Every January, when the new year starts to write its story, I like to look back at the old one shrinking in the rear-view mirror. My question is always the same: What were the top stocks of the previous year, and why? In this case, I’m asking, “What were the 10 top stocks of 2017?”
Partly, of course, I’m trying to gain some insight into what it takes for a stock to streak ahead of its fellow equities and really soar.
But I’ve been doing this long enough to know that the answer to the “why” question will usually be something unpredictable and non-reproducible, like a biopharmaceutical company that finally catches a break in a clinical trial or a go-ahead from the FDA to market a new drug.
Every year I also look for a convenient cutoff, a percentage gain that gives me enough stocks to get the flavor of the year, but not so many that I wind up squeezing the orange after all the juice is out.
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This year, the minimum gain to make my list is 300%, a feat that 10 stocks managed.
Wanting to avoid a pack of meaningless penny stocks, I applied the usual limits to my search: Check only for stocks that are liquid (averaging 300,000 shares traded a day at year end) and finished the year trading above 10, which is somewhere around the lower price limits of most institutional portfolios.
In 2016, I found 14 stocks that gained more than 200%, but that was a weird year for top stocks. It featured an unusual mix of beaten down commodity and industrial stocks in its top 14, including four specialty chemical firms, two oil & gas companies, two fabless chip designers and two coal companies.
But 2017 was a Bull Market’s bull market, with a more usual selection of stocks dominated by biomedical issues. The list includes 10 stocks that gained 300%! (I calculate gains from the stock’s closing price on the last trading day of December 2016 to its closing price on December 29, 2017.) I named the top stock of 2017 in my January 5 Wall Street’s Best Daily, but I’ll repeat it here, followed by the next nine top stocks of 2017.
The big winner for the year is a very special case, and it makes for a great story.
The Top 10 Stocks of 2017
Top Stocks of 2017 #1: Riot Blockchain (RIOT, 3.42 to 28.4, 729%)
As you’ll see from the chart (below), RIOT was a virtual flatline through the end of August. And that portion of the stock’s year was a very different story than the one the company ended the year with, because when the year started, Riot Blockchain was Bioptix Inc., a mild-mannered maker of diagnostic equipment for the biotech industry headquartered in Colorado. (The deeper story is that Bioptix was formerly a company called Venaxis that bought Bioptix Diagnostics in 2016, but I digress.)
The board of Bioptix realized that the company was a loser and looked around for a better horse to ride. (Bioptix’s patents were licensed to Ceva Sante Animale S.A., a private diagnostics company, for $2.5 million, or so, plus a little royalty stream.) Seeing the wave of interest in bitcoin, the board decided to focus on that opportunity, and announced in early October that it would change its name to Riot Blockchain and concentrate on investments in blockchain assets, bitcoin and bitcoin mining, plus other cryptocurrencies and security software.
Bioptix stock began the year under 4, but started to show some life in September, then exploded higher in October, both before and after the Riot Blockchain announcement. Under its new symbol, RIOT nearly reached 10 on October 11, then relaxed until the middle of November, when it blasted off again, eventually reaching 46.2 on December 19.
A sharp pullback in late December dropped RIOT back to its 28.4 close for the year; if it had been able to hold that high, its gain would have been 1,250%. Unfortunately, that’s how things go in speculative bubbles. Riot Blockchain is making investments in companies like Coinsquare, a Canadian exchange for digital currencies and actively seeking other opportunities.
This is the strangest top stock for any year I can remember, as cryptocurrencies lost nearly $200 billion in value on December 22. But that’s not stopping opportunistic companies like Riot Blockchain or Long Island Iced Tea Corp., another abrupt corporate makeover that changed its name to Long Blockchain (LTEA) on December 26.
