As we ease our way into April, the first quarter of 2013 is in the books. Here are some of the market's best performers so far, and why I think they will or won't keep soaring the whole year long.
The safest bet
Movie distribution expert Netflix (NASDAQ:NFLX) jumped 104% in the first three months. The stock came into 2013 with rock-bottom performance expectations but blew skeptics away with a fantastic first-quarter report.
Subscribers have largely forgotten about the brand-damaging Qwikster debacle, and the international expansion program is building up a head of steam. Moreover, the House of Cards original-content experiment bowed to fine reviews and appears to set Netflix apart from other online film services, much like the premium cable networks jockey for position with Emmy-winning dramas.
The original content project continues with horror series Hemlock Grove in April, starring Famke Janssen and Bill Skarsgard under the guiding hand of genre master Eli Roth. Then there's low-budget comedy Bad Samaritans and high-concept prison dramedy Orange Is the New Black, not to mention the reboot of cult series Arrested Development. These titles should help Netflix attract fresh subscribers, and the overseas expansion will keep Netflix growing for years to come.
Netflix shares may seem expensive right now, given the earnings-sapping costs of rapid expansion. But make no mistake: Netflix is cheap even at $200. If nothing else, the stock will pop again next January, with another holiday season under the bridge. This January bounce was no accident.
The housing experts
The housing market is suddenly booming again, at least in comparison with the miserable years between 2008 and 2012. This rebound has created a number of strong gainers on the market.
Online house-hunting service Zillow (NASDAQ:ZG) has gained 97% so far. The site enjoyed a 47% year-over-year increase in unique users, and management set expectations even higher for the next quarter.
Private mortgage insurer MGIC Investment (NYSE:MTG) soared to the tune of 86%, and rival Radian Group (NYSE:RDN) jumped 75%. Both companies crushed earnings estimates in March, and Barclays upgraded them to a "buy" rating. Bad loans from the subprime bonanza are fading away just as the market for new housing stabilizes. Owning these stocks seems less risky these days.
That being said, fellow Fool Sean Williams worries that MGIC's recapitalization plan will destroy shareholder value while its debts pile up sky-high. It'll take a dramatically stronger housing market to make these issues go away, not the gradual return to health we've seen so far. It makes sense to lump Radian and Zillow into the same booming-but-risky category until further notice. Don't invest money in these tickers that you can't afford to lose, in case the rosy projections don't pan out.
The bigger they are ...
Here's a shocker. There are 3,077 stocks on the U.S. markets with market caps above $200 million. Of these, the 50th strongest year-to-date gains in 2013 came from Hewlett-Packard's (NYSE:HPQ) 68% climb. Yep, HP ranked in the top 1.6% of the total market's strongest returns this quarter.
It's an impressive surge, and HP shares are trading just above their year-ago prices right now. Investors abandoned this stock in droves last year as the acquisition of software outfit Autonomy became a burden. CEO Meg Whitman has restored some trust in HP as a long-term investment, mostly thanks to that unexpectedly strong bottom line in the first quarter.
But I'm not buying this turnaround story. Whitman is reaching for too many goals all at once, and she's rejecting the one idea that could make a real difference right away: breaking HP up into smaller but nimbler consumer and enterprise operations.
I might consider investing in HP's data-center solutions as a standalone business, but that still-valuable operation is inextricably tied to a rotting consumer division until further notice. I think we'll see plunging demand for home-style PC systems and printers do real damage to HP's total top and bottom lines later this year. Share prices are sure to follow suit.
This rally won't last. I have a thumbs-down CAPScall riding on that diagnosis.