A Banner Year for No-Moat Firms

With the rocket-powered market recovery we've witnessed since March, it is easy to forget that not all stocks have participated equally in the rally. As we've noted, firms without competitive advantages performed much better at the start of the market upturn, and that is evident in the year-to-date performance data. These companies did so well partly because of how poorly they did in 2008.

No-moat companies were some of the most likely to have issues with financing or to be the most exposed to the economic cycle. In a panic, these are the stocks that got sold first. When it was clear we had avoided another Great Depression, these stocks soared. Wide moat stocks, which for the most part had been hurt less during the downturn, had less room to come back.

This pattern has reversed itself in the fourth quarter. Over the last three months, wide moat stocks are beating both narrow and no moat, but the outperformance is not enough to close the gap for the year. Although no moats put in a banner year, our analyst staff thinks the market has gone too far. They currently think these stocks are 9% overvalued compared to 1% undervalued for narrow moat stocks, and 8% undervalued for wide moats.

Name Total Return 1-Mo Total Return 3-Mo Total Return YTD No Moat 3.63 2.33 46.88 Narrow Moat 3.13 4.51 33.33 Wide Moat 1.76 6.82 18.33

 

Here are the top and bottom performing stocks for each bucket:

Wide Moat Stocks

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD Amazon.com, Inc. AMZN 3.15 42.67 160.82 Starbucks Corporation SBUX 10.79 15.88 150.74 Buckeye GP Holdings L.P. BGH 6.1 20.71 135.47 Enterprise GP Holdings L.P. EPE 8.28 36.55 135 Intuitive Surgical, Inc. ISRG 7.63 20.69 134.29 American Express Company AXP 1.2 22.46 127.17 AmBev ADR ABV -0.28 21.6 125.51 Bank of Montreal BMO 3.28 4.08 111.62 Google, Inc. GOOG 5.47 20.45 95.39 Maxim Integrated Products MXIM 19.24 14.88 87.74 Royal Bank of Canada RY -1.08 -0.04 85.76 Alcon, Inc. ACL 10.39 14.35 83.71 Boardwalk Pipeline Partners LP BWP 11.03 25.89 81.44 Blackrock, Inc. BLK 6.41 15.34 80.75 MasterCard Incorporated A MA 10.58 13.89 79.16 Buckeye Partners, L.P. BPL 6.58 13.18 78.93 Toronto-Dominion Bank TD -1.57 -3 78.35 Bank of Nova Scotia BNS 1.3 3.34 75.61 Adobe Systems Inc. ADBE 4.27 12.78 75.39 Credit Suisse Group ADR CS -7.48 -13.38 74.61

 

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD Genzyme Corporation GENZ -3.5 -15.26 -27.23 Apollo Group, Inc. A APOL 4.99 -18.89 -24.5 Vulcan Materials Company VMC 6.77 -6.26 -21.86 ExxonMobil Corporation XOM -7.81 -1.2 -12.03 US Bancorp USB -2.15 2.24 -8.28 Exelon Corporation EXC 4.89 -3.11 -7.93 Lockheed Martin Corporation LMT 0.24 -4.12 -7.24 H & R Block, Inc. HRB 1.67 18.26 -6.82 Marsh & McLennan Companies MMC -3.19 -7.2 -6.67 Eli Lilly & Company LLY -1.31 11.69 -5.46 Iron Mountain, Inc. IRM -3.29 -14.99 -4.85 Wal-Mart Stores, Inc. WMT -1.23 5.14 -2.91 Martin Marietta Materials MLM 8.63 -4.06 -2.02 General Electric Company GE -0.71 -8.99 -1.3 DeVry, Inc. DV 4.79 1.8 -1.24 Bank of New York Mellon Corporation BK 5.08 -7.69 -1.06 Amgen, Inc. AMGN 3.32 -5.93 -0.92 Grand Canyon Education, Inc. LOPE -4.5 0.54 -0.64 International Speedway Corporation A ISCA 7.01 1.03 -0.14 Weight Watchers International, Inc. WTW 6.69 3.51 -0.08

 
Narrow Moat Stocks

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD Fortress Investment Group, LLC A FIG 13.63 -19.2 367 Oshkosh Corporation OSK -0.34 21.2 326.77 Ternium SA ADR TX 10.91 28.54 304.67 MarkWest Energy Partners L.P. MWE 21 30.44 301 DCP Midstream Partners LP DPM 11.74 16.96 227.34 Wyndham Worldwide Corporation WYN 10.48 30.88 222.75 Expedia, Inc. EXPE 6.33 6.46 221.97 Mercadolibre, Inc. MELI 16.47 38.88 221.51 Freeport-McMoRan Copper & Gold B FCX -7.24 7.25 220.99 Baidu Inc ADR BIDU -6.73 0.64 205.44 Whole Foods Market, Inc. WFMI 9.14 -2.11 204.77 CarMax, Inc. KMX 19.35 13.16 204.44 Marvell Technology Group, Ltd. MRVL 31.02 25.28 200.15 Ctrip.com International, Ltd. ADR CTRP 4.14 25.85 197.86 Pioneer Natural Resources Company PXD 17.04 32.56 196.42 MoneyGram International, Inc. MGI 16.08 -6.62 190.2 CTC Media, Inc. CTCM -11.64 -12.53 187.92 Fibria Celulose Sa ADR FBR 46.42 36.79 186 Group 1 Automotive, Inc. GPI 15.37 8.45 183.66 Quicksilver Resources, Inc. KWK 23.39 7.83 179.35

