Stocks That Soared Out of the Gate

 | Jan 04, 2013 | 7:00 AM EST  | Comments
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Stock quotes in this article:

x

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lrcx

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met

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cnx

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btu

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dg

The stock-market horse race of 2013 is under way. Of the 500 horses wearing the colors of the Standard & Poor's 500, the quickest start was by U.S. Steel (X), which rose 8.5% on the first trading day of the year. Galloping in second place was Lam Research (LRCX), up 7.2%. In third was MetLife (MET), up 6.7%.

Stumbling out of the gate were a pair of coal companies, Consol Energy (CNX), down 3.4%, and Peabody Energy (BTU), down 2.9%. Also trailing the field was Dollar General (DG), which slipped 2.6%.

Let's zoom in on each of these stocks for a moment.

U.S. Steel, the leader in Wednesday's session, has fallen 80% in price over the past five years. Even taking dividends into account, its total return is negative 79%. By comparison, the S&P 500 climbed about 8.5%, including reinvested dividends, for the same five-year period. (Without the dividends, the index would have been down 2.9%.)

The list of troubles for the U.S. steel industry is long and well-known, and includes high labor costs, high healthcare costs and increased production in China, India and South Korea. Furthermore, strong and lightweight composites have stolen market share from steel in car- and aircraft-manufacturing.

It's a stock-market tradition for the previous year's laggards to bounce back strongly in January: Tax-motivated selling gives way to bargain-hunting. I think that's mostly what's going on with U.S. Steel, which also benefitted from a Credit Suisse upgrade Wednesday.

When the company reports its 2012 results, it will almost certainly be posting its fourth consecutive annual loss. This year analysts are looking for a profit of about $1.53 a share, but that is already priced in to the stock, which sells for 17x that figure. I think U.S. Steel will be a market performer for the year.

Lam Research, which I owned in the recent past, is a leader in semiconductor etching. It had a great year in fiscal 2011, earning $5.39 a share. But, in fiscal 2012, it made only $1.35, and analysts are only looking for a $0.15 improvement in 2013.

Although I don't own MetLife, I've recommended it in print, and I continue to like it. The largest U.S. life insurer sells for only 7x earnings; a reasonable multiple, in my opinion, would be at least 10x.

Turning to the slow starters, Consol and Peabody both have more debt than I'd prefer, but I think coal stocks will advance this year as the industry regains some market share from natural gas.

As for Dollar General, the stock appreciated 37% in 2010, 34% in 2011 and 7% last year. Analysts remain fond of it, but I suspect it will lose share to other retailers this year.  

John Dorfman is chairman of Thunderstorm Capital LLC, a money-management firm in Boston. He can be reached here.

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