Rules of the Game: The Roaring Gainers of 2012, Part I

 | Dec 17, 2012 | 9:00 AM EST
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It's that time of year again, when you'll start to hear plenty of predictions about what investment opportunities will be hot in the next 12 months. I'll make mine quick: Watch for stocks that go up. Those will be your best bets.

OK, so I'm guessing that was not particularly helpful.

How about this? When it comes to market predictions, I don't make them, nor do I take others' prognostications very seriously. Sure, there are some obvious trends that look likely to continue. We'll see some brisk business in mobile technology, electronic-payment systems and women's clothing, shoes and accessories. (I threw in that last item because women's clothing, shoes and accessories always do brisk business; you just can't predict from year to year which companies will capitalize on it!)

But, historically, I have gleaned useful information from charts of the prior 12 months -- so I ran a scan of 2012's biggest percentage gainers. I included stocks priced at $15 or higher, and trade at least 500,000 shares per day. I normally include earnings- and revenue-growth metrics, but at this point I opted to look solely at price appreciation.

It's not necessarily the case that price leaders of the past 12 months will become leaders in the coming year. But it's constructive to analyze the fundamentals and technicals of the current crop of winners. This analysis often yields signals regarding a stock's potential for further price gains.

As you might expect, the majority of stocks in my scan were small- and mid-caps. 

Year-to-date price leaders include mortgage-software maker Ellie Mae (ELLI), biotechs Pharmacyclics (PCYC) and Infinity Pharmaceuticals (INFI) and three-dimensional printer maker 3-D Systems (DDD). The last name is a mid-cap, while the first three hail from the ranks of small-caps.

The large-cap names intrigued me most, as there were far fewer on my list, and that's my starting point when it comes to building a portfolio of individual stocks. Today I'll look at one of those names, and follow up with some others later this week.

Regneron Pharmaceutical (REGN), which makes treatments for inflammatory ailments, cancer and eye conditions, has advanced 224% so far this year. The company has market capitalization of $17.35 billion and moves about 820,000 shares per day.

The stock's chart certainly does look frothy, being only 5% below its Nov. 29 high of $188.95.

The last time this stock fell below its 200-day line was Dec. 22, 2011. After that kind of sustained run-up, a retrenchment could set the stage for further gains.

Though I see potential for a pullback, there are elements of the stock that look promising. As with many pharmaceuticals and biotechs, Regneron took its time becoming profitable, but the company finally turned that corner this year. Analysts see it wrapping up the year with income of $3.48 per share. That's expected to climb 41% next year, to $4.89 per share.

This stock falls into the large-cap growth category. Revenue grew at triple-digit rates in each of the past three quarters. In fact, growth accelerated over that time, from $231.8 million to $304.4 million to $402.7 million.

While the chart indicates that a pullback could be in the cards sometime soon, the fundamentals signal more potential ahead.

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