Top Stocks of 2017 #2: Sangamo Therapeutics (SGMO, 3.05 to 16.4, 438%)
Sangamo is a much more conventional story for a top stock, a biopharmaceutical company whose stock is given a big boost by either a positive result in clinical trials or a deal with one of the Big Pharma companies for research or development. In this case, the big event was the May announcement a Pfizer collaboration deal for development of Sangamo’s gene-therapy treatment for ALS (Lou Gehrig’s disease). Sangamo got $12 million immediately and the potential for additional payments of up to $150 million as milestones were reached. SGMO gapped up to 8.6 on the news on 17 times its average volume and, after a three-month consolidation, began to run higher. After a peak at 17 in early October, SGMO corrected to 11 later in the month but recovered to its peak for the year at 18.4 in early December and ran sideways for the rest of the year. It’s worth noting that as 2017 began, SGMO had just finished a massive correction from 25 in March 2014 to 2.7 in December 2016. Sangamo still has the potential for another run if any of its candidate drugs ace their clinical trials, but that’s about as unpredictable as the stock’s huge run in 2017. That potential has produced a stock with a market cap of $1.4 billion on annual revenue of $32.4 million for a company that has no prospects for profit unless and until lightning strikes again.
Top Stocks of 2017 #3: Esperion Therapeutics (ESPR, 12.5 to 65.8, 426%)
Esperion Therapeutics has a story that parallels Sangamo’s in many ways. ESPR was a hot stock from August 2014 to May 2015, a period when it zoomed from 14 to 121, but went into a tailspin in June 2015 that carried it to below 10 in June 2016. Seven months later in January 2017, the stock was still trading at 11, and that’s where the rally began. ESPR got hot in February as prospects improved for its cholesterol drug that was in late-stage clinical trials. After a blastoff from 11 on January 30 to 35 on March 8, disappointing news from Amgen about one of its cholesterol treatments took the wind out of ESPR’s sails, dropping it to 20 on March 17. Then came the announcement from Esperion that the FDA would likely grant a new drug application and ESPR closed one day later at 41. (That March action seen in the chart below is a great illustration of the perils and rewards of buying biopharmaceutical companies that may be ready to bring a product to market.) After a three-month break to digest its March gains, ESPR was relatively sedate for the rest of the year, consolidating from July through the middle of November, then finishing the year with a little lift.
Top Stocks of 2017 #4: Ignyta (RXDX, 5.3 to 26.7, 404%)
The case of Ignyta introduces a new plot element into a familiar story line: The Buyout! Ignyta, which came public just in March 2014, was a “precision oncology biotech company” working on specifically-targeted treatments for particular cancers. The company had made headlines and gained credibility in March 2015 when it bought the rights and assets to four oncology development programs from Teva Pharmaceuticals. RXDX, which had been trading under 7 when 2015 began, got a big boost in trading volume and an eventual price high of 19 in June 2015. Then came the familiar drift lower that happens so often to drug companies without revenues or good news, ending with RXDX trading at 4.2 in November 2016. But Ignyta began to make headlines with the success of its lead drug entrectinib and got breakthrough status from the FDA in May. Steady buying by speculative investors took RXDX to 16 in October, where it stayed until December 22, when it was announced that Roche, a leader in cancer treatments, was buying Ignyta for $1.7 billion. Roche got a company with a promising treatment in Phase II clinical trials and Ignyta’s shareholders got a quick bump to 27. RXDX traded sideways from there, finishing the year at 26.7, slightly lower than the buyout price, which I think of as the skepticism discount.
Top Stocks of 2017 #5: Nektar Therapeutics (NKTR, 12.27 to 59.72, 387%)
There’s not a lot of variety in the story of Nektar Therapeutics’ great 2017. Nektar differs from its fellow champions for the year in having significant revenue, although still no profits. Nektar’s lead candidate is NKTR-181, a treatment for lower back pain that may provide a safer alternative to opioids like Oxycontin. NKTR made two dramatic moves during the year, the first coming in March, when Phase III clinical trial results showed impressive relief from back pain vs. a placebo. The stock popped from 15.5 to 22 in one big-volume leap, then gave back much of the gain in April and traded basically sideways until November. As November began, NKTR was trading right at its March high, and then came two pieces of good news. First, the company announced Q3 results on November 7, results that got a boost from a $150 million payment from Eli Lilly for partnering in the development of an early-stage therapy for autoimmune disease. At the same time, the company announced that it would apply for FDA approval for NKTR-181 by April 2018. Then, on November 13, came news that another of Nektar’s candidate drugs might increase the effectiveness of one of Bristol-Myers Squibb’s cancer drugs. NKTR kited higher for the rest of the month, took a small break during the late-November/early-December market pullback and kept drifting higher right up to the end of the year. Nektar’s Q3 report featured a 321% jump in revenue (thanks, B-M S!) and the company’s first profit since Q3 2014.
