They say that life is full of surprises. Well, that's doubly true for 2014 in particular, as it threw a lot of surprises at investors. Some companies vastly outperformed our wildest expectations. Others completely misjudged a major trend, sending their stocks plummeting.
That said, we can learn about what surprised us by reflecting back on our misjudgments. We asked our analysts to do just that, and reflect upon things they never saw coming in 2014. Here's what they had to say.
Monsanto has been working on the Integrated Farming Systems software platform to help individual farmers determine when to plant, irrigate, fertilize, and spray pesticides for their fields. It works by collecting data with smart sensors, modelling data, and sifting through data to find relationships between certain seed varieties and various climates, weather conditions, and soils. The company develops a farming protocol for individual farmers and individual fields that are uploaded to planters (i.e., tractors) and automatically executed. In other words, it's the Internet of Things for agriculture.
It was a great idea, and Monsanto purchased The Climate Corporation in October 2013 to boost the value of its internal efforts, but I wasn't exactly sold that a leading biotechnology company could effortlessly switch gears to focus on a freemium software business model and metrics such as active users and premium conversions. Well, I was wrong.
The Climate Platform absolutely smoked its targets for 2014 by acquiring 30 million active users (vs. 12 million expected), overseeing 50 million acres (vs. 20 million expected) of farmland for its free Climate Basic software. The premium product, Climate Pro, saw similarly impressive results in its first year. Long term, the company aims to have over 1 billion acres covered by its platform. Monsanto apparently did its homework on how to build the foundation for a successful software platform -- and investors will benefit from its growth.
Matt DiLallo: Oil prices are notoriously volatile. But, that volatility seemed to have a floor of around $100 per barrel as that appeared like the price OPEC wanted to see. Many of its members needed $100 oil to balance their budgets, so I expected it would cut production if the oil markets drifted toward becoming oversupplied. Needless to say, I did not see this oil price chart coming in 2014:
I wasn't the only one that didn't foresee the free-fall in oil prices. Most energy companies were making long-term plans based on $100 oil being the norm. However, OPEC realized it was starting to lose market share in the oil market to higher-cost shale producers in the U.S., and it decided it needed to send a message to America. Now, it appears OPEC is willing to wage a long-term price war if that's what it takes to slow down American oil production growth. That said, it remains to be seen if OPEC members not named Saudi Arabia can withstand the hit to their revenue, as many are now facing financial troubles due to the plunge in oil prices. That suggests 2015 could be another very turbulent year in the oil markets.
Tyler Crowe: I think many of us realized that the offshore rig market was going to go through a little bit of a rough patch as many new rigs came online while the companies that employ these rigs would start to wind down spending for a few years. At the same time, I don't think that any of us expected it to get as bad as it has been so far this year.
Ever-rising fears that the market for offshore drilling rigs will be oversupplied for quite some time have pretty much routed the market. All the big names in offshore drilling so far have lost at least 40% of their market value just this year. Investors really started to realize the severity of this situation when Seadrill (NYSE:SDRL) announced that it was suspending its dividend despite saying just a few months earlier that it would be able to maintain those payments until at least 2016.
This situation obviously won't last forever. Oil prices will someday go back up to where offshore drilling will be lucrative, and many of the older rigs on the market will need to be retired since they've outlived their economic lives. But that truth is much harder to hang on to after bearing the brunt of this massive sell-off.
If anything, 2014 reminds us that companies can vastly outperform our meager expectations. Likewise, markets can throw us a very unexpected curve ball and make a bad situation even worse. That's why investors need to keep their emotions in check and never become too bullish or bearish as we'll run the risk of being surprised by something we never saw coming.