2013 Top Stocks Netflix, Micron May Not Do as Well in 2014
But several stocks on the list provoke caution.
"A lot of them are momentum stocks where their PE multiple was much higher than the market, and there was a lot of excitement in the market this year," Capital Advisors investment manager Channing Smith said in a phone interview. The Tulsa-based manager warned that unless the rally continued apace, high valuations may be difficult to justify. Smith helps oversee $1.2 billion.
Some stocks remain firm fund manager favorites: Delta and Micron are frequently cited as companies with strong market positions and favorable demand backdrops.
Raymond James chief investment strategist Jeffery Saut has a strong "buy" on Micron, and expects Delta and Yahoo! to continue their outperformance.
For Micron, Saut pointed to DRAM pricing normalization and positive commentary from senior executives on a recent conference call. Charlie Smith, chief investment officer at Fort Pitt Capital Group, agreed, noting a strong demand environment for Micron's products and their earnings-accretive Elpida acquisition.
Saut, who helps oversee $400 billion in funds, is positive on the airline industry for stocks like Delta.
"Airlines are a direct beneficiary of lower fuel prices and the industry has rationalized, so while it's not a monopoly it's certainly an oligopoly," he said in a phone interview. American, United, Delta and Southwest now control more than 80% of the U.S. airline market. He has a "market perform" recommendation on E*Trade, Trip Advisor and Best Buy due to valuation concerns.
The Raymond James strategist remains optimistic on the outlook for Yahoo! and pointed to CEO Marissa Mayer's ability to understand the technical side of the business as well as corporate strategy. He noted the search engine's traffic trends are up 20% over the last 15 months while Yahoo! has 390 million mobile users, a rise of 15%, quarter over quarter.
Hodges Capital founder Don Hodges also backed Delta and is bullish on the airline sector generally. But he cautions that stocks such as Western Digital have a highly commoditized business.
More broadly, only four stocks among the top 10 have 50% or more "buy" recommendations from analysts than "hold" or "sell" ratings. These include Delta (94% buy recommendations) Celgene, Best Buy and Micron. After Netflix's strong rally, just 15% of analysts have a buy on the stock which is perhaps proof that after a year when the rally was fueled by multiple expansion, investors will need to cast a harsh eye over portfolios to assess whether stocks can deliver on earnings growth.