Top Stocks of 2017 #6: Dynavax Technology (DVAX, 3.95 to 18.7, 373%)
Okay, here we go again. Dynavax Technology is a money-losing drug developer with a billion dollar market cap and pitiful revenue. But it made great strides in 2017 because its top candidate drug, HEPLISAV-B, a vaccine for hepatitis B, kept threatening to win FDA approval. (The drug did win FDA approval, but the stock’s reaction to that breakthrough is instructive in itself.) DVAX had fallen on hard times, having dropped from 32 in September 2015 to below 4 as 2017 began. The stock, which generally traded under a million shares a day, got three obvious volume spikes during the year. The first (over 20 million shares traded and a jump from 4.5 to 6.9) came on March 1, when the company re-submitted HEPLISAV-B for FDA approval. (Note: this was Dynavax’s third shot at gaining approval, having been put off by FDA rejections in June 2013 and November 2016.) The second spike (13 million shares and a price gain from 5.9 to 6.9) on June 5 resulted from good clinical trial results for a different drug. The third spike was the jackpot, a 75% jump from 9.3 to 17 on volume of over 23 million after new that an FDA committee had finally recommended approval for HEPLISAV-B. DVAX rode the momentum of that event to a peak at 24 in early October and made a second peak (after a little profit-taking) on November 9 when formal approval was announced. The only other interesting lesson from DVAX is that once the approval was finally in the bag, the stock declined by almost 20% by the end of the year. It’s a great illustration of “buy the rumor, sell the news,” or, in the case of baby biopharmas, “buy the anticipation, sell the approval.”
Top Stocks of 2017 #7: Siebert Financial (SIEB, 2.98 to 13.5, 353%)
After five straight biomedical stocks, it’s a relief to get to almost anything else, and Siebert Financial is an interesting story (even if it’s largely a copy of Riot Blockchain’s) and chart. As you can see from the chart, SIEB was nothing, nowhere, nobody until December 14, when the brokerage company announced that it would partner with Overstock.com to offer deeply discounted online trading ($1.99 per trade) in Q1 2018. But the real kicker in the announcement was news that the partnership would introduce new products like Blockchain Trading, Crypto Products and Robo Advisory. Of course the magic word “Blockchain” was the active ingredient here. Siebert Financial was founded in 1967 by Muriel Seibert, the first woman to own a seat on the NYSE and a pioneer in the discount brokerage business. But discount brokerages are pretty thick on the ground, so it’s clear that Blockchain mania was at work in SIEB’s advance. The stock spent most of the year trading at daily volumes of just a few thousand shares; the previous high was 62,000 shares on May 12. SIEB traded 4.1 million shares on December 14, a day when it jumped from 5.2 to 11.9, and roared to 21.6 on December 20 before end-of-year profit taking (and sanity) pulled it back to 13.5 as the year closed. (SIEB has bounced back above 16 in 2018, so there’s likely more appetite for Blockchain still out there.)
