Quick, name the six top-performing stocks of the past five years. Don't look at the next two paragraphs; just see if you can tick them off in your head.
If you answered with names like Dell Computer, (DELL) America Online, (AOL) Yahoo! (YHOO) and Qualcomm (QCOM) you're close -- but not close enough.
Instead, the top names are Xcelera.com, (XLA) up 77,800% since Feb. 15, 1995; Internet venture-capital firm CMGI, (CMGI) up 22,200%; fiber-optic network component maker JDS Uniphase, (JDSU) up 19,800%; data-storage software specialist Veritas Software, (VRTS) up 17,200%; anti-cancer biotech specialist ImClone Systems, (IMCL) up 13,010%; and data-storage hardware maker QLogic, (QLGC) up 13,100%.
The fact that you may never even have heard of some of these companies is testament to how difficult it is for investors to comprehend lasting changes in stock momentum. You may have seen these symbols on the CNBC ticker crawl every day for the past few years at steadily rising prices without knowing that a tectonic shift of investor sentiment was occurring right before your eyes.
The capacity for seeing the little weekly, monthly and yearly stock moves that lead to massive shifts used to reside solely with money-management professionals who had outstanding memories and were good at reading the tape each day. But today, any investor with access to a stock-screening engine can -- and should -- do the same.
In this column, I want to share one way to use the Investment Finder screening software at MSN MoneyCentral to see shifts going on beneath the surface of the broad market. I'll offer many more ideas like it over the next few months. Later in this column, I also propose a new member of my "100x10y team," or stocks that could gain 10,000% in 10 years.
See the Action Firsthand
To view shifts in action, let's start with the New Highs
list. Anyone who has studied the books of Investors Business Daily founder William O'Neil ("How to Make Money in Stocks") knows that this is a great place to hunt for strong stocks. But most newspapers have stopped carrying the list, and the fact that a stock has made a new high all by itself isn't so interesting. You'd like to know that it came on increased trading volume, and that it was accompanied by rising earnings estimates from brokerage analysts.
A well-targeted screen like this -- which ultimately will narrow our list of stocks to research from nearly 8,300 to around 40 -- is easy to create in the Finder. I used the following criteria: Company basics / Market Capitalization
greater than $50 million. (We don't want to bother looking at extremely small companies.) We're down to 6,150 stocks. Advisor FYI / Stock Price History
/ New 52-Week High "since" In the Last Week. (We're looking for stocks that made new highs in the past week. You can change it to the past day, month or quarter, if you prefer.) We're down to 890 names. Trading & Volume / Avg. Daily Vol.
Last 2 Weeks greater than Avg. Daily Vol. Last Month. (We're looking for stocks making new highs on increasing trading volume.) We're down to 516 names. Stock Price History / % Price Change YTD > 50%.
(We're looking for stocks that are outperforming the market already by a significant degree). We're down to 226 names. Stock Price History / % Price Change Last Month
"high as possible." (We're looking for stocks that are up a lot in the past month, not just ones that made strong moves at the start of the year, then went limp). Still 226 names, but now our list is ranked from greatest to least-great recent performers. Company basics/Market Capitalization
greater than $50 million. (We don't want to bother looking at extremely small companies.) We're down to 6,150 stocks.
Company Basics/ Industry Name "display only." In the dialog box in the upper right of the finder
, set "Return Top Matches" to 100, then click Run Search.
Here's a link to the MoneyCentral Investment Finder that builds this New High Screamers screen
. Now put on your thinking cap: What's the best way to study these further? Here's one of my favorite techniques: Click on the "Industry Name" header in the Results Pane, thus sorting all of these zoomy stocks by sector. If you do this every week for a month or two, you'll discover that the results never are distributed randomly; some stock groups always stand out. Here are notes from the batch I viewed Feb. 14: Seven of the 100 were Application Software
companies; the largest company being Business Objects (BOBJ)
, with a $4.4 billion market cap. It's up 87% in 2000. Eight were Biotechnology
stocks, with the largest being Celgene
up 69% in 2000. Seven were Diagnostic Substances
stocks, with the largest being Cytogen
up 365% in 2000. The largest group
-- 14 names -- was Drug Manufacturers-Other
, with the largest individual company being Cell Pathways
up 377% this year.
