Top 10 Nasdaq 100 Stocks: How Will They Fare For Rest Of 2012?

by: Bachar Samawi

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. (NASDAQ:ADSK), to a gain of as much as 94.5% in the case of Sears Holdings Corporation (NASDAQ:SHLD).

Top 10 Performing Stocks for Nasdaq-100
Year-to-date as of 2/23/12
Company Closing Price 12/30/11* Closing Price 2/23/2012 % change
Sears Holdings Corporation 31.78 61.8 +94.46%
Illumina, Inc. (NASDAQ:ILMN) 30.48 51.29 +68.27%
Seagate Technology PLC (NASDAQ:STX) 16.24 27.11 +66.93%
Netflix, Inc. (NASDAQ:NFLX) 69.29 112.99 +63.07%
Green Mountain Coffee (NASDAQ:GMCR) 44.85 67.62 +50.77%
CA, Inc. (NASDAQ:CA) 20.03 26.92 +34.40%
Apple Inc. (NASDAQ:AAPL) 405 516.39 +27.50%
Flextronics International Ltd. (NASDAQ:FLEX) 5.66 7.21 +27.39%
Broadcom Corporation (BRCM) 29.28 37 +26.37%
Autodesk, Inc. 30.33 38.2 +25.95%
*Split and dividend adjusted price - source: Yahoo Finance

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:

2011 Performance
for 2012 Nasdaq 100 YTD Top Performers
Company Closing Price 12/31/10* Closing Price 12/30/11* % change
Sears Holdings Corporation 73.75 31.78 -56.91%
Illumina, Inc. 63.64 30.48 -52.11%
Seagate Technology PLC 14.37 16.24 +13.01%
Netflix, Inc. 175.7 69.29 -60.56%
Green Mountain Coffee 32.86 44.85 +30.49%
CA, Inc. 24 20.03 -16.54%
Apple Inc. 322.56 405 +25.56%
Flextronics International Ltd. 7.85 5.66 -27.90%
Broadcom Corporation 42.97 29.28 -31.86%
Autodesk, Inc. 38.2 30.33 -20.60%

*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%):

2012 YTD Nasdaq-100 Top Performers
Short Interest Ratio relative to Float
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).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.