We've just closed out a messy quarter for stocks - the S&P 500 fell nearly 12% in the past three months in the worst quarter since the 2008 fiasco. With more and more daily volume dominated by "broad market" (index funds and ETFs) trading, it's increasingly difficult for individual stocks to buck a strong market trend in either direction; rising or falling, most stocks just follow the wave.
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For example, a simple market screen shows us that only 12 of the S&P 500 stocks were up in the past month, up for the year, and less than 10% off their 52-week high. That's less than 3% of the stocks in the world's most traded index. Today we'll highlight some of these winners unfazed by the weak market.
Semiconductor company Altera Corporation (Nasdaq:ALTR) specializes in making programmable logic devices (PLDs), or chips that can be customized by customers to do more than one task. This is an increasingly valuable trait in a world where electronic devices have more features and faster release cycles than ever before. Altera's chips can be found in everything from DVD players to GPS systems.
The stock has got some solid momentum behind it, thanks to a mid-quarter guidance call that put revenue at the high end of expectations, up 10-12% sequentially. Meanwhile, operating income in the last quarter was three times the level from a year ago thanks to higher margins and a higher acceptance rate of PLDs in the market. Altera shares are still reasonably cheap, trading for just 12.5 times earnings estimates for the current year.
Quench Your Thirst
Dr Pepper Snapple Group (NYSE:DPS) has surged in the past year, surprising most analysts, who were unsure of what to expect from the recent spinoff of Cadbury Schweppes.
Dr Pepper Snapple is a collection of over 30 drink brands, including 7-Up, A&W root beer and a host of smaller, regional favorites. Management recently signed a new distribution deal with Coca-Cola (NYSE:KO), and is beginning to realize advantages of scale in both the distribution and advertising of its brands. Investor appeal was further heightened by a 65% hike to the dividend earlier this year.
Thanks to a 70% run in the past year, DPS shares now trade for about 15 times this year's earnings estimates, a higher valuation than either Coca-Cola or Pepsico (NYSE:PEP). The company will have to continue exceeding expectations to retain that premium, a tough task considering Dr. Pepper's lack of international presence.
Medical Clean Up
The market leader in medical waste disposal, Stericycle, Inc. (Nasdaq:SRCL) falls into the "somebody's gotta do it" category. Stericycle has a vast network of customers comprised of hospitals, blood banks, outpatient centers and pharmaceutical facilities.
Because medical waste requires special disposal methods, Stericycle has used proprietary techniques to carve out a nice space amongst larger firms like Waste Management (NYSE:WMI). Stericycle also operates a much higher-margin business than regular waste disposal; operating margins are an impressive 26%, and earnings per share are up 75% in the past four years.
Shares are pricey at 26 times current estimates, but the company is smack dab in the middle of strong secular trends - an aging population and higher levels of outsourcing the "dirty" work of the healthcare industry.
The Bottom Line
Any company that can go against the grain of a soft market has investor interest outside the index fund and ETF crowd. These companies are being added to mutual funds and snapped up by retail investors, and they are not contrary plays, so they should participate in any market rebound should one occur later in the year. (For more, see 3 Secrets Of Successful Companies.)
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