Weekly Video Review
The Three Best Stocks of 2015
This Week’s Fortune Cookie
In Case You Missed It
In this week’s stock market video, Mike Cintolo details his thoughts on this week’s big breakdown in the market, including his current stance, what to do if you’re still heavily investing, some thoughts on shorting and running through a couple of scenarios going forward. And, as always, Mike is always hunting for resilient growth stocks, and features a handful of them that, despite the carnage, are still in prime position to get going whenever the bulls re-take control. Click below to watch the video.
The Three Best Stocks of 2015
2015 was a remarkable year for stocks, although not in a good way. The major indexes actually declined slightly for the year, which is historically rare. The chart of the S&P 500 Index for the year tells the story.
Even though the market rebounded heroically in October, that August correction was just too strong to overcome. Cabot’s growth advisories protected subscribers by moving heavily into cash when things were stormy, but we didn’t have the kind of steady tailwind from the market that produces bushels of big performers.
(Note: There were a few stocks in 2015 that enjoyed bigger gains, but when I compile my list each year, I set my screen to deliver only stocks that average over 300,000 shares traded per day and finish the year trading over 10. This eliminates the volatile chaos of penny stocks and lightly traded issues that score low in liquidity. The stocks I’m looking for are those that can appeal to big institutional investors, who are the driving force behind powerful, long-lasting rallies.)
So, with that said, let’s move on to the top three performers of 2015.
#1 Eagle Pharmaceuticals (EGRX 16.0 to 88.67, +472%) – Eagle Pharmaceuticals is a New Jersey-based specialty pharmaceuticals company that focuses on critical care and oncology. The big spike the company experienced in February came from a licensing agreement with Teva to commercialize Eagle’s Bendeka, a bendamustine rapid infusion product. The deal also included up to $90 million in milestone and royalties. That one piece of good news kicked the stock into gear and it ran higher all the way to August, when put an immediate lump of $30 million in Eagle’s bank account and included some profit-taking (and a nasty market correction) took the wind out of its sales. Pharmaceuticals and biopharmas are often heavily represented among the best performing stocks of any year, since one piece of good news from a clinical trial or a tactical hookup with a bigger rival can transform a company’s revenue potential. It’s also worth noting that EGRX’s 472% gain for the year was 222% higher than the next-best performer on the list, which is another reflection of the challenging market that prevailed during the year.
#2 Anacor Pharmaceuticals (ANAC xx 32.1 to 112.97, +250%) – California-based Anacor Pharmaceuticals is another illustration of the power of one product to control a stock’s fortunes. Anacor already has one marketed product (a treatment for toenail fungus), but investors focused during 2015 on crisaborole, a new candidate drug intended for the treatment of mild-to-moderate atopic dermatitis (eczema). Eczema affects as many as 25 million people in the U.S., and you can see the rising enthusiasm in the first half of the year as crisaborole achieved success in clinical trials. That spike in July came after news that the drug had passed two critical Phase III benchmarks. Crisaborole is now the subject of a new drug application, but ANAC has been selling off slowly since early August, partly from the influence of the broad market correction during that month, and partly because the good news was all in. Investors bought the possibility that crisaborole would succeed and sold the reality.
#3 Prothena (PRTA xx 21.0 to 68.1, +228%) – Prothena is an Irish biotechnology company that focuses on protein immunotherapy, and its success in 2015 was, like the other two leaders, due to news from clinical trials. The volume spike in March that marks the stock’s ascent from 28 to 39 came courtesy of promising results from an early-stage study on PRX002, a drug intended for the treatment of Parkinson’s disease. Prothena’s specialty area is treating amyloid or cell adhesion, and it has a drug in Phase III trials that addresses amyotrophic lateral amyloidosis. The company is funded by its larger research partners, so the discrepancy between its $1.9 billion market cap and its annual revenue of $3.3 million is especially striking. But pharmaceutical companies are creatures of high hopes and they are typically heavily represented in any reports on top stocks of any year.
The problem with tiny pharmaceutical companies, of course, is that their success is always balanced on a knife edge. They can stay in business for years as long as their major pharmaceutical supporters continue to provide research funding and milestone payments, but their unpredictability will drive you nuts.
The people who do significant investing in pharmas, biopharmas, biotechs have to turn themselves into experts in analysis and tracking, actually reading the results of clinical trials, digging into company’s intellectual capital, research history and capabilities and estimating the size of the addressable market for candidate drugs.
For those of us who cast a wider net in the ocean of growth stocks, any stock that blasts off on high volume is interesting, because it lets us know what the market thinks about any developments. Sudden gains of big volume often lead to further advances (EGRX after its February jump and PRTA after its March explosion). But that’s not always the case, as ANAC shows. Sometimes the closely followed stories are done once the good news is out; at least until the next piece of good news.
Some years, I’ve called this report “The Ones that Got Away,” because the returns are so tantalizing that you wish you had a time machine so you could go back and buy them. But after a bruising market correction to start the year, I’m thinking the report will actually be useful, giving you insights into where the big winners lurk in the investing ocean and how to fish for them. And if it helps you to ferret out just one winner in 2016, the price (free) will be well worth it.
Tim’s comment: This is actually quite applicable to investing, given that it’s when conditions seem worst that profit opportunities are greatest—and that courage pays. Today, even though there are plenty of troubles around the world, there are relatively few in the U.S. and my guess is that not enough investors are “scared to death.”
Paul’s comment: The big paradox of investing is that you have to take on risk to get rewards; it’s the law. But since you have to invest your money somewhere, finding the risk level that lets you saddle up and put your money to work is a very big deal. (I’m not sure you need to be “scared to death,” but that’s John Wayne talking!)
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Stock of the Month’s Tim Lutts runs down five stocks that have recently hit new highs. Tim summarizes the appeal of each stock and also indulges in a little market predicting. Stocks discussed: Carnival Corporation (CCL), Emergent Biosystems (EBS), Kroger (KR), Steris (STE) and Sovran Self Storage (SSS).
Jacob Mintz, the options wizard behind Cabot Options Trader, writes about the use of Buy-Writes (Covered Calls) to generate income in a flat market, and how to choose dividend-paying stocks to increase that income.
Chief Analyst Chloe Lutts Jensen, who heads Cabot Dividend Investor, writes about the venerable Dogs of the Dow strategy that looks to outperform the Dow by buying its highest-yielding dividend stocks. Stocks discussed: Verizon (VZ) and Target (TGT).
Have a great weekend,
Chief Analyst, Cabot Emerging Markets Investor
and Editor of Cabot Wealth Advisory