The 5 Most-Loved Stocks This Quarter
Companies that have fought their way out of the economic downturn, the ones that have been nimble footed and have chosen to diversify, are the ones that investors have loved this year. These companies have led market gains in the first half of the year, returning anywhere between 6 to 16 percent while the S&P 500 is up 6 percent and the Dow Jones Industrial Average has risen 2.27 percent since January.
Cisco Systems (NASDAQ:CSCO)
Cisco investors this year have been rewarded for keeping their expectations low. Shares of the network equipment maker are up 4 percent this year to date thanks in large part to first-quarter results that weren’t as bad as expected.
Cisco sales were badly hit last year from weak in demand from developing economies like Brazil, Russia, and China. However, the company reported that bookings have exceeded sales in the second quarter in the U.S. and that sales may dip by only 1 to 3 percent from last year. Cisco had reported a 5.5 percent year-over-year decline in net profits to $2.2 billion in the first quarter.
Cisco’s $1 billion foray into cloud computing and progress on new forecasting tools has also helped excite investors. To sweeten the deal, the company also rewarded shareholders with a dividend of 19 cents per share and bought back 90 million shares.
Intel Corp. (NYSE:INTC)
Shares of the chipmaker Intel surged to a ten-year high of $30.15 per share on June 16. The stock has done consistently well since February and investors have been rewarded with a gain of about 16 percent this year to date.
The usually sleepy stock has been going up ever since the company raised its outlook for the first time since 2009, adding about $700 million to its second-quarter revenue forecast. Gross margin may also rise by 1 percentage point to 64 percent, according to the company.
Investors are wishing for a revival in PC sales now that Microsoft (NASDAQ:MSFT) has shut down its technical support for the Windows XP operating system. This means businesses and individuals that were reluctant to replace their existing personal computers – due in part to popular alternatives like smart phones, tablets, and laptops — are expected to finally start acting.
Morgan Stanley had been bearish on the stock for two years, but recently upgraded Intel from Underweight to Market weight.
But Intel has more going for than just a possible catalyst for PC sales. A broad change in the company’s outlook toward the tablet and smartphone segment has given investors some hope that the company is starting to look beyond the PC market to drive future growth. Brian Krzanich, chief executive officer, is taking active interest in the company’s foray into making chips for mobile devices, currently called Atom.
The Traveler’s Companies (NYSE:TRV)
Shares of insurance giant Traveler’s has returned 6 percent this year and are currently trading near their all-time high of $95.41.
An important reason why investors are comfortable holding the stock in their portfolio is the spread of Traveler’s insurance services. Due to the nature of the business, casualty and property insurance business are believed to return strong cash flow for investors because of the low probability of claims. The company performed well even through the years of financial crisis when most other insurance companies had to restructure businesses and cut down expenses.
Net written premiums have risen to $22.8 billion by 1.4 percent between 2005 and 2013. The operating return on equity was at 15.5 percent last year, according to the company.
Attractive net profit margins of 15.68 percent for the first quarter and a year on year increase of $703 million or 32.64 percent in net operating cash flows — which exceeds the industry average — is also a sign that the company has a comfortable cash reserve for contingencies.
Caterpillar Inc (NYSE:CAT)
Construction and mining-equipment major Caterpillar is on a roll. In the first quarter this year, Caterpillar posted earnings of $922 million, or $1.44 per share, up from $880 million, or $1.31 per share, in the year-ago period. Having delivered a good quarter, the company went ahead and increased dividends 17 percent to 70 cents from 60 cents a share.
“Our balance sheet has remained strong — the strongest it’s been in more than two decades — positioning us to perform through the cycles,” Chief Executive Doug Oberhelman said.
Another development investors have taken note of is that the company is aggressively cutting costs, especially in its mining equipment business as the mining industry undergoes a slowdown. It has cut 380 full time and 130 temporary jobs in its marine engine production plants in South Carolina. It is also moving the plant from there to Georgia in order to improve efficiency, according to Reuters. It is also shutting down an underground mining machinery manufacturing plant in Pearisburg, Virginia.
Caterpillar has increased its full-year 2014 profit outlook by 25 cents to $6.10 a share, excluding the restructuring costs. The slow down in the mining sector has been compensated by its construction equipment business as the construction industry picks up.
Caterpillar is a cyclical growth company that is it is a leading indicator of underlying strength of the economy. As economic growth becomes more stable and industrial production picks up, the company is likely to see growth in equipment sales too. Another factor going well for the company is its diversified presence across the globe, which puts it in a good position once the global recovery is underway.
Johnson & Johnson (NYSE:JNJ)
Johnson & Johnson, the pharmaceutical and consumer packaged goods major, has returned 12.25 percent this year for investors.
The major boost for the stock this year has been Food and Drug Administration clearance for Johnson and Johnson’s high-end cancer drug, Imbruvica, one of the most expensive cancer drugs currently available. Though the company’s consumer and medical devices sales may be lukewarm, its oncology and immunology lines of business are more than making up for the slump.
Something that investors are watching out for is the company’s entry into new areas of research. Last week it announced its collaboration with Viiv Healthcare to develop and sell a single tablet treatment for HIV, which is not currently available in the market.
The company has also sold off its diagnostic unit, Ortho-Clinical Diagnostics, for $4 billion, which was a huge cash windfall.