In part 9 of this 2011 Performance mini-series, we turn to the US NASDAQ100 Index to examine its top 5 performers in 2011 and whether they are still buys at these prices.
In doing so, we discover 5 fast growing companies, two of which are non-technology companies, surprisingly.
I’ll be reviewing the NASDAQ100 index worst performers on Friday of this week so, if you would like to read that article, please come back to this blog on Friday.
Previous articles in this series have covered the Dow Jones and the UK FTSE100, FTSE250 and FTSE Smallcap market’s best and worst performers.
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Looking at this list, we notice that they include three companies from the medical world and two from retail.
It is no surprise to see the technology pharmaceutical stocks in this list but the two retailers are more of a surprise.
Taking the stocks in order then…
Intuitive Surgical Up 79.6%
This NASDAQ top performer is a manufacturer of surgical robots for minimal invasive surgery.
It’s popular da Vinci surgery machines propelled its share price from $258 dollars at the end of 2010 to $463 by the end of 2011.
However, recent news cites slowing growth in the number of surgical procedures using its da Vinci machines, especially in Europe.
So with its share price near an all-time high and on a PE ratio of 48 times, these shares are looking overvalued in my opinion.
I would expect them to fall back to around $350 in the near-term on profit taking.
Alexion Pharmaceuticals Up 77.5%
Growing almost as much as Intuitive comes the first of our biotechnology companies.
Alexion is basically a single product firm at the moment, producing and distributing its Soliris product for severe rare and ultra-rare diseases.
Straight away, this screams to me high risk, and I would need a very convincing value proposition for me to buy these shares.
Single product firms, whilst simpler to understand, are in the category of “all eggs in one basket”.
Rare and ultra-rare diseases says very small niche market for its products.
First product says no track record of developing, marketing, growing similar products in this company with this management and operational team before.
The final turn-off for me is the current valuation which, on a PE ratio of 145 times current earnings, looks overvalued.
Whilst this looks like a good company, I would want further evidence that they know what they are doing and have got their business model and operating model right.
I think there will be better opportunities to invest at a more attractive price level in future and so I would avoid for now.
Biogen Idec Up 64.1%
The second biotech stock on our list is a different story for all the opposite reasons.
Whilst not growing quite as fast as Alexion in 2011, it is a much better investment proposition at this point in time.
It already produces 3 blockbuster drugs and has a strong pipeline of new drugs coming through.
It currently earns it’s income from Multiple Sclerosis and Non-Hodgkin’s Lymphoma (amongst others e.g. leukemia) which are much larger markets.
It has already proved that it can research, develop and market new drugs into blockbusters and it has several others on the way.
This company is not a one-trick pony by any means.
Its share graph was rather bumpy (up and down) in 2011 which, if this pattern continues, provides opportunities to buy the shares at an attractive price on the dips.
Valued on a PE ratio of 30 times current earnings and with recent news reporting better profits than previously expected, I would expect more upside to come for this stock.
For these reasons, it is my favourite stock on this list.
Ross Stores Up 50.3%
This retailer is the 2nd largest US off-price retailer.
It focuses mainly on clothing with its “Dress for Less” stores selling at discounts of up to 60% off normal retail prices.
With the “western developed economies” struggling with debts at the moment, retailers are being polarised into those doing spectacularly well and those going bust.
The successful ones know their market and their place in it and give their customers exactly what they want.
Ross has been expanding rapidly and is continuing this strategy.
With their shares valued on a PE of 22 times current earnings they are probably fair value at the moment and could well increase from here but I would expect a short-term pull back is more likely before the share price momentum continues.
Dollar Tree Up 48.2%
Similarly, Dollar Tree is the largest single-price-point retailer in the US, selling a wide variety of products for $1.
It no doubt appeals to the same customer segments as Ross and is following a similar strategy of sticking to what it knows best and opening more stores in the same format.
It’s shares are valued at 27 times current earnings and so similar to Ross, I would expect these to fall back in the near term as the share price momentum takes a breather.
That’s it for this episode of the mini-series.
Please let me know if you enjoyed the review and provide your views/opinions in the comments area below this post.
I’d love to hear from you!
The next article in this mini-series will review the worst performers in the NASDAQ100, where the worst performer sank more than 75%.
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Until next time then,