The Nasdaq 100 index, which includes the largest 100 companies by market capitalization listed on the Nasdaq stock market, is currently up 13.92% year-to-date, as of February 23, 2012. What is even more impressive is that the top 10 performing stocks on the Nasdaq 100 are up an average of 48.5%, ranging from a gain of 26% for Autodesk, Inc. (ADSK), to a gain of as much as 94.5% in the case of Sears Holdings Corporation (SHLD).
|Company||Closing Price 12/30/11*||Closing Price 2/23/2012||% change|
|Sears Holdings Corporation||31.78||61.8||+94.46%|
|Illumina, Inc. (ILMN)||30.48||51.29||+68.27%|
|Seagate Technology PLC (STX)||16.24||27.11||+66.93%|
|Netflix, Inc. (NFLX)||69.29||112.99||+63.07%|
|Green Mountain Coffee (GMCR)||44.85||67.62||+50.77%|
|CA, Inc. (CA)||20.03||26.92||+34.40%|
|Apple Inc. (AAPL)||405||516.39||+27.50%|
|Flextronics International Ltd. (FLEX)||5.66||7.21||+27.39%|
|Broadcom Corporation (BRCM)||29.28||37||+26.37%|
There is no question that such performance is quite impressive, but will such stocks continue to outperform for the rest of 2012?
In the case of Illumina, which specializes in gene sequencing, its gains have been primarily driven by a hostile buyout attempt from Roche Holding. The offer led to the imposition of a "poison-pill" by ILMN, as it rejected Roche's offer for being too low. The ultimate outcome for ILMN shares will depend whether such offer leads to a higher offer, or possibly a withdrawal of the offer which could possibly have a negative intermediate effect on ILMN shares.
It is also important to examine the performance of these companies in 2011, where they actually lost an average of 19.14% of their value in 2011. Such losses ranged from a loss of 60.56% for Netflix, to a gain of 36.5% for Green Mountain Coffee. As a matter of a fact, seven out of 10 lost value in 2011 (SHLD, ILMN, NFLX, CA, FLEX, BRCM, ADSK), with only AAPL, GMCR and STX recording gains:
|Company||Closing Price 12/31/10*||Closing Price 12/30/11*||% change|
|Sears Holdings Corporation||73.75||31.78||-56.91%|
|Seagate Technology PLC||14.37||16.24||+13.01%|
|Green Mountain Coffee||32.86||44.85||+30.49%|
|Flextronics International Ltd.||7.85||5.66||-27.90%|
*Split and dividend adjusted price - source: Yahoo Finance
Given 2011 performance, it is very clear that many top performers in 2012 year-to-date were quite poor performers last year. With the exception of AAPL, GMCR and STX, it is possible that current stellar performance by the other seven stocks has been partly an inevitable bounce from being oversold in 2011.
It is also interesting to note that many of the top performers in 2012 are recording elevated short interest in their shares relative to float. Four such stocks are recording a short interest ratio ranging from 17.9% to 34.4% (SHLD 34.4%, ILMN 21.9%, NFLX 20.07%, GMCR 17.87%):
|Company||Number of Floating Shares**||Short Interest as of 1/31/2012***||Short Interest Ratio#|
|Sears Holdings Corporation||41.4 Million||14.22 Million||34.35%|
|Illumina, Inc.||119.9 Million||26.25 Million||21.89%|
|Seagate Technology PLC||396.9 Million||10.55 Million||2.66%|
|Netflix, Inc.||54 Million||10.84 Million||20.07%|
|Green Mountain Coffee||128.7 Million||23 Million||17.87%|
|CA, Inc.||332.7 Million||8.95 Million||2.68%|
|Apple Inc.||931.8 Million||10.59 Million||1.14%|
|Flextronics International Ltd.||634.6 Million||8.22 Million||1.3%|
|Broadcom Corporation||499.3 Million||6.76 Million||1.35%|
|Autodesk, Inc.||226.3 Million||4.02 Million||1.78%|
** source: Yahoo Finance ; *** source: NASDAQ
# value obtained by dividing column 3 by column 2
It is not unusual for share prices to race ahead as a result of a short squeeze, and in the case of SHLD, NFLX and GMCR, solid appreciation year-to-date in 2012 could have added fuel to their appreciation. As for ILMN, the buyout offer from Roche has been the major catalyst.
It is our belief that for most of the current top 10 performers in the Nasdaq 100, it is unlikely such performance will repeat during the remainder of the year. However, we do believe that AAPL will continue to perform well, as from a valuation perspective, it remains relatively cheap and short interest is still extremely low at 1.1% (hence, its current top performance has not been driven by a short squeeze, nor by a bounce from poor performance from last year, while its profits and revenues continue to improve).