With 2013 coming to an end in a few weeks, investors may want to consider which companies are ending the year on a strong note and positioned to continue outperforming in 2014 and beyond. Apple (AAPL 1.27%), Netflix (NFLX -3.92%) and Priceline (BKNG -0.47%) are three promising names to keep in mind from that point of view.
A holiday gift for Apple investors
Apple had a volatile year in 2013, the stock fell from over $550 per share in January to less than $400 by the end of June. It has made an impressive recovery since then, though, shares of Apple are once again trading near $560 per share after rising by almost 30% over the last six months.
Wall Street analysts and investors were quite concerned about slowing growth rates for the company during the first half of the year, but Apple is reaching the key December quarter with a completely renewed line of products, and customer response looks pretty strong.
Initial data regarding sales and usage for the current shopping season is showing some very encouraging trends for Apple, and this has important long-term implications when it comes to evaluating competitive strengths like brand value and customer loyalty.
According to several news reports, Apple will soon be introducing the iPhone into China Mobile's (CHL) network. The biggest carrier in the world will provide access to a gigantic user base of more than 700 million clients, and the long-awaited deal could be a game changer for both Apple and China Mobile. Not only in the coming year, but also on a much longer timeframe. Apple has a lot to win by broadening its presence in the highly valuable Chinese market.
Even after a strong end of the year, Apple is still very reasonably priced at a P/E ratio of 14, so valuation is no reason at all to stay away from the company.
Netflix is streaming good news
Netflix has delivered spectacular returns for investors over the last year as the stock has risen by more than 310% over that relatively short period of time. The company has proven to investors and viewers that it can produce high-quality original content like House of Cards and Orange Is the New Black. This is a key differentiating factor and a remarkable competitive strength for the company on a long-term basis.
Netflix continues strengthening its position in the high-growth business of video streaming; the company had more than 40 million global subscribers as of the latest earnings release, up from 30 million in the same quarter of the previous year. The company is still firing on all cylinders in the U.S. and it has enormous room for expansion in international markets, so Netflix is an extraordinary growth opportunity for investors.
Content costs are a big expense for Netflix and the company is investing heavily in technology and international expansion. This means that a long position in Netflix needs to be based on the company´s long-term growth potential, because current earnings will hardly provide justification for an investment.
With the stock trading at a stratospheric forward P/E ratio of nearly 88 times earnings, Netflix is a risky growth play and certainly not appropriate for the faint of hard. On the other hand, it provides investors with the chance to profit from a fairly unique and disruptive company with massive potential to benefit from the online streaming revolution.
Priceline: Rising to the sky
Through its sites Priceline.com, Booking.com, Agoda.com, and rentalcars.com, Priceline is a leading online travel agency that offers booking services for hotel rooms, airline tickets, rental cars, cruises, and other vacation packages. The company has been a remarkable success story through the last years, and 2013 has been nothing short of impressive for Priceline with the stock rising by more than 90% year to date.
In spite of increased competitive pressure from rival Expedia, Priceline continues outgrowing the competition and generating huge profitability for shareholders. Priceline delivered a 33.5% growth rate in revenue for the third quarter to almost $2.27 billion and Non-GAAP net income grew at an even stronger 44.2% to $920 million, or $17.3 per share.
The company is performing well across the board; worldwide hotel-room reservations were 74.8 million for the quarter, up 36% year over year. Booking.com's online hotel reservations platform now has more than 355,000 hotels and other accommodations, an increase of 45% over last year. Rental car days booked were up by 28% for the quarter, and management believes the company continues gaining market share in the worldwide rental car reservation market.
As Priceline consolidates its leadership position in online travel, the company continues benefiting from the network effect and positioning itself for growth over years to come. At a P/E of 34, Priceline is not excessively valued for such a strongly performing company with abundant long-term potential.
Bottom line
As we approach the final weeks of 2013, it may be a good idea to take a look at the rearview mirror to try to identify which companies are well positioned to outperform the market in the middle and long term. Apple, Netflix and Priceline are three clear winners from 2013, and they have what it takes to continue delivering in 2014 and beyond.