Sticking with the theories in O'Neil's books, you ideally would find your best plays in the strongest groups, so software, drugs and biotechs still look like good bets for the short term. As for the long term, well, rest assured that CMGI, Veritas and QLogic have showed up on this list many times over the past five years.
You can investigate each stock further by right-clicking on the name in the Finder and choosing Company Facts, Newswire and SEC Filings. To narrow your choices further, though, consider adding other filters. For instance, eliminate stocks that aren't the subject of rising earnings estimates by brokerage analysts by adding these criteria in the Finder: Advisor FYI
/ Analyst Projections / Earnings Estimate Increased "since" In The Last Quarter. (This finds stocks that are the subject of rising estimates.) It knocks the list down to 60 names. Advisor FYI
/ Analyst Projections / Earnings Estimate Decreased "not since" In The Last Month. (This eliminates stocks that have been the subject of downward revisions lately.) Now I've got a list of 40 names.
This final list is more heavily weighted toward the Semiconductor
firms, largely because the analyst community follows it so closely. The largest three companies with both solid analyst and investor backing are PMC-Sierra
, (PMCS) GlobeSpan Semiconductor (GSPN)
and newly minted Silicon Image (SIMG)
. The only other two groups that stand out are Network & Communications Equipment
makers, led by Cabletron Systems (CS)
and Crossroads Systems (CRDS)
; and Telecom Services-Foreign
, led by Telefonica de Argentina
Mexican wireless giant Grupo Iusacell (CEL)
and Canadian wireless conglomerate Microcel Telecommunications (MICT)
Without doubt, the market has shifted emphatically away from last year's focus on pure Internet plays (with America Online and eBay (EBAY)
, the poster children, each down more than 20% in the past year) and toward semiconductors, biotechnology, networking and wireless. It'll take years to learn whether the shift is strategic or tactical, but screening regularly for New High Screamers at least will help you uncover low-risk short-term trading opportunities while you're waiting.
100x10y Portfolio, Without Hang-Ups
Speaking of wireless and filters, I have a new idea for our portfolio of stocks that potentially could advance 10,000% over a 10-year period. The company makes, well, wireless filters.
Big deal? Actually, yes -- it could be huge. Here's my pitch for Superconductor Technologies
which I discovered while screening for micro-cap New High Screamers last month month (full disclosure: I purchased shares of Superconductor Technologies a couple of weeks ago, after I began researching the stock): Wireless service providers
worldwide are scrambling to add more capacity to their networks. It's one thing for Nokia (NOK)
and VoiceStream Wireless (VSTR)
to sell more phones and service contracts to consumers with their sexy marketing campaigns, but it's another thing actually to accommodate the surging number of calls being made. Each wireless base station -- which, broadly speaking, are poles with switches at the bottom and antennae at the top -- can only handle a certain number of calls at a time. After that limit, calls get dropped, static rises or customers can't get through. If you want to use your digital
or PCS cell phone to receive information from the Internet, your connection had better be rock-solid. Until recently, connection quality didn't matter too much; if your friend's voice drops out for a second during a call, no big deal. But drop a couple of bits from an e-mail message or spreadsheet, and your communication blows up. Game over. The more we use our wireless
devices for broadband communications -- particularly in systems based on the CDMA standard from Qualcomm -- the more power we are likely to want to draw. Power-intensive applications drain battery life from receivers (your handset) and are more costly at the transmitting end (the service provider's base station). Filters made from superconductors
-- super-cooled materials, first developed commercially a decade ago, that offer virtually no electrical resistance -- solve all three problems: Service providers report that they cut distortion and noise dramatically, boosting the capacity of some base stations by as much as 50%. This means service providers will have far fewer "dead spots" in their networks, and can keep more customers online longer -- sharply boosting revenue. Because signals are more highly linear, or clear, it's less likely that bits will be dropped in data communications. And furthermore, well-filtered transmissions require less power to transmit -- prolonging battery life for handset users and cutting costs for transmitters. Until about nine months ago
, the superconducting industry was about in the same place as development-stage biotechnology companies: all research, no products. But all of a sudden, wireless service providers are moving from trials to installation -- and many observers believe that sales at the industry's leaders are rumbling on the launch pad, ready for blast-off.
