying a 242% increase (between the time of recommendation and recent stock price [as of 11/11/13]).
Although both J.C. Penney (JCP) and Cliffs Natural Resources (CLF) declined in the long-term, these two stocks did see nice short-term gains. It is important to realize that each stock did enjoy a price rise immediately following our recommendation?9% for JCP, and 23% for CLF. This short-term increase followed by an apparent free-fall is not unexpected and should not be discouraging. I’ll detail the year-end phenomenon in the upcoming issue of my contrarian investing newsletter, but this can be quickly summarized: Once year-end artificial selling pressure stops, longer-term fundamentals will ultimately determine stock prices?as was the case for both JCP and CLF.
Even factoring in the long-term decline on those two stocks though, the combined companies recommended in December 2012 still enjoyed a 61% average return (between prices at the time of recommendation versus now). That figure is all the more impressive when compared to the more modest gains seen in other indices over this same time period: Dow Jones Industrial Average — +21%, S&P 500 Index — +25% and NASDAQ Composite — +30%.
I look forward to uncovering more diamonds in the rough this year, so watch for The Turnaround Letter’s annual list of year-end bounce stock picks as you enjoy those Thanksgiving leftovers!
2012 Year-End Stock Pick Performance Returns
Company (Ticker) % Change*
Best Buy (BBY) +242%
Hewlett-Packard (HPQ) +104%
Pitney Bowes (PBI) +96%
R.R. Donnelley (RRD) +79%
Advanced Micro Devices (AMD) +64%
Apollo Group (APOL) +34%
Allegheny Technologies (ATI) +29%
Newfield Exploration (NFX) +22%
Cliffs Natural Resources (CLF) -5%
J.C. Penney (JCP) -53%
* from price @ 12/1/12 recommendation to EOD 11/11/13