The 10 Hottest Stocks of 2008

Even in 2008, the year of our financial discontent, there were winners -- and I set out to find them.

I looked for the top performer in each sector, with only these restrictions: The company had to have a market cap of at least $1 billion at the beginning of the year and sell on a major U.S. stock exchange. Without further ado:

Industry

Company

2008 Return

Energy

Comstock Resources

39%

Materials

Eldorado Gold

66%

Industrials

Clean Harbors

23%

Consumer discretionary

Dollar Tree

61%

Consumer staples

UST

27%

Health care

Valeant Pharmaceuticals

91%

Financials

Capitol Federal Financial

47%

Information technology

ManTech International

24%

Telecommunications services

Telecomunicacoes de Sao Paulo

1%

Utilities

Piedmont Natural Gas

21%

Average

 

40%

S&P 500

 

-38%

Sources: Capital IQ (a division of Standard and Poor's) and Yahoo! Finance.

Let's be clear: The list certainly can't compete with comparable lists from prior years -- there wasn't a single stock that doubled in value. Of course, when the S&P 500 drops by 38%, anything above zero is a windfall. And surprisingly, there was at least one positive gainer in each sector (even in financials).

The obvious question before us is, "Will 2008's winners be 2009's winners?" Before we try to draw any conclusions, let's see what happened to 2007's winners:

Industry

Company

2007 Return

2008 Return

Energy

Yanzhou Coal Mining

146%

(63%)

Materials

Mosaic (NYSE: MOS  )

342%

(63%)

Industrials

First Solar (Nasdaq: FSLR  )

795%

(48%)

Consumer discretionary

Priceline (Nasdaq: PCLN  )

163%

(36%)

Consumer staples

Wimm-Bill-Dann Foods

138%

(80%)

Health care

Intuitive Surgical (Nasdaq: ISRG  )

237%

(61%)

Financials

Credicorp

86%

(35%)

Information technology

Baidu.com (Nasdaq: BIDU  )

246%

(67%)

Telecommunications services

Vimpel Communications (NYSE: VIP  )

182%

(83%)

Utilities

Reliant Energy

85%

(78%)

Average

 

242%

(61%)

S&P 500

 

4%

(38%)

Sources: Capital IQ (a division of Standard and Poor's) and Yahoo! Finance.

All right, that's a lot of data. So what can we learn from it?

The lessons
Two years of data isn't enough evidence to draw definitive conclusions, but we can certainly gain some insight as we figure out what to do with our portfolios for the year ahead.

With that caveat, I see two lessons:

  1. There are winners in just about any market. Even in a year as brutal as 2008, we saw winners in every sector. Of course, finding those winners is the tricky part. Of the 1,939 companies larger than a billion dollars, just 121 posted a gain in 2008.
  1. We can't just blindly follow the winners. Although 2007's winners averaged a 242% gain in 2007, they fell significantly harder than the average stock in 2008. So the idea of simply buying 2008's winners probably isn't our best bet. As we saw with 2008, a lot changes in a year.

Are winners worth it?
Seeing the precipitous drop in 2007's top-performing stocks, another obvious question remains: Is it worth it to hold onto winners?

To quantify the best-case scenario, let's look at Microsoft (Nasdaq: MSFT  ) -- the granddaddy of all growth stories. Starting with its March 1986 IPO and ending with 1999, just before the tech bubble crash, its calendar-year returns were:

  • 75%
  • 129%
  • -3%
  • 65%
  • 71%
  • 123%
  • 15%
  • -5%
  • 52%
  • 43%
  • 88%
  • 56%
  • 115%
  • 68%

That's a more than 60,000% return in less than a decade and a half. Even with the turbulence of the tech crash and the recent credit crunch, Microsoft has grown about 25,000% from its IPO.

Yet during its amazing run, Microsoft never achieved a one-year return as high as eight of 2007's 10 sector leaders. Instead, we see in Microsoft the beauty of multiple years of compounding returns. But we have to ask ourselves whether a company generating a great one-year return is the next Microsoft, or one of the thousands of companies that will fall well short.

