Sometimes the stock market can have some surprise winners beyond the companies who make headlines, like the darlings in Silicon Valley. And sometimes big winners can come from stocks investors wrote off for dead a long time ago.
We asked three of our contributors to highlight stocks with big gains that they didn't see coming. Enterprise Products Partners LP (EPD 0.18%), Kulicke and Soffa Industries Inc. (KLIC), and Sodastream International Ltd. (SODA) were the surprise winners.
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Winning with distributions
Reuben Gregg Brewer (Enterprise Products Partners): Capital appreciation is usually the first thing that comes to mind when investors think about "winning." But you can win with an income investment, too. And Enterprise Products Partners L.P. is definitely a winner.
First and foremost, Enterprise has increased its distribution for 20 consecutive years. Within that is a streak of 50 consecutive quarters -- and counting. Over the past 10 years, the annualized increase has averaged nearly 6% -- roughly double the historical rate of inflation. Imagine getting a raise every single quarter! And the distribution yield is a lofty 6% right now. That's a big yield with steady above-inflation growth in the disbursement.
But what backs that up? Just one of the largest midstream companies in the United States, with assets spanning from pipelines to processing facilities to ships. It's business is geared toward fees, so the price of oil and gas are less important than the demand for these vital energy sources. And it's got around $8 billion in growth projects lined up over the next two to three years to help keep that distribution growing. To be fair, Enterprise is a tortoise, not a hair. As such, it is practically assured that the midstream operator will keep paying you well (with regular raises) to own it.
A small-cap bargain
Tim Green (Kulicke & Soffa Industries): With today's megacaps getting most of the attention from investors, great deals in underfollowed small-cap stocks are often hiding in plain sight. I first wrote about Kulicke & Soffa Industries, a manufacturer of semiconductor packaging equipment, in mid-2015, calling the stock a bargain. It's been a big winner since, soaring 88% over the past year.
Kulicke & Soffa operates in a cyclical industry, and demand for its products fluctuates quite a bit. Some years have been extremely profitable, while others have been less so. But the company has produced a profit in nine out of the past 10 years, averaging about $65 million of net income. With around $560 million of net cash on the balance sheet, the company's market capitalization of roughly $800 million one year ago simply didn't make much sense.
The market cap is closer to $1.5 billion today, so the stock is no longer a clear-cut bargain. The company's performance is picking up, with revenue surging 27% and earnings per share up nearly 500% in the latest quarter, driven by strong demand. Earnings are sure to be volatile going forward, so investors looking for consistency need not apply. But for those that can handle the swings, Kulicke & Soffa is a small-cap stock to consider.
The forgotten soda company
Travis Hoium (SodaStream International): A year ago, it would have been understandable to take the stance that SodaStream was a dying business. Revenue and earnings were falling and investors were losing hope that the company's home carbonated beverage business would ever gain sustainable traction. But new products, particularly in the sparkling water segment, have rejuvenated sales -- and the company's stock price.
SODA Market Cap data by YCharts.
Sparkling water maker starter kits, which get people into the SodaStream ecosystem, were up 37% in the first quarter of 2017 alone, showing the traction these products are gaining. And growth has been broad-based, with sales up at least 12% in every market segment in the first quarter.
A big part of the success of SodaStream is the trend away from sugary drinks toward flavored water. And with those flavored waters often more costly than traditional soda, the SodaStream product becomes a viable option for consumers. That's a wave the company is riding, and it's a level of success investors didn't see coming a year ago.
