After a strong rally in 2016 and mainly 2017, during the first half of 2018 US stock markets have experienced rather volatile and neutral movements than continuation of a strong growth. Even though overall, we can see positive returns that US stock markets have brought to investors, this is not true for all main indices. The largest growth have experienced technological stocks, which resulted in Nasdaq returning about 10% this year so far. S&P 500 has risen only about 2.5% this year, while Dow Jones even slightly decreased by about 1.5%.
Based on the most current jobs and wages data published on 6th of July, the overall economic outlook can be described as positive, which can mean further interest rates increases by Fed this year. However, this is negatively influenced by Trump threating China with USD 500 billion in tariffs, which could soon result in a serious trade war that would be harmful for everyone involved and would be immediately reflected in assets prices as well.
All this is true for markets as whole, but there are stocks, whose performance seems not to be impacted by broader economic environment. Below can be found a list of 20 US traded stocks that have experienced the largest price growth in this year so far. To exclude extremely volatile movements of penny stocks, we have included only stocks with current price of over 5 USD, and market cap of over USD 50 million. Even though further adjustments could have been made, we wanted to keep the list the most original.
|Turtle Beach Corporation||Technology||Communication Equipment||1109.16%|
|Tandem Diabetes Care, Inc.||Healthcare||Medical Instruments & Supplies||876.69%|
|Differential Brands Group Inc.||Consumer Goods||Textile – Apparel Clothing||457.89%|
|Intelsat S.A.||Technology||Diversified Communication Services||427.43%|
|Arrowhead Pharmaceuticals, Inc.||Healthcare||Biotechnology||330.16%|
|Naked Brand Group Inc.||Consumer Goods||Textile – Apparel Clothing||299.31%|
|BlueLinx Holdings Inc.||Services||Building Materials Wholesale||290.68%|
|Legacy Reserves LP||Basic Materials||Independent Oil & Gas||283.23%|
|Fossil Group, Inc.||Consumer Goods||Textile – Apparel Footwear & Accessories||268.08%|
|Legacy Reserves LP||Basic Materials||Independent Oil & Gas||265.11%|
|AGM Group Holdings Inc.||Technology||Application Software||259.68%|
|Legacy Reserves LP||Basic Materials||Independent Oil & Gas||259.49%|
|Xenon Pharmaceuticals Inc.||Healthcare||Biotechnology||255.75%|
|eGain Corporation||Technology||Business Software & Services||241.90%|
|Innovate Biopharmaceuticals, Inc.||Healthcare||Biotechnology||234.92%|
|Madrigal Pharmaceuticals, Inc.||Healthcare||Biotechnology||226.27%|
|Xerium Technologies, Inc.||Industrial Goods||Diversified Machinery||211.74%|
|Travelzoo||Technology||Internet Information Providers||201.55%|
Clearly, investors with large exposure to these stocks have at least doubled their holdings value and strongly outperformed broader indexes. Question is if there is something that they have in common. Firstly, we can take a look at sectors to which these companies belong.
With 7 out of 20 stocks, healthcare is a clear winner as a sector with the most top performing companies. Success of these stocks usually depends on the results of tests of their drugs, which is almost impossible to predict and therefore picking these stocks is rather a lottery than wise investing. Still, with high risk comes a high reward and potential investors might end up either with hefty profits, or with the substantial losses as well.
Another thing these stocks have in common are high price-to-book value, price-to-cash and price-to-sales valuations. Also, most of these stocks have negative return on assets and equity, but usually high current ratio (measureness of liquidity).
Even though these characteristics can be considered as bad and negative for the future of a company (negative returns, overpriced), performance of these stocks can be related to expected growth in earnings during next years. Although this earnings growth is expected to be strong, if companies will not manage to reach these expectations, their stock prices will most probably fall to previous levels. So investors might want to be satisfied with current returns and decrease their holdings at current prices.
This overview is a great example of how (mostly) non-profitable, highly volatile and fragile companies, whose success often depends on a hardly-predictable outcome, can suddenly become leaders in terms of performance.
Clearly, to reach outstanding returns, one must be ready to take on large risk and be aware that he can end up with large profit just like with substantial losses. This trading should therefore constitute only a fractionate part of the portfolio and is surely not suitable for most of the investors. They would be much better of looking for well established companies or, as Buffett says, if they just put money into a passive index fund.