The Year in Review
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The year is almost over. Time to reflect on the past and look forward to 2013.
Generally it has been a good year for the stock market. As of Dec. 21, the S&P500 Index was up 14.5%, including dividends. In 2011 the market was generally flat so the two-year performance has averaged 7% a year, slightly below the long-term trend. Unless the bottom drops out of the market over the last few trading days, this year will mark the 8th "up year" during the last 12.
Could you have beat the market's performance? Investing in solid companies that continually grow earnings, have low debt levels, plenty of cash and are well managed is a good place to start. Looking at smaller companies is also something to consider.
Although very much maligned over the past three months the number one performer among my stocks of large cap companies was Apple, (NASDAQ: AAPL) which was up 27%. The company refreshed most of its lineup this year and new models of the very popular iPhone, iPad and iPod devices as well as several of its Mac personal computers were released.
Even after the investments needed to pump out the new products, Apple had lots of cash left over, reporting more than $40 billion free cash flow at the end of October. That is more than the market cap of 87% of the other S&P500 companies. Among other strong factors in Apple's favor are zero debt and stable and capable management in place (CEO Tim Cook and most of the top staff have been with the company for over a decade).
Most analysts anticipate a good fiscal quarter for Apple. Projections of increased sales bode well for strong earnings growth, although probably not in the 50% to 60% range that the company has consistently generated over the past several years. And some analysts indicate that the long awaited iTV will debut in 2013. The exact configuration is unknown, but suffice to say it will probably be very innovative if the past is any guide.
Another of my large cap stocks that beat the market this year was AT&T (NYSE: T). The total return of the telecommunications giant was 17%. Although I bought it for its dividend, which has increased every year for 25 consecutive years, it experienced pretty good growth this year too. Earnings per share jumped to $0.77, on a trailing twelve months basis, as of October.
Even after making (and the plan is for more of the same) needed investments in both its wireless and wired networks AT&T has plenty of cash left over to continue paying the dividend. In spite of relatively high debt and P/E levels, growth will likely continue next year as the company takes advantage of technological improvements.
Just missing the performance of the market was another of the S&P500 stocks in my portfolio, Johnson & Johnson (NYSE: JNJ). The total return was 11%, including dividends. The big pharma and consumer products company exhibited resiliance in the face of some adversity. Several products were recalled and there were quality issues at some manufacturing plants.
The problems contributed to declining earnings, but based upon optimism that the root causes have been corrected growth should pick up in 2013, which will overcome perceptions of a high valuation (the P/E is 23 vs. the recent average of 15). Other positives for the company include relatively low debt and sufficient cash to cover the dividend, which has been increased for fifty straight years.
Among S&P500 companies the big winner so far this year was PulteGroup (NYSE: PHM). The holding company for businesses such as homebuilding and financial services is up 179% year to date. The huge run up pushed the P/E ratio to over 42 on a trailing twelve month basis and a projected 25 for next year based upon estimates of a 68% gain in EPS. There may still be a little life left for the stock, especially if the housing market has indeed bottomed out and is poised for upward movement.
A smaller company significantly outpaced the bigger ones in my portfolio. Virtus Investments (NASDAQ: VRTS), an asset management firm which according to the company web site "will improve revenues and profitability through a strategy focused on a multi-manager, multi-style investment platform" is up 55% year to date and 1,000% since its IPO. The company was formed on Dec. 31, 2008.
Based upon estimated EPS growth of 45% next year, a P/E of 6, very low debt and lots of cash the company and the stock should continue to perform well going forward.
One of my favorite activities during this time of year is to look back on what happened over the previous 12 months and take "stock of my stocks." The 12th year of the new millennium was "better than average." Here's hoping that 2013 is as good or better.
Mathman6577 owns shares of Virtus Investment Partners, Apple, Johnson & Johnson, and AT&T.; The Motley Fool owns shares of Apple and Johnson & Johnson. Motley Fool newsletter services recommend Apple and Johnson & Johnson. 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!