Can These Stocks Continue Their Breathtaking Run?
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
2013 started off as a great year for equity investing as investor confidence was pretty strong. The benchmark index for stocks, the S&P 500 and the Dow reached record highs in the first quarter of 2013. The S&P 500 touched a level of 1593 points, which is its all time high in the last five years. The Dow Jones industrial average added about 9% in the quarter.
These performances were mainly supported by the progress in the U.S. fiscal negotiations, the continuously improving Euro zone crisis, and the developing nations getting ready for higher corporate profits. In this article, I have picked up three stocks which have surged more than 50% in the first quarter of 2013. Let's discuss these stocks in detail and figure out if there exists an investing opportunity in any of these.
Stock return in first quarter of 2013
Netflix (NASDAQ: NFLX)
Best Buy (NYSE: BBY)
Hewlett-Packard (NYSE: HPQ)
Source: Yahoo! Finance
Netflix was the best performing stock in S&P 500 during the first quarter. The stock has almost doubled in the last few months, clearly depicting higher investor confidence in the company's strategies. If we look at the last six months performance, the stock has given a massive return of 167%.
After its premiere on Feb. 1, 2013, its first original programming show, 'House of Cards', became a quick hit with excellent reviews. Continuing with its remarkable success, the company has started planning for its next season. Although the official premiere date has not yet been confirmed, production activities have already begun.
The next in the list for original programming is 'Hemlock Grove,' which was introduced on Netflix recently, with all its 13 episodes released at once. This show is a combination of a horror and a thriller TV show, but it has received mix reviews so far. To cover that up, Netflix has another original programming show, 'Arrested Development' season 4, which is set to be launched on May 26, 2013. Arrested Development has tremendous popularity as a ground breaking comedy show, and its previous three seasons had a wider audience appeal.
So far in 2013, Netflix has forayed into the premium original programming shows. Under these shows, all the episodes are released at once, giving the audience a chance to totally indulge in them. I feel this is a big test for the company as to whether its streaming subscribers will turn to its original programming or not. House of Cards is already a hit, Hemlock Grove even, with its mix reviews, holds a place into the horror movie market, and Arrested development has already come up with a huge fan base.
I believe the second quarter will be more exciting for Netflix, as original programming seems to be a clever move even if some shows don't realize their complete potential. If Netflix successfully becomes a content creator, I feel that there is no limit to the company's growth and the stock’s returns.
The turnaround ace
Best Buy is another top performing stock in S&P 500 this year. After losing around 50% in 2012, the stock has gained its momentum back in 2013 with 94% returns so far. The company's website was the third most-visited after Amazon and Wal-Mart, resulting in better than expected holiday sales.
This was coupled with its decent fourth-quarter earnings for 2013, which were above analyst expectations. Even though earnings were down as compared to the previous year, investors’ faith in the company's management remained intact. Best Buy has been working really hard to turn things around, after it faced tough competition from online retailers. The stock’s performance clearly shows the changes have started paying-off.
Recently, Best Buy's stock got a major jump when it announced its deal with Samsung. Under the deal, Samsung will open special branded sections in Best Buy’s 1,400 stores in the U.S. Among these, 900 stores are scheduled to be launched in May 2013. The Samsung shops will also have smart service desks, which will provide a good after sales service experience.
This is another important step forward by the company, as Samsung will have co-branded advertising on these shops which will drive more store traffic. The main benefit from this initiative is likely to be the improved gross margins for Best Buy. On the whole, this is a win-win situation for both the companies.
Samsung, on one side, will be able to get retail foothold in the U.S. without building its own stores. On the other hand, Best Buy can capitalize on the popularity of Samsung's products to generate more sales. I see fiscal 2014 as a transition year for the company, with such initiatives paving the way for future growth.
Another company which is gaining in the middle of its turnaround efforts is Hewlett-Packard. Recently, HP announced stepping down of its chairman Ray Lane. I believe these changes will further restore investors' confidence in the company, as Ray was facing criticism because of his role in the acquisition of Autonomy. Therefore, this step from HP is in the right direction to fulfill its aim to transform its business, and also to inculcate good corporate governance.
As a part of its turnaround strategy, HP recently launched 'Project Moonshot', which includes low power servers for the enterprises. Under this project, the company launched its first server product, the Moonshot 1500, which is equipped with Intel's technology. The company is marketing its Moonshot servers as cost, space, and energy efficient as compared to the traditional servers.
Also, with these servers, HP is aiming to reduce its huge maintenance costs involved in running datacenters. The company has already tested the product with its own website, and it occupies much less space than the traditional servers. The first server product is now launched in the U.S. and Canada, and will be rolled out in Europe, Asia, and Latin America in May 2013.
I really see this as a game changer because HP is aiming at releasing more servers in 2013 within a three to six month cycle. This is what differentiates it from the other players, as launching a server product generally happens with a gap of 24 months.
Moving into 2013, I feel all the more confident about HP's transformation strategies. Growth from various new products and initiatives will help it to offset its other challenges. For more reasons as to why you should be bullish on HP, read my previous article here.
All the three companies discussed above have satisfied investors in the last few months with tremendous stock price performance. After analyzing these stocks, I feel all the stocks have further upside potential for the future. Whether it is Netflix’s original programming shows or Best Buy’s deal with Samsung, or HP's turnaround initiatives, all of them will lead to better growth prospects for these companies. I recommend a buy for all the three stocks.
Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. 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!