How big is the market? A brokerage analyst recently reported that there were 200,000 base stations worldwide at the end of 1998, but estimated the number would hit 1.1 million by 2003. According to M. Peter Thomas, chief executive at Superconductor Technologies, about half of those stations could benefit from the installation of a superconducting filter -- each of which today costs $15,000 to $30,000. They're easy to install, too -- you simply attach the breadbox-sized device on a rack between the antenna and the current RF receiver with standard cables, sort of like fitting a new screen into an empty window frame.
Superconductor Technologies, which boasts Intel (INTC)
founder Robert Noyce as one of its own founders back in 1988, has nearly 60 superconducting patents to its credit, and currently gets the bulk of its revenue from filtering research it performs for the U.S. Defense Department (filters are pretty important in aircraft and satellite transmissions). But Thomas, a veteran of Ericsson (ERICY)
and Nortel Networks
said the firm recently has boosted its production capacity at its Santa Barbara, Calif., plant by 600%, and can expand further if and when demand warrants. Current customers include most of the top 10 wireless carriers in the country.
Trailing 12-month revenueS on the commercial side of the company are about $2.9 million. Thomas expects revenue growth of "several hundred percent" over the next two years if all goes well, and if you consider the potential size of the market, that makes sense: Multiply an average of $20,000 per box by the potential to sell into 500,000 base stations. That's a $10 billion market. If Superconductor Technologies only gets 10% of that, it's a $1 billion revenue opportunity. Cut it in half, and you can still see the potential for $500 million in sales over the next five years. Cut the average selling price in half, and $250 million is still a big sales target for the company. Now imagine what happens if it gets more than a 10% share, or expands its product line. Thomas said he expects to reach profitability by the first quarter of next year.
Some pretty smart investors already have done the math and have quietly purchased significant stakes. Hillman Co., a well-respected private holding company associated with Pittsburgh billionaire Henry Hillman, has bought a 40% stake in the firm over the past couple of years via its Wilmington Securities venture-capital arm. Tredegar Investments, the venture-capital arm of Virginia-based Tredegar
and Seattle-based Madrona Investments each bought significant stakes back in the summer via a preferred stock offering. And the State of Wisconsin Investment Board, one of the nation's largest and most-influential pension funds, announced it purchased nearly 20% of the firm via a new stock offering just last week.
Adding up all the common stock, Thomas said the company has 12.7 million shares outstanding. Trading at $12.50 on Tuesday, that puts it at a $161.2 million market cap, so it will need to trade at a $16 billion market cap one day to reach the 10,000% level. "That's conceivable," says Eric Bell, a vice president at Tredegar's Seattle office. "The high-speed wireless switching opportunities that superconductors make possible is something wireless carriers are just going to have to move to. This is still very much an early-stage company, which is why we liked it; it's in one of our venture-capital funds. We think it's one of those companies that probably went public too early -- so you could say that it presents an opportunity for private investors to make a VC-type investment in a public stock."
Competitors include Conductus (CDTS)
of Sunnyvale, Calif., and Illinois Superconductor (ISCO)
of Mt. Prospect, Ill. If demand turns out to be even a fraction of what's expected today, you could probably take the approach articulated in Geoffrey Moore's book "The Gorilla Game" and buy shares in all three until the market sorts out which is best, then pile into the leader. Just don't expect revenues and earnings to explode at once; this is an idea that could take a year or more to get started.
Supermodels Make February Strides
Our SuperModel portfolios have mounted a strong comeback in February, as I predicted in my previous column
. The MonthTrader portfolio
, consisting of three Flare-Out Growth stocks, was up 28% through Feb. 14. In contrast, the Dow Jones Industrial Average was down 4% and the Nasdaq Combined Composite Index up 8% over that period. Showing how hard it is to climb out of a hole, the MonthTrader portfolio is still down 16% for the year, due to its 33% loss in January.
Meanwhile, the MVP Growth and Redwood Growth sections of our YearTrader portfolio
are also accelerating. Each was up 18% for the year through Feb. 14; the Dow was down 4% and the Nasdaq is up 5%. Those groups are led by Network Appliance
up 60% and BEA Systems
up 62%. Not bad for a strategy that required about 30 minutes to execute and no trading since Jan. 3.