Benzinga Exclusive: Kiplinger's Tom Petruno Breaks Down Best Bull Market Stocks
During the market low of 2009, most of the companies that Tom Petruno, contributing writer for Kiplinger’s Personal Finance, features on his list of “The 10 Best Stocks of the Bull Market” were all on their way to bankruptcy.
This excludes the biotech companies, Pharmacyclics (NASDAQ: PCYC) and Keryx Biopharmaceuticals (NASDAQ: KERX), which were under the radar of the market at the time. Otherwise, many stocks on the list were trading at pennies per share with most analysts confident that survival wasn’t in the cards.
Now, fiver years later, the returns are stunning; ranging from 131 to 189 percent annualized.
“Las Vegas Sands had a lot of debt. People thought the economy was going to collapse globally, so no one would be gambling anymore. So it just goes to show how incredibly pessimistic people were at that market bottom on March 9 of 2009…These are the stocks up the most. There are many stocks, not necessarily what these are – up thousands of percent, but so much stuff was just priced for the end of the world, and the end of the world didn’t happen,” said Petruno.
“And so stocks came roaring back pretty quickly in that first month after March 9. And then we’ve just had this continuing bull market since then, because the economy’s not strong, but it has gotten better and people have realize ‘Okay, we’re not going to have a crash anytime soon.”
Petruno noted that crashes are relatively infrequent and that investors shouldn’t be peering over their should with expectations of another one.
Pharmacyclics, Keryx Biopharmaceuticals, Pier 1 Imports (NYSE: PIR), Avis Budget Group (NASDAQ: CAR), Dana Holding (NYSE: DAN), Nexstar Broadcasting Group (NASDAQ: NXST), CalAmp (NASDAQ: CAMP), American Axle (NYSE: AXL), Atlas Energy LP (NYSE: ATLS), and Las Vegas Sands (NYSE: LVS) all hold positions on the list presented in this order from first to last.
“When you see gains like this, particularly in these stocks…obviously you’re not going to duplicate this in the next five years,” said Petruno, citing that the unique nature of the financial collapse and subsequent recovery is unlikely to reoccur.
He offered another example in Dana Holding and American Axle, which many investors casted off after in seemed like General Motors was heading for bankruptcy. At the time, because GM most definitely was on a downward spiral, it seemed like a logical move for shareholders to sell and for others to avoid the companies.
“If you had the guts to buy, let’s say, a handful of auto parts stocks and you figure ‘What if just one does well and the others go out of business?’ If just one does well, you could make a killing,” said Petruno.
He wants to spread the word that there’s always value to be found in a market that looks utterly depressed. Petruno recalled a familiar joke about the stock market that expressed the lesson.
“It’s the only thing that goes and sale and people buy less of it,” said Petruno.
He highlighted that people will flock to clothes and other items when they’re marked down, but flee stocks when prices are down.
“I hope that what people have learned is that the world is going to end someday; probably not today and probably not tomorrow…[and] to not get so pessimistic that you’re betting on everything collapsing and realize that also to have the courage to buy stocks when they appear ridiculously cheap,” said Petruno.
This doesn’t mean that rises to the top, such as in the auto industry, are anything close to sustainable for long windows. The market just isn’t that predicable. Again, Petruno pointed to automobiles, where many analysts are now predicting major industry-wide growth over the next decade. He disagrees, saying that while it will still be big, it won’t see rapid growth booms. He mentioned that many millennials don’t think they need cars because of ride-sharing services and an increased interest in utilizing public transportation.
He said that you also want to stay invested in the future, and to keep on eye on industries that house those future-building companies. Biotech is just such an industry. Petruno is confident that if prices came down, he would suggest buying biotech cheap through an ETF or healthcare mutual fund with the same premise in mind that one could do well from the mixed bag and pay off big. Portfolio diversity, however, is key to the strategy working.
“So right now we’re flying pretty high. The market has become a lot more volatile in the past few months. There will be some huge selloff at some point, not necessarily another crash, but prices will get marked down and that’s exactly when you have to buy, and you have to have the courage,” said Petruno.
Energy is another example of progressive attitudes reshaping an industry. For instance, the oil industry is in a state of transition, but people will need it in high-demand in the foreseeable future nonetheless, Petruno said. The return of investment will be less and less as time moves forward and demand decreases, pushing the transition further.
“There’s no such thing as a growth stock. There’s just companies in growth phases,” said
These stages can last 5-10 years if a company is lucky. Inevitably, much more competition comes into the market, which is obviously common within a free-market economy.
This is something that’s often seen in the tech sector, Petruno said, where a niche can find heavy competition after it’s seen as lucrative. All in all, playing the stock market is taking a bet on a growing economy, he said. If you think the economy will grow within the next ten years, then it’s silly to not have any stake, but only if you have money sitting dormant in other places he added.
“Don’t have any money in the stock market if you’re going to need that money in 12 months…We’re entering a more volatile period and the last thing you want to do is put money into the market if you can’t hang for another 3, 5 or 10 years,” said Petruno.
Petruno included that as far as anyone knows the market could be down 25 percent five months from now.
“This isn’t time to make money on a short-term project,” Petruno said.
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