High-Flying Stocks: 3 Sustainable Winners, And 2 Tales Of Caution

by: Kevin Quon

While not always an accurate indicator, historical performance can often be a good measure of what lies in store for the future. Companies that have time and again proven themselves to be successful from a business standpoint will often have this strength reflected in their stock prices. Yet not all companies that have had steadily gained in the past are gearing themselves up for a sustainable future. In stewarding over a healthy stock price, management can easily lose sight of the very health of the company's balance sheet itself.

The following five companies have all had a positive 40% return or more in the last year. They each retain a market capitalization in excess of $10 billion. All values were taken as of March 7, 2012.

Name 52-Wk Chg% Market Cap. Fwd. P/E Trailing P/E Fwd Div% Trailing Div%
Apple (NASDAQ:AAPL) 53.08% $494.8 B 11.17 15.1 n/a n/a
Lorillard (NYSE:LO) 61.29% $16.75 B 12.99 16.02 4.8% 4.3%
Fastenal (NASDAQ:FAST) 71.29% $15.58 B 29.8 43.6 1.3% 1.1%
AutoZone (NYSE:AZO) 43.88% $14.95 B 14.25 17.9 n/a n/a
Seagate Technology (NASDAQ:STX) 104.9% $12.39 B 3.25 13.28 3.6% 2.9%

Apple. It's hard not to find Apple in the news lately. As the largest company in terms of market capitalization trading on the domestic markets, Apple is a technology giant that has gained its fortune upon the sale of fashionable electronic consumer goods. With a whopping $17.5 billion in total cash flows from operating activities in the last quarter alone, the company has more or less become a lucrative cash cow. With a quarterly revenue growth rate of 73% to go along with a forward price-to-earnings ratio of 11.39, Apple's success story appears far from over. From a technical standpoint over the past few weeks, Apple may have risen "too far, too fast," but those with a long-term perspective should have no problem parking their money here.

Lorillard. Lorillard is the third largest manufacturer of cigarettes in the United States. With a history expanding back to 1760, the company continues to profit off its famous brands which include Newport, Kent, True, Maverick, and Old Gold. As one of the smaller players in the industry competing against heavyweight rivals of Altria (NYSE:MO) and Reynolds (NYSE:RAI), the company has room to maneuver in order to take a larger share of the market. Lorillard has also issued ongoing share buybacks and a raised dividend. Yet despite all of these accomplishments, the company has been funding these hefty maneuvers with large amounts of long-term debt. From 2009 to 2011, Lorillard's long-term debt more than tripled from $722 million to $2.6 billion. Its for this reason that the company's equity has fallen over the same time period from a positive $87 million to negative value of $1.5 billion in the hole. As long as the company continues to grow its earnings, its unlikely for this to be much of an issue. But investors should be cautiously aware of the growing weakness to the company's balance sheet.

Fastenal. As a simple company that controls a significant market share for basic industrial supply products, Fastenal has made its empire on the backbone of bolts, nuts, screws, and studs. Over its 40 year history, the company has grown to 2500 stores with a stock that continues to gain value. With no long-term debt, and a quarterly earnings growth rate of 34%,the company has shown no reason as to why it should slow down anytime soon. Fastenal continues to grow its dividend, sporting a healthy 54% payout ratio. While the steady climb for the company may seem scary for some, those with a long-term perspective should look beyond the possible pullbacks ahead and trust that the company's better days may be yet to come.

AutoZone. As the economy continues to lag, extending the life of the car has become preferable over buying a new one. As a result, auto parts stores have seen large gains in what quickly became a hot sector. In the midst of this environment, AutoZone has continued to expand its operations and reap the rewards of its efforts. More importantly, it's continued to buyback significant portions of its stock, as indicated by the recent authorization to purchase another $750 million worth of its company stock. Yet in a word of caution, the company has continued finance its buyback and store expansion with large amounts of long-term debt. With a current ratio of 0.83 and a shareholder's deficit of $1.29 billion, investors would do well to tread cautiously around this fast-mover. In a previous article, I expressed that the company is far from being a short candidate, but it does continue to build weakness into its balance sheet as insiders continue to sell out at much higher levels.

Seagate Technology. Having avoided relatively significant loss from the Thai flooding that injured its competitors, Seagate has gained the ability to capitalize on the loss incurred by the rest of the hard disk industry. Overall, the growth opportunity for Seagate's products can be measured by the large jump in analyst earnings projections. For 2012, analysts expect earnings of $6.17/sh, and for 2013 the company is anticipated to earn a whopping $8.49/sh. Having largely increased its dividend by 39% and more than doubling its share buyback program, Seagate appears abundantly confident to not disappoint. With profits soaring high, such confidence is likely to translate into results worth betting on for some time to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.