Neither the Denver Broncos nor the Carolina Panthers made the playoffs this year. That's my chief observation about the 10 biggest S&P 500 winners from 2016. It's so hard to repeat, to be back on that list in 2017. That doesn't mean, though, that you can't have a winning record, it's just the great runs to the Super Bowl for these champs seem almost too improbable to bank on them.
A perusal of the individual winners will show you exactly what I mean, starting with the single-best performer in the S&P 500, the stock I call American Pharaoh, Nvidia (NVDA) , which rallied an insane 222% for the year.
The trajectory of this horse had been pretty consistently up until its total lift-off back in November, when it turned out that every business driver was doing much better than expected. That set the stock off on a run from $68 to $117, before being thrown back to $107 in the last days of the year, during the tumultuous throwback from Dow 20,000 and the equally brutal Nasdaq reversal.
Nvidia earned the Triple Crown honors from me because it has chips that now dominate the gaming, machine-learning artificial intelligence and data centre businesses -- the three fastest growers in the semiconductor universe.
The stock reminds me of Intel (INTC) during its Secretariat-like heyday, when it dominated the super growth market of personal computers, or Dividend Stock Advisor holding Qualcomm (QCOM) , which for ages was the chip company that owned the cellphone market. As those two markets matured, so did those semiconductor companies -- and their stocks have been stalled pretty much ever since.
The encouraging thing about Nvidia is that the stocks of both Qualcomm and Intel had multi-year moves, with the former running from $7 to $70 and the latter jumping from $3 to $90, although both seriously rising in the ridiculous Nasdaq run back in the turn of the century. Still, it is important to point out that Intel had a multi-year move before that fated journey, and Qualcomm produced some multi-year positives after the Dot bomb.
Not coincidentally, Qualcomm is trying to buy NXP Semiconductors (NXPI) to diversify into automobiles. Until the data center and artificial intelligence businesses zoomed, auto was a mainstay of Nvidia, too, and it still generates a terrific return for the company. I didn't even know about the company until the head of Audi North America told me that its new 2015 models were filled with Nvidia chips, which had heretofore only been known as a chip company for high-speed gaming. I now consider cars just icing on the cake.
With Nvidia dominating the businesses for the three fastest-growing markets in the world, it could be argued that after its stock settles a bit it could charge ahead again, but numbers have to come up substantially, because it currently trades at 37x earnings -- and this market has little tolerance for that kind of nose-bleed valuation. Still being the backbone chips for virtual reality, artificial intelligence and machine learning would be enough, but data centers and gaming and autos? I don't think the stock's done. There's more to come. It just stole too much of its near-term future in the run-up until yearend. It became the name to show you know what the heck you are doing if you are a portfolio manager of any consequence.
ONEOK (OKE) , at first glance, seems like an odd S&P winner, rallying 132%. Odd, that is, until you consider that it was back from the dead like so many oil-and-gas-related companies. The oil and gas recovery stocks were really the surprise gainers of 2017, not just because they performed so well after oil bottomed earlier in the year, but also because their fortunes changed so dramatically with the second wind they got from the election of Donald Trump to the presidency.
In ONEOK's case there was even more to it. This company, with a stock that yields 41.2% of ONEOK Partners (OKS) , is one of the nation's largest master limited partnerships, with fabulous positioning in the Permian, the Rocky Mountains and Oklahoma, the latter being perhaps its most important asset given the incredible lucrative finds in what are known at the STACK and SCOOP formations. The company's stock yields 4.28% -- even after last year's run -- and I think that distribution payout can grow, given all of the projects it has in the hopper, many of which will be completed in the very near term.
We are all aware of the shale revolution, but too often we only think of it as an oil phenomenon and we focus on the spectacular growth of the major independents, like Cimarex (XEC) , Pioneer Natural Resources (PXD) and Concho Resources (CXO) . Not enough mindshare is given to natural gas, which can be turned into liquids of many kinds or chemicals and plastics with booming markets. Best of all, the U.S. which for years was a natural gas importer, is now an exporter. And while only 2% of our natural gas is now sent out of the country, either to nat-gas-starved Mexico or through the liquefied natural gas terminal owned by Cheniere, we are discovering that we might be both the largest and lowest-cost producer in the world. ONEOK is integral to the processing and transportation of a fuel that Donald Trump favors as part of his drive for continental energy independence.
Number three gainer, Freeport McMoRan (FCX) , having rallied 94%, may be the ultimate "back from the dead" candidate on the list. But it is one that might have gone about as far as it can go without help from worldwide GDP growth, exactly what it was trying to diversify from when it went on an oil and gas buying spree in 2012 -- shelling out $20 billion to buy related company McMoran Oil and Gas and Plains Exploration.
These might go down as two of the most ill-fated acquisitions in business history, as oil soon peaked and the company has had to sell off most of these properties for little more than about a tenth of what they paid in order to simply stay in business. It's also had to dump some very good copper assets, eating into its own seed corn even as it remains the world's second largest copper company. Here's the issue, though, copper remains an asset in secular decline, being replaced by aluminum and plastic with the only hopes for a long-term revival coming from a resurgence in China.
I can't give kudos to a company that's lucky to be alive, and I can't say its stock represents any value unless you see China building even more structures than it needs to put people to work to forestall a revolution.
The next two winners, Newmont Mining (NEM) , up 89% and Spectra Energy (SE) , both up 71%, are so non-emblematic of anything that I don't want to waste too much time on them. Newmont's a forever takeover candidate in the gold group that i think has little future in a rising rate environment, and Spectra is turning out to be a very wise, $28 billion acquisition of Enbridge to create the largest North American oil and gas infrastructure company just when the fossil-fuel-loving Trump takes over the White House.
The rest of the top 10 make a lot more sense as potential repeaters. There's number six, Applied Materials (AMAT) , which advanced 72% and should go up even more -- as it makes semiconductor equipment needed to make the latest chips for the next generation cell-phones for both Apple (AAPL) and Samsung. It joins Lam Research (LRCX) as a stock I like very much for 2017.
Talk about better to be lucky than good, Quanta Services (PWR) is an infrastructure contractor with a specialty in building pipelines. Much of its gain came after Trump was elected, which makes sense, since he seems to want pipelines built everywhere. Can it rally much after a 71% gain? Seems more likely a candidate to consolidate its run.
You knew there would be a Federal Reserve rate play in the top ten -- and its Comerica (CMA) , a beaten down regional bank that is very leveraged to Fed funds and to deregulation. It's a dual win and it can tack on a ton to its 62% gain.
I have lauded aggregate seller Martin Marietta Materials (MLM) as the key road-making ingredient company in the nation -- and with $500 billion slated for new infrastructure by Trump, it's right that it rallied 62%. But now it's got to get the orders. I think it's a hold for the moment.
Finally there's Halliburton (HAL) , another "back from the dead" oil and gas related company, with a fantastic service business that is very levered to the U.S. shale industry. It's 58% gain? I think it's got a long way to go, even as I have told Action Alerts PLUS members that Schlumberger (SLB) is the better buy. SLB, AAPL and NXPI are holdings of Action Alerts PLUS.