This was a great year for the Dow Jones Industrials (^DJI 0.69%), and most of its 30 component stocks have given their shareholders something to celebrate on New Year's Day. But in many cases, companies outside the Dow have seen their stocks perform even better than the shares of their Dow-member rivals. Let's take a closer look at why PepsiCo (PEP 0.14%), MasterCard (MA 0.13%), Bristol-Myers Squibb (BMY -0.70%), and WellPoint (ELV 0.02%) performed so much better than their competitors in 2013.
PepsiCo: Winning the challenge
PepsiCo Total Return Price data by YCharts
PepsiCo has a reputation for being the perennial also-ran to Coca-Cola, but that dynamic didn't play out in 2013. PepsiCo's 24% return in 2013 far outpaced the 15% that Coca-Cola produced. The simple reason: Sales of carbonated beverages were weak for both companies in 2013, but PepsiCo also has its food division to look toward for diversification. PepsiCo's snack division grew, offsetting falling soft-drink sales, and rising snack-food opportunities in the key Chinese market could give the company a vital advantage in establishing a base of operations from which it can expand more easily throughout Asia. Add in CEO Indra Nooyi's forward-thinking philosophy toward healthier fare, and PepsiCo could remain a winning choice in 2014.
MasterCard: Charging higher
MasterCard Total Return Price data by YCharts
MasterCard also is in the position of playing second fiddle to industry leader Visa, which itself just joined the Dow late this year. Yet MasterCard's 69% return in 2013 crushed Visa's impressive 46% gain. One element that contributed to MasterCard's outperformance is its greater attention on international markets, which present the more obvious growth opportunity for card-network companies as more countries around the world embrace electronic-payment systems over cash transactions. Overseas exposure arguably makes MasterCard a riskier play as well. But as long as Europe continues to climb out of recession and Asian markets can keep healthy, MasterCard could continue to outgrow Visa.
Bristol-Myers Squibb: Looking healthy
Bristol-Myers Total Return Price data by YCharts
Bristol-Myers Squibb also jumped to a 69% gain in 2013, almost tripling the 26% returns of Pfizer and Merck. The drugmaker has been going through a partial transformation of late, looking to emphasize its most valuable pipeline opportunities while making the most of strategic options for its other focus areas. A few weeks ago, partner AstraZeneca agreed to pay as much as $4.1 billion to Bristol-Myers in order to gain sole rights to several diabetes-related products, including both established drugs like Bydureon and those in development. That deal shows the value of Bristol-Myers' pipeline, and further developments both from existing blood-thinner Eliquis and promising development-stage drugs like rheumatoid arthritis drug clazakizumab and cancer-fighter nivolumab could send Bristol-Myers even higher going forward.
WellPoint: Winning the Obamacare battle?
WellPoint Total Return Price data by YCharts
It's hard to call UnitedHealth Group's 40% jump a failure, but WellPoint vaulted even higher in 2013 with its 54% gain. With all the attention that WellPoint has gotten from its embracing of the Affordable Care Act's health-insurance exchanges, it's tempting to attribute the company's success to the rollout. But much of WellPoint's success has come from its capitalizing on state expansion of Medicaid programs, where it is the biggest player in the industry. If that trend continues, WellPoint could continue to outperform its peers.
Look beyond the leaders
Dow-component companies get a lot of attention, and given their leadership status in their respective industries, that attention is justified. But often, looking outside the Dow will give you even better investing opportunities. Be sure to look beyond the Dow when you're considering your next stock purchase for 2014.
