While the S&P 500 has only delivered an average annual return of 2.1% per year over the last ten years, many stocks have flourished during that same period of time. Here are the biggest winners over the last decade, along with their annual average total returns:
1. NetEase.com (NTES): 78.6%
2. Monster Energy (MNST): 72.8% (formerly Hansen's Natural)
3. NeuMarket (NEU): 66.4%
4. Terra Nitrogen (TNH): 57.5%
5. D X P Enterprises (DXPE): 51.5%
6. Bancolumbia (CIB): 49.5%
7. Usana (USNA): 49.1%
8. Apple Computer (AAPL): 48.6%
9. Sina Corp. (SINA): 46.6%
10. Ebix Inc. (EBIX): 45.0%
Oh, to have had a crystal ball that worked ten years ago! It is hard to believe that seven stocks have actually beat the performance of Apple over the last ten years. I guess I should have gone to the Usana meeting that my neighbor invited me to.
Hansen's natural juices and sodas were not doing so well, so the company brewed up some Monster Energy Drink, and the rest is history. The stock recently had a name change from Hansen's to Monster Beverage to celebrate the sucess. It remains one of my largest holding in the aggressive accounts that I manage and hit another new, all-time high yesterday.
I am the guy who called Sturm Ruger (RGR) better than gold, in an article I wrote here on Seeking Alpha back in August. The stock was trading at just over $28 per share at the time. Today it closed at $48.15.
I have also alerted Seeking Alpha readers several other stocks, like Priceline.com (PCLN), Tractor Supply (TSCO), Clean Harbors (CLH), to just name a few, that have also turned into big winners. I have also called the First Solar (FSLR) one of the worst stocks in the market for almost one year now.
I am not guaranteeing anything here, but I am going to use the same methodology and logic that turned up the aforementioned winnners here to talk about another stock today.
Let's go right to the top of the ten-year return list and take a current look at NetEase right now.
I have a proprietary grading and ranking system that combines value with performance and also takes a look at safety.
I don't like to pay up for stocks, but I have found during my 18 years as a professional money manager that there are a lot of so-called value traps lurking out there.
I hae also witnessed my share of train wrecks over the years from amongst the high-flying, high PE, ultra-growth momentum crowd. There is nothing wrong with momentum. In fact, I prefer it over value, but I still want to know what I am paying for that momentum and growth.
I spent several years as an analyst, visiting companies and placing values on them. I cannot buy a stock without knowing what it is worth. I like to calculate five-year target prices based on earnings and growth projections. I also like to buy stocks that have 80-100% or more upside potential over that five year period of time.
From a momentum point-of-view, I like stocks that have performed and are currently performing significantly better than the overall market and their peers. This tells me that I am shopping in the right aisle of the economy and that management more than likely knows what they are doing.
The ten stocks listed above did not achieve the phenomenal peformance that they delivered to investor, by having poor management. Of course, while past performance is nice, investing is all about the future. Let's do a current analysis on a stock that is showing up on my radar once again:
(Click to enlarge)
NetEase.com is a Chinese provider of an interactive online gaming community, internet portal, and wireless value-added services. Market-Cap is $7.8 billion and I feel that the stock is appropriate for aggressive to moderate growth portfolios. As always, I never like to make any one position more than 4%-5% of my overall portfolio.
The earnings at the company have been growing by 30% per year over the last five years and this has translated into some huge gains for shareholders.
As mentioned above, the stock has been the top performer over the last ten years amongst the 2,800 plus stocks that I follow. You can all see the returns that the stock has posted over the last 1, 3, and 5 years. Also note that in 2008, while the market was down 38.5%, NTES was actually up 16.6%.
You don't think that little thing like a recession is going to keep folks from online gaming do you?
Just as I cannot buy a stock without looking at its performance and valuation, I also need to see a chart. Notice how the stock has recently broken out of a one year long consolidation trend - not bad.
While performance and momentum are great, value is equally as important. Let's take a look at a current valuation of the stock:
I don't have time to fly to China right now, so I am going to have to rely upon the 20 or so analysts that follow the company. The consensus EPS estimat for next year is currently $5.08 per share. The consensus 5 year average annual growth rate is 16.73% per year.
This gives us a forward PE ratio of 11.70 and a PEG ratio of 0.70 which is very favorable. When I take those earnings out over the next five years, I come up with earnings power of $9.43 per share, five years from now. I am using a very conservative multiple of just over 12 to calculate a five-year target price of $115.54 per share.
This gives the stock just over 94% upside potential from here. NetEase.com currently has the potent combination of performance and the value. When I compare it against 2,814 other stocks, it gets an "A" performance grade, an "A" value grade, and an overall grade of "A+." It is currently ranked number 2 in my system.
What is my number one rated stock you say? I will cover that in my next article, so you better follow me.
Disclosure: I am long NTES.