David Gardner, the Fool's co-founder and advisor of our Rule Breakers newsletter, believes it's worth holding onto your winning stocks -- even during market turbulence. His philosophy is to find great companies and hold on for the long term, rather than trying to time his entries and exits. Sure, selling Microsoft right before the tech bubble burst would have been a great move. But on the flip side, an investor locking in triple-digit Microsoft gains after a dip in 1988 would have forgone a fortune.

Often, the stocks David recommends are highfliers -- the type of stocks that make lists like the ones above. As we've seen, buying hot stocks (or any stocks for that matter) can be risky. Investor sentiment (and the resulting price of a hot stock) skyrockets when times are good and plummets when times are bad.

Fortunately, when investor sentiment turns (as it has over the last year or so), long-term buy-and-hold investors can get tomorrow's hot stocks at a discount. In fact, right now David likes two of 2007's winners. If you're curious, you can see all the stocks he believes will flourish with a 30-day free trial to Rule Breakers. There's no obligation to subscribe.

Anand Chokkavelu owns shares of Intuitive Surgical and Microsoft. Microsoft is a Motley Fool Inside Value pick. Intuitive Surgical and Baidu.com are Motley Fool Rule Breakers selections. Priceline.com is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (80)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 13, 2009, at 5:39 PM, olderdoc wrote:

    Your group has a good reputation so I will be kind. There are very few investors or experts who understand the degree of debt and leverage in the US. I think it will take years to get us out of this mess. Please don't convince people to gamble when they have alreay lost too much. It is relatively easy to pick stocks in companies that have secure revenue and decents dividends. Of course you might be lucky and pick some stock that has a 300% gain or you might just lose your investment.

  • Report this Comment On January 13, 2009, at 5:45 PM, ds10 wrote:

    So, of these larger companies, only 6.2% of them posted a gain in 2008. Not very attractive odds

    for successful investing. Sure, better than the lottery,

    but for us typical investors, a losing game.

    We would have been wiser to invest in CD's.

  • Report this Comment On January 13, 2009, at 7:05 PM, poppy9151 wrote:

    I respect The Motley Fool's! I do not equate their philosophy to the lottery, a losing game , or,certainly not CD investing. Timing is everything in investing. Good Luck!

  • Report this Comment On January 13, 2009, at 9:07 PM, skully201 wrote:

    Thank you for the information. In Georgia we are finding far better places to put what $ we have left than more equities. Dissing a CD? Why? We have one group member that went to CD investments and other conservatives in April of 2008 and is looking good now.

    Lets tally next Jan.

    skully

  • Report this Comment On January 13, 2009, at 11:03 PM, cdenny6 wrote:

    These Fool articles are only so much hype to sell the Fool services. They spend more time looking back. Hey, I didn't buy MSFT in 1985 or 1989 or 2001 - but I have it now and it's not helping build my retirement portfolio.

    When is MF going to get a forward look (other than MF PRO) and give us little investors something to build on.

    I think the brothers have done a great job of building a brand - but still have not come up with a winning service.

    PS - Still sulking about SAY, AIB, AEO.

    CDenny6

  • Report this Comment On January 14, 2009, at 3:09 AM, simonkathrein wrote:

    I don't think the worst is over with. I have been reading alot about predictions that Harry Dent and Peter Schiff have done, and i'm still worried. They both feel that the 2nd leg of the downturn will probably happen in mid 09. I will be still keeping the bulk of my retirement funds in 'money markets' and cash. FYI, click the link, scroll down to the bottom and watch Harry Dent's 2 youtube videos. Then read the article.

    http://stockcapitalist.com/?p=1026

  • Report this Comment On January 14, 2009, at 7:22 AM, jesvlim wrote:

    We can't blame MF for looking back in order to look forward. We also definitely should not expect MF to give us all the winning tips such that we could be instant millionaires. Lets be mature and ask ourselves what we are going to do about the advice given. If we think it is not useful, then drop it. But don't diss MF for trying to provide the advice.

  • Report this Comment On January 14, 2009, at 10:51 AM, earlystart wrote:

    If there was a finance website with writers who could accurately and reliably "look forward" in their articles, we wouldn't be here, would we? We'd be lounging on our private islands.

    All we have to go on is history. The past is the most accurate predictor of the future. Where else are we supposed to look? It think its a good article because it shows that its nearly impossible to pick winners one year at a time...a bad investment strategy. Patience, people.

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