As 2012 was drawing to a close, I’d expected certain stocks to outperform the market in 2013 and had covered them in a series of articles last December. When I reviewed some of my picks at the end of the first calendar quarter of 2013, I found that some had exceeded my expectations while some hadn’t.
However, those which hadn’t done well bounced back in Q2 and I expect them to sustain their momentum. But, what about my winning picks? Did they continue winning or lost steam? The following table will make everything crystal clear.
| Company | 1Q Returns | Half-yearly Returns |
|---|---|---|
| Micron Technology, Inc. (NASDAQ:MU) | 62.71% | 133.77% |
| Cree, Inc. (NASDAQ:CREE) | 64.79% | 92.26% |
| Giant Interactive Group Inc (ADR) (NYSE:GA) | 20.82% | 48.88% |
Stock price data (from Dec. 31, 2012 to June, 28, 2013) taken from Google Finance
Quite clearly, winners continued winning, and in my opinion, they’ll continue to be winners going forward as well. While the returns so far have been astronomical, it would make sense for investors to stick to these stocks and enjoy further gains. Let’s see how these stocks can still deliver even after their solid run up.
When Micron doesn’t mean small
Memory maker Micron Technology, Inc. (NASDAQ:MU) was already up impressively in Q1, but its second-quarter performance turned out to be even better. Two outstanding earnings reports and improving trends in NAND and DRAM pricing have ensured that Micron doesn’t lose steam. And going forward, I expect an even better performance from Micron Technology, Inc. (NASDAQ:MU).
Price of Dynamic Random Access Memory (DRAM) has gone from strength to strength this year despite falling sales of PCs as memory makers have cut down on production to support prices. This has led to terrific gross margin improvement at Micron as the metric improved an impressive six percentage points in the previous quarter and helped the company turn in a profit on an adjusted basis.
The great thing is that this upward trend in pricing is expected to continue. Micron Technology, Inc. (NASDAQ:MU) expects DRAM prices to jump in mid to high single-digits in the current quarter, and the trend should continue going forward as well since memory makers are keeping supply under control.
Throw in the strong demand for mobile DRAM on the back of higher smartphone and tablet shipments and things would look rosier. Moreover, Micron has reduced its reliance on the non-PC DRAM business as shipments to this segment are now just half of the total bit shipments, and this ratio should tilt further in favor of non-PC sales as more mobile devices would require more DRAM.
Mobile isn’t driving just DRAM; it is also pushing up the performance of Micron’s NAND business. Add to it the proliferation of solid-state drives and Micron has another area to grow. Also, Micron Technology, Inc. (NASDAQ:MU) is on the verge of acquiring bankrupt Japanese memory maker Elpida and once this is done, Apple Inc. (NASDAQ:AAPL) will become an important Micron customer as Elpida had supplied DRAM to the iPhone 5. Probably, addition of a cheaper iPhone will be another driver for Micron as it would increase its addressable market.
With all these exciting developments and continuously improving industry fundamentals, Micron Technology, Inc. (NASDAQ:MU) should continue to be a winner.
A lightning run
Frankly speaking, I hadn’t expected light-emitting diode (LED) maker Cree, Inc. (NASDAQ:CREE) to appreciate so much this year as it was already trading at a rich valuation at the end of 2012. But, when you’re in a booming industry, valuation metrics such as the P/E ratio can take the backseat. The company has made some great innovative moves and its solid quarterly results this year have provided it with greater impetus.
One of Cree, Inc. (NASDAQ:CREE)’s breakthrough innovations is its 40-watt replacement LED light bulb which went on sale for just $9.97, undercutting larger and more powerful rivals such as General Electric Company (NYSE:GE). Cree, Inc. (NASDAQ:CREE) is looking to take this bulb to the masses and is aggressively focused on increasing awareness regarding it as it targets the 5 billion traditional bulbs used by domestic consumers in the U.S.
Cree, Inc. (NASDAQ:CREE)’s innovation isn’t just limited to domestic lighting since commercial forms an important part of its portfolio. The company is constantly engaged in lowering costs and delivering more lumens per dollar in commercial, and the fact that its latest LEDway series upgrade is expected to cost 20% lower while being 15% more powerful is indicative of its efforts.
In addition, Cree, Inc. (NASDAQ:CREE) has a huge playing field in China as well while expansion in North America and Europe should aid its growth further. Thus, with a huge addressable market in front of it, investors shouldn’t be unnerved by Cree’s expensive trailing P/E of almost 117 as its prospects are very strong.
Growing into a Giant
Online gaming in China is really popular and this is why I had recommended Giant Interactive Group Inc (ADR) (NYSE:GA) as one of my top stocks for 2013. The company was pretty cheap then, and still is (with a trailing P/E of just 11), and pays a juicy annual dividend depending on its earnings for the year. In an impressive move, Giant Interactive Group Inc (ADR) (NYSE:GA) has decided to pay a semi-annual dividend from the current fiscal year.
The company’s solid strategy of keeping its games fresh through expansion packs, diversification into multiple platforms such as web games, micro-client games and mobile, and the fact that its games are addictive are some more reasons why I’m optimistic about the company’s prospects.
Giant Interactive Group Inc (ADR) (NYSE:GA)’s ZT Online franchise has been a major hit and has helped drive its revenue, and the company has benefited from its popularity by including content from it on other platforms. Also, Giant is working on World of Xianxia, which it expects to be its next blockbuster, and the company is looking to capitalize on the positive feedback it has received for the game while testing it by introducing a micro-client version as well in the future.
Giant Interactive Group Inc (ADR) (NYSE:GA) has also chosen the right partner in the form of Qihoo 360 to operate its games and Qihoo’s huge user base of 457 million should help Giant get more people to play its games. Giant is expected to release its next quarterly results early next month and I expect it to continue its impressive streak.
The bottom line
These stocks did really well in the first six months of the year and a look at their business tells me that more upside is on the way. Micron Technology, Inc. (NASDAQ:MU) would benefit from improving industry fundamentals; Cree, Inc. (NASDAQ:CREE) has a big, big market of traditional light bulbs and commercial lighting to attack and has the right products; while Giant Interactive Group Inc (ADR) (NYSE:GA) is going about its business in a methodical manner and this has, and should continue to, yield results.
So, if you are long these stocks, there’s absolutely no reason why you should hit the eject button.
The article These Winners Should Continue Winning This Year originally appeared on Fool.com and is written by Harsh Chauhan.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Giant Interactive Group. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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