Are These Top Performers Still a "Buy"?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I am looking at the top performers from my portfolio over the last year, and deciding whether or not it is time to take profits; many of these stocks you too might own.

Using CAPS

I began using Motley Fool’s “CAPS” late last year as a way for readers to track my new positions and to show the outcome of my investments that were chosen based on the information found in my book, Taking Charge With Value Investing (McGraw-Hill, 2013). 

The CAPS scores allow you to track your selections up against the market, with perfection being 100.00. Moreover, you gain a point for every percentage point that your selection outperforms its tracked index. Here are my current top four CAPS (portfolio) performers.

<table> <thead> <tr><th> <p>Company</p> </th><th> <p>Start Price</p> </th><th> <p>Stock Gain</p> </th><th> <p>Index Gain</p> </th><th> <p>CAPS Score</p> </th></tr> </thead> <tbody> <tr> <td> <p><strong>ACADIA Pharmaceuticals </strong><span class="ticker" data-id="214896">(NASDAQ: <a href="http://caps.fool.com/Ticker/ACAD.aspx">ACAD</a>)</span></p> </td> <td> <p>$6.09</p> </td> <td> <p>203.94%</p> </td> <td> <p>6.43%</p> </td> <td> <p>197.52</p> </td> </tr> <tr> <td> <p><strong>Rite Aid</strong> <span class="ticker" data-id="217285">(NYSE: <a href="http://caps.fool.com/Ticker/RAD.aspx">RAD</a>)</span></p> </td> <td> <p>$1.23</p> </td> <td> <p>128.16%</p> </td> <td> <p>11.93%</p> </td> <td> <p>116.23</p> </td> </tr> <tr> <td> <p><strong>Restoration Hardware</strong> <span class="ticker" data-id="273742">(NYSE: <a href="http://caps.fool.com/Ticker/RH.aspx">RH</a>)</span></p> </td> <td> <p>$37.60</p> </td> <td> <p>102.13%</p> </td> <td> <p>4.1%</p> </td> <td> <p>98.03</p> </td> </tr> <tr> <td> <p><strong>Responsys </strong><span class="ticker" data-id="225220">(NASDAQ: <a href="http://caps.fool.com/Ticker/MKTG.aspx">MKTG</a>)</span></p> </td> <td> <p>$7.78</p> </td> <td> <p>83.55%</p> </td> <td> <p>7.8%</p> </td> <td> <p>75.74</p> </td> </tr> </tbody> </table>

A Biotech That’s Not Done Yet

Acadia Pharmaceuticals has led the charge in my portfolio, and on My CAPS, since buying at $6.09. Over the last year it is trading higher by 930%. Therefore, many might assume that it should be sold.

Since the FDA is allowing Acadia to bypass Phase 3 trials for its Parkinson’s disease psychosis drug pimavanserin, it will most likely be available in the market early next year. The product will be the only approved drug for this indication, and analysts anticipate that it will be used for several off-label indications as well.

With a market cap of $1.4 billion and peak sales potential of $2 billion, Acadia Pharmaceuticals is still very cheap. As a result, I cannot justify selling it just yet. In fact, I recently bought more at $16.75.

Possible Short-Term Pain, But Long-Term Gain

Rite Aid has pulled back by $0.45 since announcing earnings last month, although it posted its third consecutive profit that beat expectations. After a 175% gain since its 52-week lows, I think this pullback is healthy but also temporary.

In a recent article I explained why new generic introductions prove that the best days are yet to come. Thus, I believe this is still a great long-term buy. However, if you are looking for short-term or an immediate producer of gains to your holdings, Rite Aid may not be the best pick. This is definitely a long-term and volatile play.

Don’t Let Gains Scare You, This Stock Is Cheap!

Restoration Hardware is one of my favorite plays in the market. It is growing revenue by more than 30% without expanding its stores. This is a company that grows solely through comparable store sales, which is an incredible feat to accomplish.

While many are skeptical of Restoration Hardware’s 145% post-IPO gains since November 2012, people need to keep in mind that it is trading at just two times this year’s sales. Home Depot trades at 1.5 times sales, but is also growing at just 2-3% year-over-year. Therefore, with a market cap of just $3 billion and significant room to expand, I believe that Restoration Hardware has a great deal of room to grow long-term.

Is This Still a Value Play?

Responsys is a company that not many people talk about, but the online marketing company is consistently producing growth of 20% year-over-year. Last year the stock saw significant losses but has produced an incredible gain of 140% in 2013 after being oversold to start the new year.

With that said, I am taking profits off the table with this holding. When I bought it, I considered Responsys a value play, but I no longer see such value. It is now trading at 4 times sales with a P/E ratio of 110. While it may still trade higher short-term, I feel confident with the gains I have returned and believe the risk is not worth the reward for this volatile stock.

Final Thoughts

The best of investors are constantly able to reassess their holdings, and maintain a short-term memory track to easily seek the best opportunities. After having a great year in 2013, I am reassessing my positions and am trying to find new and better alternatives. But in the case of Restoration Hardware, Rite Aid, and Acadia, I still think the best days are yet to come. 

 

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

 


Brian Nichols is long RAD, ACAD, RH. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus