Alice N. Sanders
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10 best and worst S&P 500 stocks of 2014

Analysis: Gains of up to 82% far outpace the index, while retailers lose big

As the summer comes to a close, here’s a list of the 10 S&P 500 Index companies with the biggest stock-price gains during the first eight months of the year:

Best-performing S&P 500 stocks of 2014
Newfield Exploration Co.NFX$44.8282%-9%12%
Keurig Green Mountain Inc.GMCR$133.3278%36%567%
Southwest Airlines Co.LUV$32.0171%276%285%
Electronic Arts Inc.EA$37.8465%70%102%
Nabors Industries Ltd.NBR$27.2161%49%51%
Alcoa Inc.AA$16.6157%39%40%
Williams Companies Inc.WMB$59.4457%206%406%
Under Armour Inc. Class AUA$68.3657%290%1,025%
Avago Technologies Ltd.AVGO$82.0957%164%373%
Mallinkrodt PLCMNK$81.4956%N/AN/A
Total returns assume dividends are reinvested. Source: FactSet

The S&P 500 SPX, +0.33% has returned 10% this year, assuming dividends are reinvested. The benchmark index rose above 2,000 for the first time over the past week.

The strongest subsectors of the index have included Oil and Gas Storage and Transportation, Oil and Gas Equipment and Services, Real Estate Investment Trusts and Gas Utilities.

There are three energy stocks on the list of winners, but it’s still a diverse group.

The strongest performer, with an 82% year-to-date total return, is Newfield Exploration Co. NFX, +2.45% of The Woodlands, Texas, which raised its oil-production guidance as it expanded drilling operations in the Anadarko Basin in Oklahoma. The company said July 17 it would boost its capital budget for domestic projects by $100 million to $1.7 billion.

Keurig Green Mountain Inc. GMCR, -0.84% of Waterbury, Vt., was second, with a 78% return. The company also ranks second among this group for five-year return, at 567%. The S&P 500, in contrast, has risen 116% during the same period.

In case you are wondering, “Keurig” means “neatly” in Dutch, and the company’s coffee-brewing system, with those cute little individual-cup containers, certainly is that.

For long-term investors, a major development for Keurig this year was a 10-year agreement with Coca-Cola Co. KO, +0.22% on Feb. 6 to collaborate on the new Keurig Gold “at-home beverage system.” Keurig’s shares rose 26% that day.

Southwest Airlines Co. LUV, -0.12% of New York ranked third with a 71% return. Southwest’s total revenue-generating passenger miles flown during July increased 6.6% from a year earlier to 10.6 billion. Its load factor — seating capacity usage — improved to 86.7% from 83.5% in July 2013.

Outside of the top three, Avago Technologies Ltd. AVGO, +7.50% of Singapore barely made the top 10 list. The shares of the maker of semiconductors jumped 7.5% Friday after the company said sales per share for the fiscal third quarter ended Aug. 3 grew 97% from a year earlier, to $5.04, resulting mainly from expenses related to its acquisition of LIS Corp. in May.

Here’s a look at the winners’ sales per share for their most recently reported quarters, and the change from a year earlier:

Sales per share
Newfield Exploration Co.NFX$4.47$3.2040%
Keurig Green Mountain Co.GMCR$6.21$6.33-2%
Southwest Airlines Inc.LUV$7.18$6.4312%
Electronic Arts Inc.EA$3.77$3.0424%
Nabors Industries Ltd.NBR$5.37$5.027%
Alcoa Inc.AA$4.90$5.47-10%
Williams Companies Inc.WMB$2.39$2.57-7%
Under Armour Inc. Class AUA$2.81$2.1233%
Avago Technologies Ltd.AVGO$5.04$2.5697%
Mallinkrodt PLCMNK$11.16$9.8813%
Source: FactSet

Investors and analysts often focus on sales growth or comparable-store sales growth, but sales per share is also a very useful measure. It incorporates increases or decreases in the share count brought about by the net issuance or repurchase of shares.

After Avago Technologies and Newfield Exploration, the company listed here with the strongest year-over-year growth of quarterly sales per share was Under Armour Inc. UA, -1.89% of Baltimore, with an increase of 33%. The apparel and footwear maker July 24 raised its 2014 net revenue guidance to a range of $2.98 billion to $3 billion, from the previous guidance of $2.88 billion to $2.91 billion. The lower end of the new guidance would be an increase of 28% from 2013.

The company showing the largest drop in sales per share was Williams Cos. Inc.WMB, +1.14% of Tulsa, Okla. The company operates natural gas pipelines and a midstream gas segment and is the general partner and 70% owner of Williams Partners LP WPZ, +0.84% 

Williams also showed a 29% year-over-year decline in second-quarter EPS to 15 cents.

This table shows changes in earnings per share for the group-of-10 winners:

Earnings per share
Newfield Exploration Co.NFW-$0.16$0.82N/A
Keurig Green Mountain Co.GMCR$0.94$0.7624%
Southwest Airlines Co.LUV$0.67$0.31116%
Electronic Arts Inc.EA$1.04$0.7146%
Nabors Industries Ltd.NBR$0.21-$0.01N/A
Alcoa Inc.AA$0.12-$0.11N/A
Williams Companies Inc.WMB$0.15$0.21-29%
Under Armour Inc. Class AUA$0.08$0.080%
Avago Technologies Inc.AVGO-$0.65$0.57N/A
Mallinkrodt PLCMNK-$0.41-$0.48N/A
Source: FactSet

After Southwest Airlines, the company showing the largest year-over-year increase in earnings per share was Electronic Arts Inc. EA, +1.99% of Redwood City, Calif., with a 46% bump to $1.04. All of the company’s recent financial trends are encouraging to investors: rising revenue and profits, lower expenses.

Some companies on the S&P 500 winners list swung to a profit for the most recent quarter. They are:

Nabors Industries Ltd. NBR, +3.62% of Hamilton, Bermuda, is a contract driller and oil-well servicer that reported a 7% increase in sales per share, with better pricing and “a significant increase in rig activity” in the U.S., CEO Tony Petrollo said July 22.

Aluminum producer Alcoa Inc. AA, +0.24% returned to profitability even thought its net sales were down slightly, because recovering metal prices improved its profit margin, while expenses declined. Sales per share were down 10% to $4.90 as the average share count grew by 11%.

The only company listed above to show negative EPS for the most recent quarter and a year earlier was Mallinkrodt PLC MNK, +1.72% of Dublin, Ireland. The company’s stock became a component of the S&P 500 in August, after it completed its acquisition of Questcor Pharmaceuticals.

Here are price-to-forward-earnings ratios for the group, based on consensus 2015 earnings estimates among analysts polled by FactSet:

Price to forward earnings
Newfield Exploration Co.NFX$44.82$2.7216.5
Keurig Green Mountain Inc.GMCR$133.32$4.0632.9
Southwest Airlines Co.LUV$32.01$2.0815.4
Electronic Arts Inc.EA$37.84$2.2616.7
Nabors Industries Ltd.NBR$27.21$2.2012.4
Alcoa Inc.AA$16.61$0.8519.6
Williams Companies Inc.WMB$59.44$1.5239.2
Under Armour Inc. Class AUA$68.36$1.2057.0
Avago Technologies Ltd.AVGO$82.09$6.4312.8
Mallinkrodt PLCMNK$81.49$6.2613.0
Source: FactSet

Worst-performing S&P 500 stocks of 2014
Coach Inc.COH$36.83-33%-30%37%
Whole Foods Market Inc.WFM$39.14-32%27%183%
Mattel Inc.MAT$34.49-25%46%131%
Staples Inc.SPLS$11.68-25%-13%-39%
Bed Bath & Beyond Inc.BBBY$64.26-20%13%73%
Best Buy Co.BBY$31.89-19%37%-4%
Diamond Offshore Drilling Inc.DO$43.94-19%-19%-35%
Transocean Ltd.RIG$38.65-18%-21%-43%
Peabody Energy Corp.BTU$15.88-17%-66%-50%
Avon Products Co.AVP$14.04-17%-31%-50%
Total returns assume dividends are reinvested. Source: FactSet

The weakest S&P 500 subsectors this year include Oil and Gas Drilling, Coal and Consumable Fuels, and Retailing, and this list includes all of those categories.

Coach Inc. COH, +0.14% of New York has been the worst S&P 500 performer this year, sinking 33% as the maker of handbags and accessories has been working on a transformation plan announced in June, “centered on the concept of defining modern luxury.” Part of this strategy is to restore some of the brand’s former exclusivity. This will include the closure of about 70 stores in North America. At the same time, Coach is expanding its product line to include apparel and shoes. For its fiscal first quarter ended June 28, the company’sNorth American sales were down 16% from a year earlier to $691 million, but its international sales rose 7% to $414 million.

Whole Foods Market Inc. WFM, -0.11% of Austin, Texas, has been the second-worst S&P 500 performer, with a decline of 32%. Looking at the next two tables, you can see the company grew its fiscal third-quarter sales per share 13% from a year earlier, while earnings per share rose 8%. Those are good numbers, but not good enough for Wall Street.

Next is Mattel Inc. MAT, -0.61% of El Segundo, Calif. The shares took a 14% dive on Jan. 31 after the toy maker said fourth-quarter sales slumped 6%. After recovering some of that loss, the stock declined 8% during the second half of July after Mattel said second-quarter worldwide sales dropped 8%.

Tied with Mattel was Staples Inc. SPLS, +0.17% of Framingham, Mass. The office-products retailer reported a 1.8% drop in sales for its fiscal second quarter ended Aug. 2. Adjusted net income declined 36% to $120 million. Staples is in the midst of a two-year plan to cut at least $500 million in annual expenses. The company closed 80 North American stores during the second quarter and expects to close 140 stores in total this year.

The best performers on the list are Peabody Energy Corp. BTU, +1.40% of St Louis, and Avon Products Inc. AVP, +0.43% of New York, each with a year-to-date decline of 17%.

Peabody Energy is the majority owner of 27 coal mines and also holds a non-controlling interest in a mine in Venezuela. The company topped our list of 10 stocks suffering the biggest cuts in earnings estimates last month. While coal demand in the United States has been strong, lower seaborne coal prices have taken their toll, and analysts don’t expect the company to return to profitability until the second quarter of 2014. For all of 2015, the consensus EPS estimate is a loss of 15 cents a share.

Avon was forced during the first quarter to record a charge of $116 million when Argentina radically altered its foreign-exchange system. The company is working through a $400 million cost-savings program, aimed at achieving a “low-double-digit” operating margin by 2016. The second-quarter operating margin was 4.3%, down from 8.5% a year earlier. The company saw the largest year-over-year decline in sales per share among this group of 10 S&P 500 losers, as you can see on the next table.

Sales per share
Coach Inc.COH$4.11$4.29-4%
Whole Foods Market Inc.WFM$9.20$8.1613%
Mattel Inc.MAT$3.12$3.34-7%
Staples Inc.SPLS$8.07$8.021%
Bed Bath & Beyond Inc.BBBY$13.15$11.9610%
Best Buy Co.BBY$25.26$27.00-6%
Diamond Offshore Drilling Inc.DO$5.05$5.45-7%
Transocean Ltd.RIG$6.43$6.66-3%
Peabody Energy Corp. Ltd.BTU$6.55$6.452%
Avon Products Inc.AVP$5.04$5.77-13%
Source: FactSet

After Whole Foods, the second-best performer among this group for sales per share is Bed Bath & Beyond Inc. BBBY, -0.08% with a 10% increase for the fiscal first-quarter ended May 31. But the retailer’s earnings per share were flat from a year earlier at 93 cents, despite a 7% decline in the average share count, brought about by stock buybacks.

Earnings per share
Coach Inc.COH$0.27$0.78-65%
Whole Foods Market Inc.WFM$0.41$0.388%
Mattel Inc.MAT$0.08$0.21-62%
Staples Inc.SPLS$0.13$0.16-19%
Bed Bath & Beyond Inc.BBBY$0.93$0.930%
Best Buy Co.BBY$0.42$0.70-40%
Diamond Offshore Drilling Inc.DO$0.65$1.33-51%
Transocean Ltd.RIG$1.61$0.8492%
Peabody Energy Corp.BTU-$0.27$0.33N/A
Avon Products Inc.AVP$0.04$0.07-43%
Source: FactSet

Among the 10 worst S&P 500 performers, the one showing the best EPS growth for the most recent quarter was Transocean Ltd. RIG, +0.62% of Vernier, Switzerland. The company’s second-quarter net income to controlling interests rose 29% to $587 million. However, the prior period included $64 million in “net unfavorable items.” Excluding those items, net income was up 13%.

After Coach and Mattel, the company listed here with the worst decline in EPS for the most recent quarter was Diamond Offshore Drilling Inc. DO, +0.37% of Houston. Second-quarter contract drilling revenue was down 13% to $649.6 million. During the second quarter, the company began operating the first of four new drill ships, with the rest expected to be delivered by the first quarter of 2015.

Best Buy Co. BBY, -1.09% of Richfield, Minn., recently reported a 40% dive in earnings per share. Best Buy CFO Sharon McCollam said that because of a continued decline in industry-wide sales and heavy competition, the company was expecting “comparable sales to decline in the low-single digits in both the third and fourth quarters.”

While investors can’t be happy with Best Buy’s performance this year, it’s important to point out that the stock has been pulling back from a remarkable 244% run during 2013.

Here’s how the 10 S&P 500 loses are valued to consensus 2015 EPS estimates:

Price to forward earnings
Coach Inc.COH$36.83$2.0917.6
Whole Foods Market Inc.WFM$39.14$1.7122.9
Mattel Inc.MAT$34.49$2.5113.7
Staples Inc.SPLS$11.68$0.9712.0
Bed Bath & Beyond Inc.BBBY$64.26$5.4511.8
Best Buy Co.BBY$31.89$2.6212.2
Diamond Offshore Drilling Inc.DO$43.94$3.9111.2
Transocean LtdRIG$38.65$3.3211.6
Peabody Energy Corp.BTU$15.88-$0.15N/A
Avon Products Inc.AVP$14.04$0.9714.5
Source: FactSet