The broad market has risen about 12 percent so far this year and since the end of the first quarter of 2011 is higher by about 6 percent. Many high-quality stocks have underperformed over the last year or so far in 2012.
With that in mind, here are five stocks that continue to frustrate investors but are worth holding on to.
5. Google
There are two technology stocks that have most epitomized the industry post-tech bubble: Apple and Google. Apple is the gift that keeps on giving and has rewarded investors handsomely, rising nearly 1,600 percent since the peak of the tech-bubble nearly 12 years ago, vs. a decline of about 39 percent for the Nasdaq Composite Index over the same period of time.
Google had an impressive debut in the stock market after its initial public offering in August 2004 at a price of $85. While recovering after the financial crisis, the stock has traded in a range, albeit a wide one of about $500 to $650 since the beginning of 2010. Google earned $26.31 in 2010 and $29.76 in 2011 on a GAAP basis. Earnings are expected to grow in 2012 by 43 percent to $42.52.
I would also note that non-GAAP earnings, which the company reports on a quarterly basis and Wall Street Analysts use as consensus estimates, were even higher than the official GAAP results. All told, Google's price-to-earnings multiple has contracted.
The fair value for this company’s stock is at least $800.
4. Potash Corporation of Saskatchewan
PotashCorp is a Canadian producer of agricultural fertilizers and feed products. Specifically, the company specializes in potash, phosphate, and nitrogen-based fertilizers and animal feeds.
The stock surged in the summer of 2010 when BHP Billiton, the Australian mining giant, made an unsolicited acquisition bid for Potash. That takeover was blocked by Canadian regulators.
Since that run up in the stock, shares of Potash have pretty much traded in a range and are relatively unchanged. The company earned $3.51 in 2011 and is expected to earn $3.68 in 2012 and $3.89 in 2013.
With the price of potash the fertilizer rising in U.S. dollar terms and with demand very strong, it is only a matter of time until Potash the stock catches up and stops frustrating investors.
3. Tiffany
Tiffany is a leading high-end retailer of jewelry, particularly silver and diamonds. The company has a very big presence in the Far East, especially in Japan. Furthermore, Japanese and European consumers are very big shoppers at Tiffany stores when they travel abroad.
Both of those regions and their consumers were negatively impacted by exogenous and economic events. The devastating earthquake and subsequent tsunami and nuclear catastrophe in Japan sent Tiffany shares tumbling nearly 11 percent in less than one week. The stock recovered into early summer to an all-time high, only to decline more than 30 percent as the European debt crisis and the U.S. debt downgrade gripped global markets in July and August of last year. Then, in the fall, shares of Tiffany once again rallied.
Rollercoaster rides can make traders happy, while frustrating investors to no end. Despite all of the headwinds that the company endured in 2011, Tiffany’s earnings (for the year ended March 2012) are expected to rise 24 percent to $3.64 per share. In fiscal 2013 and 2014, earnings are expected to rise to $3.92 and $4.51 per share, respectively.
At some point, shareholders will be rewarded handsomely for holding Tiffany, so don’t let its ups and downs frustrate you.
2. Exelon
Exelon is one of U.S.’s largest public utility companies and this nation’s largest generator of nuclear energy. For nearly three years, shares of Exelon have traded mostly in a range of $40 to $50. But don’t let that get to you.
Companies like Exelon are not structured to provide growth. Market participants are all too obsessed with growth. Exelon provides investors with income. The stock currently yields 5.38 percent, with the stock trading near its 52-week low. At its 52-week high, the yield would be about 4.6 percent.
Up until the financial crisis in 2008, the company’s board consistently boosted its dividend by about 10 percent per year. While I cannot say when the dividend will be increased, I am certain that it will occur once again in the future. It might take an increase in rates of alternative investments, such as bonds, before that will occur. Until then, why not enjoy a dividend of around 5 percent, on average?
As it turns out, I purchased shares of Philadelphia Electric in the very early 1980s. That company turned into PECO, which then merged into what became Exelon. Since the early 1980s, I have been reinvesting my dividends into company shares. That has been anything but frustrating.
1. Deere & Co.
Deere is a leading global manufacturer of agricultural and forestry heavy equipment. Since the end of the first quarter of 2011, Deere has declined about 14 percent, and year-to-date the stock has increased about 7.5 percent. On the other hand, Deere’s closest competitor, Caterpillar, has risen about 2 percent since the end of last year’s first quarter, and so far this year, Caterpillar has surged just over 25 percent.
Compared with Caterpillar and the S&P 500 index , on both an absolute and relative basis, Deere has been a disappointment.
Deere grew earnings per share by 64 percent in 2010 and 43 percent in 2011, and is expected to deliver 21 percent earnings growth in 2012. Yet the stock sells for just 10 times current year’s earnings. That equates to a forward PEG ratio of 0.48, making Deere a bargain stock. Caterpillar is no slouch either, growing earnings at even more exceptional rates in 2010 and 2011, with earnings growth of 22 percent expected in 2012. Caterpillar sells at 12 times forward earnings.
So we can’t knock Caterpillar, but we also can’t throw out Deere with the bath water. An expansion of Deere’s multiple to be on par with Caterpillar’s would drive Deere back to its all-time-high price set last April. I think it can grow even higher.
Additional News: Exelon Closes $7.9 Billion Deal for Constellation Energy
Additional Views: Michael Kors Is Trumping Tiffany in Luxury Retail: Analyst
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