As we approach towards the end of year 2012, it is worth taking a look at this year’s best and worst performing stocks. It has been a year of ups and downs for stocks. However, all three major indexes in the U.S. have held on to their gains. With a little over three weeks to go before the year-end, the Dow Jones is up 7.67%, the S&P 500 is up 12.76%, and the Nasdaq is up 14.31%.
Under normal circumstances, one would expect all three benchmark indexes to finish higher for the year. However, with the looming threat of fiscal cliff, things are anything but normal. At the moment, lawmakers in Washington DC are engaged in negotiations over a deficit reduction deal. However, time is running out for them, with the year-end deadline approaching. If a deal is not reached before the end of this year then on January 1, 2013 automatic spending cuts and tax increases worth nearly $600 billion will take effect. A fiscal contraction of such magnitude will surely drag the economy back into a recession.
Also, investors will take risk off the table as the closer we get to the deadline without a deal. This does not augur well for equity markets. Despite the significant gains posted so far, a higher finish for the year is not guaranteed. Still, it is worth taking a look at this year’s best and worst performing stocks.
Let me start with Apple Inc. (NASDAQ: AAPL).Year after year, the technology giant has remained a favorite among investors and analysts. This year Apple created history by becoming the world’s most valuable company in terms of market capitalization. Year-to-date, Apple shares have gained 31.67%, impressive by any measure. However, a closer look highlights the fact that it has not been Apple’s best year.
First let’s talk about the stock. While shares are up for the year, their more recent performance has been disappointing. In fact, Apple shares have performed poorly after hitting an all-time high of $705.07 in September this year. The stock has fallen 21.63% in the last three months. Apple shares are also very close to forming a “death cross”, in which the stock’s 50-day moving average falls below the 200-day moving average. Technical analysts see this as a sell signal.
So what has suddenly gone wrong for Apple? Only a few months ago, analysts were talking about the stock hitting $1000. A combination of factors has resulted in Apple’s drop. Last week, a sell-off was sparked following a change in margin requirements. Meanwhile, there is growing concerns over increasing competition in smartphone and tablet markets.
Even though Apple shares are up more than 30% this year, 2012 has not been the best year by Apple’s standards.
This year we also had one of the biggest and most awaited IPOs ever in history, Facebook Inc. (NASDAQ: FB). The excitement prior to FB’s May 2011 IPO reminded one of the dotcom era. FB’s IPO turned out to be a huge disappointment.
Facebook was valued at over $100 billion in the IPO. However, post IPO a number of market participants questioned the valuation assigned to the social network. The first day of trading also saw chaos as a number of orders placed by traders couldn’t go through. Following the IPO, FB shares fell sharply, hitting an all-time low of $17.55 in September. That’s nearly 60% below the IPO price of $38.
Facebook shares fell amid concerns over the company’s advertising revenue growth, especially the company’s ability to generate advertising revenue from mobile. However, more recently, the company has proved its critics wrong. In the most recently reported quarterly results (Q3), Facebook generated 14% of its advertising revenue from mobile.
Facebook’s shares have also rebounded in the last two months. Shares are now trading around $27.50, well above the lows of September. However, FB shares are still well below the $38 IPO price.
Financial stocks have had an excellent run this year despite, declining trading and investment banking revenue, stricter capital requirements and weak macro environment. Year-to-date, Bank of America Corporation (NYSE: BAC) shares have gained more than 91.18%, and have been the best performers among the major U.S. banks. Citigroup Inc. (NYSE: C) shares have gained 43.06% so far this year, while JP Morgan Chase & Co. (NYSE: JPM) has gained 28.96% year-to-date. Goldman Sachs Group Inc. (NYSE: GS) has gained 28.91% year-to-date. Morgan Stanley is up 12.16% year-to-date.
Despite the challenging macro environment, major U.S. banks have had an excellent run thanks mainly to cost cutting measures. Banks such as Citigroup and Bank of America, which prior to the financial crisis, believed in the universal banking model, have been streamlining their operations and reducing workforce to improve efficiency. Citigroup recently announced that it will slash 11,000 jobs. Bank of America is already halfway through its planned 30,000 job cuts. Goldman and Morgan Stanley have also announced job cuts this year.
While banks have performed well despite the challenging environment, same cannot be said for PC makers Hewlett-Packard Company (NYSE: HPQ) and Dell Inc. (NASDAQ: DELL).
Shares of both companies have suffered as more and more consumers shift to mobile computing. Year-to-date, DELL share have fallen 28.53%, while HPQ shares have fallen 44.24%.
Hewlett-Packard is not just grappling with weakness in the PC market. Recently, the company took a huge charge related to accounting improprieties at Autonomy, the U.K.-based company which HPQ acquired last year.
Like Hewlett-Packard and Dell, chipmaker Intel Corp. (NASDAQ: INTC) has also suffered due to the shift to mobile computing. Year-to-date, INTC shares have fallen 16.02%.
As I said, 2012 so far has been a decent year for equity markets. All three benchmark indexes are in green for the year so far despite concerns over the euro zone debt crisis and slowdown in China. However, the biggest concern for investors right now is the fiscal cliff. While most analysts expect lawmakers to reach some of kind of deal before the year-end deadline, investors will remain on the edge until then. The last three weeks of 2012 are likely to be extremely volatile for equity markets.
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