Top Stocks of 2017 #8: Immunomedics (IMMU, 3.67 to 16.16, 340%)
Ah, another biopharmaceutical company, how interesting. But there really is an intriguing twist to the Immunomedics story that we haven’t seen in any of the previous top stocks. The company specializes in developing monoclonal antibodies (that’s the MAB at the end of the names of lots of cutting-edge drugs) to treat cancer, autoimmune and other serious diseases. The company is like the other clinical-stage drug researchers on this list in that it doesn’t have any approved products and hasn’t made a dime yet. The big story for Immunomedics is its sacituzumab govitecan treatment for metastatic triple negative breast cancer, a particularly tough cancer to treat. Sacituzumab govitecan, or IMMU-132, is in trials with patients whose cancers have either relapsed or have proven resistant to other treatments. That February 10 bump in IMMU’s trading volume reflects investors’ positive response to the news that Immunomedics was licensing IMMU-132 to Seattle Genetics. But (here’s the twist), the May 5 bump is a positive response to news that an activist investor objected to the Seattle Genetics deal and got a temporary restraining order to stop it. The investor (venBio) got the deal scotched and won four seats on the Immunomedics board and Seattle Genetics got to keep its IMMU shares. Investors liked the news, and IMMU ran to 14 in late September, then slipped back to 9 in December, when the release of full study data on IMMU-132 kicked the stock into a strong rally that lasted into late December.
Top Stocks of 2017 #9: Spectrum Pharmaceuticals (SPPI, 4.43 to 18.95, 328%)
Just one more unprofitable drug company, I promise. But at least this one has actual products on the market. Spectrum Pharmaceuticals concentrates on oncology and hematology targets, and has three cancer drugs in advanced development. The company has six marketed oncology/hematology products, but revenue has been spotty, up in three of the last six quarters and down in the other three. The biggest single bit of good news for SPPI came in late October, when its candidate drug poziotinib showed good results in a Phase II clinical trial against the ominously-named EGFR Exon 20 Mutant non-small lung cancer. SPPI jumped from 14.5 to an intraday high of 22 on October 18 on volume that was nearly 1,000% above average. As with other biopharmas, once the good news was priced in, the stock traded sideways for the rest of the year, with a little dip in December when the company swapped out its CEO and COO. Investors usually hate leadership changes because they may indicate scandal and failure, but SPPI recovered quickly.
Top Stocks of 2017 #10: Xunlei Limited (XNET, 3.86 to 15.39, 299%)
Xunlei Limited is kind of a bonus stock. I’m including it even though it technically missed the 300% cutoff because it’s Chinese and I’m always proud to see a stock from my emerging markets investment universe punching above its weight. Xunlei calls itself “a leading cloud-based acceleration technology company,” which translates to a subscription-based ISP that will make your online videos, games and entertainment run faster. But there’s a now-familiar theme to XNET’s great year. The stock’s action from the start of the year through the middle of October was as flat as a wagon on the prairie, although there was a surge from 3 to 4.2 in August. At that point, the stock lifted off on steadily rising volume following the company’s launch of a file-sharing program called OneCloud, which uses blockchain technology and pays users in OneCoin, a cryptocurrency like bitcoin. (Xunlei denies that OneCoin is like bitcoin, hoping to circumvent the Chinese government’s antipathy toward any technology that might threaten its capital-flow controls. Whatever.) Once again, the current mania for cryptocurrencies worked its magic and in the six weeks from October 13 to November 24, XNET ripped from 4.3 to near 25, a gain of 478%! XNET cooled off sharply to below 13 by the end of November, and traded in roller-coaster fashion through the end of the year.
The big lesson from these stupendously successful performers is that if you are seriously looking for a stock that will outperform all the rest, you will need to accept a massive amount of risk. The top stocks of 2017 had lousy fundamentals and nothing but high hopes going for them. If you had picked a half-dozen unprofitable drug developers at the beginning of the year, you might have been lucky and you might not.
The second lesson is that big gains can be followed by equally big corrections. If you’re swimming in the highly speculative end of the pool, you need to be prepared to jump out quickly. Taking partial profits and trailing tight stops are two excellent precautions when dealing with this kind of volatility.
Instead of taking on a lot of risk, I recommend taking a subscription to Cabot Global Stocks Explorer which I edit. You’ll get the exposure to the great emerging markets growth stocks and get double-digit gains while sleeping well at night. Just last year, my readers grabbed a 160% gain in a top education stock, a 115% gain in a top service provider, 81% gain in a top utility stock, just to name a few.
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And good luck in 2018!
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More