01 Jun 2019
The Best Performing S&P 500 Stocks of Q1 2019
It’s been a good year so far in 2019 for the stock market. The head start was given in January, when the S&P 500 rose about 8%, its best performance for January since 1987. Gains continued from with the index rising a further 3% in February, the tenth best performance since February 1987. This was followed by growth of 2%, the fifteenth best growth numbers in over three decades. The S&P 500 ended Q1 on a high, registering growth of 13.07%, the best Q1 since Q1 1998, when the index rose 13.53%. This growth included a few stocks that grew more than 50% through the quarter. Here’s a look at the best performers for the quarter.
1. Xerox Corp. (NYSE: XRX)The document management company saw a huge rally in the first quarter, with a YTD gain of 67%. This top performance can be attributed to three main reasons. Firstly, leading into 2019, there was a huge selloff, which led to a 30% decline in XRX in less than a month. Secondly, Xerox reported strong earnings in late 2018, which indicated that the selloff at the end of 2018 was unjustified. Thirdly, the talks of a buyout put the shares on a solid uptrend, following the strong Q4 2018 numbers. Following a 70% rally in its share price in the first three months of the year, XRX is back to trading at its historic levels, which usually hovers at a ceiling of about $33.
2. Chipotle Mexican Grill Inc. (NYSE: CMG)The turnaround that was long overdue for the casual Mexican eatery finally came in Q1 2019. Since the arrival of its new management, CMG has seen flawless execution of some crucial growth initiatives, revamping of the menu, expansion of its digital business and a roll out of a countrywide advertising campaign. All these measures worked, leading to a 64% surge in CMG’s share price in the first three months of the year. Traffic trends and comparable sales growth numbers also improved significantly, which led to concurrent margin improvements. The result was that the rally that CMG saw in 2018hasn’t slowed down in 2019. CMG was the second best performer for the S&P 500, closing the quarter at a 63% gain to become one of the most expensive restaurant stocks. However, this also means that further gains seem a little less likely in the future. Given how competitive the restaurant space is, and that no company has been able to execute growth for such a long time, there could be a surprise in store for CMG. If that happens, a huge drop in the share price is likely.
3. Arista Networks Inc. (NYSE: ANET)Cloud networking company Arista Networks has been on a great run in 2019, gaining 52% in the first quarter. Things changed pretty quickly for the company after it reported sustainable growth in mid-February. The report confirmed that trends in cloud spending are relevant and favourable even in a slowing global economy. The effect of this was that analysts upgraded the stock after they identified that the selloff in 2018 was greatly overdone. Needless to say, ANET soared after that. ANET could well be a long term winner, if it is powered by growth trends in cloud technology adoption and spending, leading to revenue growth of over 30%. Long story short, the growth story might continue through 2019.
4. Coty, Inc. (NYSE: COTY)With 1Q gains of 72%, global beauty giant COTY benefitted largely due to two main catalysts in Q1 2019. Firstly, the company published a report that showed double beat earnings in early February, which caused the rally in its stock. Second, German conglomerate Jab Holding Co. offered to buy 150 million shares in COTY at a purchase price of $11.65 each. When this offer was made, COTY shares were quoted below $10 and the offer caused the price to reach the proposed $11.65. COTY has the potential for higher growth in 2019, especially if the Jab Holding tender offer goes through.
5. Xilinx, Inc. (NASDAQ: XLNX)Most semiconductor stocks were in rally mode in the first quarter of 2019, amid significant improvements in the global semiconductor industry. This progress was driven by a drop in supplies due to the Q1 clearing, slowing of the forex and trade headwinds and global economic stabilisation. One the biggest gainers among semiconductor companies, XLNX rose 52% in Q1. This was majorly due to its third quarter earnings report, released at the end of January, which confirmed the improvements in the semiconductor industry. Looks like all the good news is already priced into the XLNX stock. Although there are a lot of positive signs for semis at the moment, a rich valuation of 33x forward decreases the chances of the stock price seeing an increase in the coming months. In place of the earnings growing in the next few quarters, there is a chance of the stretched multiple to fall back and this can lead to decent but not very major gains in this stock.
6. Celgene Corp. (NASDAQ: CELG)CELG was the best performing healthcare stock of Q1 2019, with a gain of 47% for the quarter. However, its stellar performance might have been due to Bristol-Myers Squibb deciding to dig deep and find the resources to acquire one of the top biotech companies in the US.
7. Advanced Micro Devices Inc. (NASDAQ: AMD)AMD surged 57% in Q1, to become the fourth best performing S&P 500 stock for the quarter. This does come as a surprise, given that reports of demand are not as great for 2019 as many chip companies would have us believe. Of course, AMD did ink some GPU partnerships to meet the demands of new age gaming. The Q1 2019 results might have surprised many of us. Most importantly, they do point out that investing in stocks shouldn’t be based merely on share price performance. Thorough analysis of the company and its future potential also should feature in the decision making process.