The stock market has certainly seen its share of volatility in recent months. But the tired old saw about how it’s important to look at the “market of stocks” instead of just the stock market as a whole is worth remembering, because there are some surprising winners out there — if you look.
Sure, the broader S&P 500
is down about 8% from Oct. 1, and it has been a pretty wild ride both up and down across the last two months or so. A number of widely held stocks have been brutalized along the way, including tech darling Facebook
which is now sitting on a loss of more than 20% on the calendar year thanks to a drop of 35% since its all-time highs in July. Equally ugly lately has been Apple Inc.
which has shed more than 22% since Oct. 1.
But if making money in the stock market was as simple as buying the same fashionable stocks as everyone else, we’d all be billionaires. Here are five stocks that may surprise you by providing impressive profits since Oct. 1 even as the market has stumbled.
If you live outside the Carolinas, you’d be forgiven if you haven’t closely followed the travails of Scana Corp.
in 2018. This regional utility serves just over 700,000 electric customers and 900,000 natural gas customers, and with a market value of less than $7 billion is one of the lesser-known companies in an admittedly boring utilities sector.
However, Scana has been quite volatile ever since news over an expensive and ultimately doomed nuclear power project came to a head late last year. In the intervening months, the soap opera around this stock has included credit downgrades, bankruptcy fears, threats of a dividend elimination, hopes of a buyout by larger utility Dominion Energy Inc.
and other juicy headlines too numerous to count.
At long last, however, the dust appears to be settling. In November, Dominion promised a rate cut to customers to help win regulatory approval of its buyout plan, and in December a judge gave preliminary approval for a $2 billion settlement relating to the project. Shares have spiked more than 25% since Oct. 1 as a result.
Nothing is certain in this stock after all the fireworks and public outcry, but it’s worth noting that Wall Street has been incredibly optimistic about events even amid turmoil in other corners of the market. That may make it worth exploring in the near-term.
Many investors have just plain forgotten about Newell Brands Inc.
The company is an incredibly odd conglomeration of consumer goods ranging from Elmer’s glue to Graco car seats to Coleman camping gear to Yankee candles. It made things even more complex in 2015, with a $15 billion acquisition of Mr. Coffee and Crock-Pot parent Jarden in 2015.
Some conglomerates manage to figure out how to operate efficiently, but that simply hasn’t been the case for Newell lately. Among one of the worst performers in the S&P 500 last year, Newell lost over 30% in 2017 while the benchmark index surged nearly 20%.
There are signs of hope that Newell is finally getting its act together, however. The stock soared over 40% in the month of November alone thanks to a flurry of favorable headlines.
First, the company posted a surprise earnings beat and raised its full-year outlook thanks to a focus on margins and operating cash flow. In addition to short-term hopes that the company is enforcing more fiscal discipline, there was also news that Newell intends divest itself of its Jostens yearbook business and Pure Fishing outdoors products to private-equity firms to raise $2.5 billion. The influx of cash and simplification of the broader business was music to investors’ ears.
To be clear, there is still a pretty sustained downtrend in the long term for Newell stock. But after hitting a multiyear low recently, it has snapped back strongly and is showing clear signs of a turnaround. The fact that investors have bought in eagerly even amid the market mayhem is a clear indication that there may be something here worth watching.
As much fun as it is to discover new flavors as an amateur chef, as an investor I have to admit that selling spices aren’t exactly a growth business. That may not be immediately apparent when you look at McCormick & Co.
however, and its impressive gain of about 13% since Oct. 1 even as the rest of the market has stumbled.
There are a few important tailwinds leading to this uptrend for this parent of Frank’s Red Hot sauce, Zatarain’s rice and French’s mustard products. One of the most obvious is the dividend increase announced at the end of November, a substantial hike of nearly 10% to build on an 11% dividend increase at the end of 2017. There also have been material benefits in the last several months from the $4.2 billion acquisition of Reckitt Benckiser’s foods unit; the revenue and profits have begun to really bear fruit in recent earnings reports, and have helped fuel revenue growth that is on track to top 13% this fiscal year.
These short-term trends are indeed encouraging, but are just the latest in a sustained uptrend that has driven the stock up a stunning 50% since its May lows. With shares at the top of their 52-week range and investor appetites shifting toward more “risk off” staples plays like McCormick, there’s a lot of reason to expect that the recent headlines will not only sustain current share prices but push them even higher.
Speaking of stocks that may surprise you with their growth potential, take a look at ultra-discount carrier Spirit Airlines, Inc.
The domestic airline business is notoriously brutal, with low margins and significant regulatory burdens resulting in pretty regular bankruptcies over the last few decades. But this no-frills carrier is projected to grow its revenue 24% this year and another 17% next year as it claws business away from rivals.
Furthermore, Spirit isn’t simply a top-line play with vague hopes of future profits. Its third-quarter numbers published in late October blew the doors off, with a key metric of “revenue per available seat mile” up significantly from weakness earlier in 2018, while costs fell. Margins expanded and profits trounced forecasts, sending shares up by double digits in a single session and an impressive 43% since Oct. 1
Furthermore, Spirit was upgraded from neutral to overweight by JPMorgan in late November, with its target raised from $59 to $82. Raymond James in October set a new price target of $65 over its previous $52 target.
Now, there are always risks to airlines given the thin margins in the business. Elevated debt levels, the chance of a spike in fuel costs or a cyclical downturn in air travel could very well weight on Spirit as well as its competitors. But the near-term headlines indicate that this discount carrier is flying high, and could stay comfortably above the market turmoil in general.
Well off the beaten trail and perhaps even less known than these other players is India-based pharmaceutical company Dr. Reddy’s Laboratories Ltd.
a $6 billion stock that is a bit riskier than these other picks thanks to a sustained downtrend since mid-2015. But Dr. Reddy’s fate is quite similar to better-known generics drugmaker Teva Pharmaceutical Industries
that won the favor of Berkshire Hathaway
and Warren Buffett earlier this year and has been in the middle of a turnaround of its own.
Dr. Reddy’s doesn’t get nearly the same analyst attention, but its second-quarter results in October were encouraging as gross margins improved year-over-year as did top-line revenue, resulting in strong results for the business. This uptrend after a few years of brutal selloffs has seemingly created a decent value proposition to investors, who have lifted the stock more than 13% since Oct. 1. Shares are also up an impressive 35% from their 52-week low in May.
Adding momentum to shares recently has been a favorable court ruling that has allowed the generic drugmaker to sell its version of a rival opioid treatment in the U.S. — reversing a previous injunction and opening doors to considerable future revenue potential.
It should also be noted that while generic drugs are low-margin products, they are also lower risk as these medications tend to be some of the very last expenses erased from budgets in times of trouble. So there’s a chance that the recent gains in Dr. Reddy’s will stick even if the macro picture softens up.