Is the Sun Finally Shining on Solar Stocks?
Patience and Growth Investing Go Together
With the holiday season safely behind us and the New Year well underway, I'm always curious about the best-performing stocks of the past year. I want to know which stocks did the best, get a sense of why they prospered and see if there are any investing lessons that might help me bag one of the big winners in 2012.
I'm not really interested in penny stocks or very low-priced stocks--they're just too risky--so I screened the entire market for stocks that haven't traded anywhere near penny stock territory during the year. I also set the bar above 50,000 shares traded per day, just to get rid of the May-flies that can zip higher on any big trade.
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What I got (after eliminating a couple of pretenders whose stock splits were missed by my data service) was a list of 24 stocks that booked price appreciation of more than 100% from the close on December 31, 2010 to the close on December 30, 2011.
Before I give you the top ten best performers for the year, I want to observe that this is pathetic! In even a moderately positive year, there are usually more than 100 stocks that double, and a strong year can yield 300 or more. So we're talking about a market in which big winners were thin on the ground.
So here are the winners for Top Stocks of 2011.
1. Pharmasset (VRUS, +489%) was already having a good year, but gapped up huge in November when it was announced that the company would be acquired by Gilead Sciences (GILD) for about $11 billion in cash. Pharmasset's strong portfolio of hepatitis C drugs was the big lure.
2. Silicon Motion (SIMO, +382), the fabless Taiwan chipmaker, rode the continuing strength of the consumer electronics sector and the company's energy-saving system-on-a-chip technology to great returns.
3. Inhibitex (INHX, +321%) is another pharma stock that added a takeover price premium to its already successful price appreciation. Inhibitex is another company with expertise in battling hepatitis C as well as shingles and chronic infections.
4. Medivation (MDVN, +204%) is another biopharma that focuses on (you will pardon the expression) "castration-resistant prostate cancer." (You've probably already noticed the dominance of pharmas in the top ten, and we're not even halfway through the list -- good for you.)
5. Golar LNG (GLNG, +196%) specializes in the liquefaction, transportation, regasification, distribution and trading of natural gas, which has been booming thanks to the huge domestic finds in shale formations.
6. Questcor Pharmaceuticals (QCOR, +182%) has one main drug, Acthar, which addresses multiple sclerosis and other conditions, and it's a blockbuster. It began its long run in March 2010, but has stumbled badly in recent days.
7. Liquidity Services (LQDT, +163%) is an online surplus and salvage auctioneer, and its success in an environment in which lots of businesses are failing makes perfect sense. Just as 2011 began, the stock finished up a three-month correction. Timing.
8. Procera Networks (PKT, +151%) is a computer networking software firm whose chart shows an unusually deep two-month correction starting in mid-July. That corresponded with a broad market pullback, but top ten finishers usually avoid that kind of shakeout action.
9. Pharmacyclics (PCYC, +144%) is developing anti-cancer drugs, but hasn't had any approved by the FDA yet. A big July-August surge supplied much of the horsepower for the stock's big year.
10. Elan (ELN, +140%) is an entirely appropriate company to round out the top ten, because it's (surprise!) a biotech company, making the score pharmas six, everything else four. Elan's Tysabri (to treat MS) just keeps making money.
So, six out of the ten best-performing stocks of 2011 (and 10 out of the total of 24 that topped 100% gains for the year) were in the medicine business.
Biopharmaceutical and biotechnology companies (especially small ones with no or few marketable drugs) are frequently well represented on lists of top performers. It's a news-driven sector, and a scrap of good news from a clinical trial can send a stock through the roof. It was also useful to be an attractive takeover target, as proved to be the case with two of last year's winners.
Be careful, though. It wouldn't be a good idea to decide that you should just snap up a few promising drug stocks and wait for the money to roll in. A look at the longer-term charts for many of this year's leaders will drive the lesson home. The big rallies are frequently balanced by long stretches of doldrums along with the occasional steep correction. Of course, this list says nothing about the biotechs that faltered last year.
There aren't a lot of buying lessons to be gleaned from this quick review of winners. Cabot growth disciplines start with having a strong market environment before you get aggressive with your cash and put the hammer down.
If you'd like to get a look at the other 14 stocks that managed to double their prices in 2011, just drop me an email. That's email@example.com ; I'll be happy to send it to you.
You've probably gotten thoroughly sick and tired of me telling you that the proper approach to growth investing in today's stock market is patience.
I know this because I'm totally tired of saying it.
I feel like Tom Hanks playing the coach in A League of Their Own when he said, "There's no crying in baseball!"
I know many of you feel in your bones that "There's no patience in growth investing!" You're the ones who call to ask if a stock is a good buy right after it has dropped 20% in a day. You're also the ones who ask me if solar stocks are buyable here after a rally of just a day or two.
I feel it myself when I see a quality company like First Solar (FSLR)--a stock that has plunged from 170 to 30 in just 11 months--bounce up nearly 40% in just over three weeks. And I'm seeing similar jumps from many other solars, including many Chinese solar companies whose bargain-basement valuations I have been salivating over for months. This includes Trina Solar (TSL), Suntech Power (STP), Yingli Green Energy (YGE), LDK Solar (LDK), JA Solar (JASO) and ReneSola (SOL).
These jumps have come on good volume and many of them are coming off beautiful bottoming bases and include excellent spikes in trading volume.
My only advice is that if you decide to give in to temptation and snap up a few of these oversold beauties, you should keep your positions small and your stops tight.
The Cabot growth disciplines say that if these stocks are going to make a significant move, you'll have plenty of time to make good money on them without trying to beat everyone else to the punch. A short-duration rally can evaporate as quickly as it appears, and the longer a rally runs, the greater its susceptibility to profit taking.
If you'd like to have the advantage of forty years of growth investing savvy on your side of the poker table as you look at these solar stocks, most of which are of Chinese companies, you should take a look at the Cabot China & Emerging Markets Report. The Report's market-timing indicators and in-depth stock recommendations from dynamic emerging economies will give you the inside track as the solar industry begins to attract more interest. Get started here.Sincerely,
Editor of Cabot China & Emerging Markets Report
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