Rocket Stocks With Eye-Watering Returns

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Includes: AAPL, CRR, DVY, EBIX, EMB, ENTR, FOSL, FSLR, HYG, ICF, IDV, LULU, NFLX, SODA, TIP, TSCO, TZOO, VIG, VWO
by: MyPlanIQ

We are drilling down on the stock portfolios we have measured to derive a short list of the best of the best. So far, six portfolios have made it through.

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Streets 5 Rocket Stocks to Grab Gains in July 46% 232% 24% 72% 34% 103%
The Streets Growth at a Reasonable Price 2011 Selections 60% 284% 28% 85% 27% 79%
P 10 Dividend Stocks From SeekingAlpha Readers 25% 221% 10% 50% 12% 61%
22 Stocks Good Enough For Buffett And Lynch 25% 145% -2% -8% 13% 42%
P SmartMoney Magazine Where to Invest 2011 12 Stocks 22% 143% 11% 43% 9% 34%
7 Stocks With Exploding Profits 43% 201% 8% 21% 12% 32%
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We are examining the different ideas for selecting a portfolio and then measuring which ones are best in class and worth watching.

We now move to rocket stocks -- those that have reason for significant growth. We have examined three and rejected two and we now look at three others.

One SeekingAlpha reader made the following comment: "If a jumbo jet could be classified as a rocket, your five would fly. Rockets blast of with short spurts of real energy. Rocket stocks must have a bundle of market power behind them and exceed analysts dreams. For those I'd choose real growth stocks: CRR; NFLX; FOSL; TSCO; LULU. Then I'd keep AAPL in reserve as a spare."

  • CARBO Ceramics (NYSE:CRR)
  • Netflix, Inc. (NASDAQ:NFLX)
  • Fossil Inc (NASDAQ:FOSL)
  • Tractor Supply Company (NASDAQ:TSCO)
  • Lululemon Athletica inc. (NASDAQ:LULU)

SA Reader 5 Rocket Stocks -- Total of $10K invested equally in each stock.

Wisdom being derived from the counsel of many, based on further conversation, we added Apple (NASDAQ:AAPL) back into the portfolio as it is hard to ignore the stellar results of the company -- continuing its meteoric rise.

  • Apple (AAPL)
  • CARBO Ceramics
  • Netflix, Inc.
  • Fossil Inc.
  • Tractor Supply Company
  • Lululemon Athletica Inc.

Finally, Brian Stoffel of the Motley Fool points out that a short squeeze -- a heavily shorted stock that has positive news can induce stocks to rocket up. He then listed six innovative companies currently attracting a lot of attention from short-sellers, as well as the percent of their available shares (float) being shorted.

  • Entropic (NASDAQ:ENTR)
  • Soda Stream (NASDAQ:SODA)
  • Ebix (NASDAQ:EBIX)
  • Travelzoo (NASDAQ:TZOO)
  • First Solar (NASDAQ:FSLR)

We compare this with our benchmark ETF dividend portfolio:

Asset Fund in this portfolio
REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
CASH CASH
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)
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This dividend bearing portfolio has U.S., international and emerging market equities as well as real estate. Note that while there is a fixed income portion, to make a fairer comparison, we will exclude them for this comparison although we would recommend at least 20% of the portfolio be dedicated to fixed income assets.

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
SA Reader 5 Rocket Stocks 149% 427% 77% 204%
2 SA Readers 5 Rocket Stocks 125% 427% 70% 195%
Retirement Income ETFs Tactical Asset Allocation Moderate 14% 155% 12% 93% 11% 79%
Retirement Income ETFs Strategic Asset Allocation Moderate 17% 155% 6% 33% 5% 27%
Fools Short Squeeze Rocket Stocks
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This list is sorted in descending order of the 3 year Sharpe ratio -- i.e. what has given the best risk adjusted returns over a 3 year horizon. The second sort criteria is the 3 year Sharpe ratio.

We are going to apply our rule that we ignore portfolios with less than five years of history. We are going through this exercise to show that the rocket stocks have significant potential but, by their very definition, they are not necessarily long term propositions.

It is to be remembered that five stocks is an inherently volatile portfolio compared to the ETF portfolios which are much more broadly based and still deliver reasonable returns.

Three Month Chart
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We note that the short squeeze portfolio has jumped recently but when observed over a longer time period it is much flatter than the other two rocket portfolios -- you need to get the timing right which is not the intent of these studies.

One Year Chart
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Three Year Chart
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Five Year Chart
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We note that the rocket stocks recommended by the SeekingAlpha readers have had consistently good returns since 2009 and it will be interesting to see how this continues. Intuitively, we recognize that these types of returns are not realistic on a long term basis and the fuel will run out at some point. However, for those wanting to live on the edge and keep their ear to the ground about the companies in the portfolios, it may be rewarding to take some of your overall assets and deploy them in this heady mixture of high flyers.

We are not going to promote any of these portfolios to the next round as we are really looking for a portfolio that will pass the test of time and these portfolios need more time to elapse and build history.

Full details

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.