 

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD Synovus Financial Corp. SNV 26.79 -45.38 -73.98 Cathay General Bancorp, Inc. CATY -4.4 -13.91 -67.14 Western Alliance Bancorporation WAL -9.05 -44.8 -62.14 Susquehanna Bancshares SUSQ -1.18 -7.41 -60.84 Marshall & Ilsley Corp. MI 6.9 -35.83 -57.77 Huntington Bancshares, Inc. HBAN -1.06 -16.7 -50.78 Satyam Computer Services, Ltd. ADR SAY -4.87 -23.63 -46.02 Associated Banc-Corp ASBC -3.28 -7.36 -45.68 Zions Bancorporation ZION 5.34 -30.62 -45.65 First Midwest Bancorp FMBI 11.45 10.43 -44.77 Whitney Holding Corporation WTNY 14.32 -6.93 -41.9 Wilmington Trust Company WL 3.29 -11.41 -40.45 United Bankshares, Inc. UBSI 19.65 0.66 -37.27 MGM Mirage, Inc. MGM -14.75 -32.42 -33.65 KeyCorp KEY -0.17 -16.5 -31.9 Old National Bancorp ONB 9.56 17.28 -29.19 Regions Financial Corporation RF 1.83 -18.5 -28.77 SunTrust Banks, Inc. STI -5.35 -11.91 -28.67 NTT DoCoMo, Inc. ADR DCM -2.81 -13.29 -27.83 Allegheny Energy, Inc. AYE 9.51 -11.49 -27.23

 
No Moat Stocks

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD Vanda Pharmaceuticals, Inc. VNDA 10.51 -6.66 2172 Human Genome Sciences HGSI 11.69 57.71 1342.45 Valassis Communications VCI 14.06 8.29 1294.7 Teck Resources Ltd B TCK 8.61 31.88 664.23 TRW Automotive Holdings Corporation TRW 4.81 35.31 565.28 Entercom Communications Corporation ETM 28 59.05 550.41 Tenneco, Inc. TEN 20.81 20.5 523.73 Trina Solar Limited ADR TSL 21.39 51.69 480.95 Veeco Instruments, Inc. VECO 27.73 42.74 428.86 XL Capital, Ltd. XL 4.67 10.95 417.3 Liberty Media Corp A LCAPA 4.63 12.1 413.38 Angiotech Pharmaceuticals, Inc. ANPI 2.31 -28.88 411.54 Rite Aid Corporation RAD 20.31 -22.61 396.77 Temple-Inland, Inc. TIN 30.13 28.73 377.71 Sirius XM Radio Inc. SIRI -9.27 -15.68 377.08 Tenet Healthcare Corporation THC 0.95 -9.83 362.61 Louisiana-Pacific Corp. LPX 17.38 -4.53 358.97 McClatchy Company A MNI 19.13 39.22 355 LIN TV Corporation TVL 11.89 -11.28 340.37 Advanced Micro Devices AMD 35.68 55.1 336.57

 

Name Ticker Total Return 1-Mo Total Return 3-Mo Total Return YTD CIT Group, Inc. CITGQ -76.19 -97.54 -98.57 Altus Pharmaceuticals, Inc. ALTUQ -61.02 -81.08 -93.4 Citadel Broadcasting Corporation CTDB -76.85 -79.17 -92.19 RHI Entertainment RHIE -2.74 -78.35 -91.26 FairPoint Communications, Inc. FRCMQ 0 -54.88 -88.72 South Financial Group, Inc. TSFG 0 -64.61 -84.72 GTx, Inc. GTXI 2.56 -71.85 -78.62 BankAtlantic Bancorp A BBX -10.07 -59.15 -78.02 Pacer International, Inc. PACR -1.95 -22.62 -71.14 Volkswagen AG ADR VLKAY -22.39 -35.27 -69.29 Capital Trust, Inc. A CT -12.31 -65.35 -68.33 EnteroMedics, Inc. ETRM -20.34 -90.41 -67.81 Jackson Hewitt Tax Service, Inc. JTX 37.59 23.59 -63.61 YRC Worldwide, Inc. YRCW -8.8 -73.79 -60.28 Hansen Medical, Inc. HNSN 6.67 -22.79 -60.11 Energy Conversion Devices, Inc. ENER 1.61 -18.57 -57.4 Progenics Pharmaceuticals, Inc. PGNX 10.81 -18.88 -56.26 Amicus Therapeutics, Inc. FOLD 1.31 -61.28 -51.38 Citigroup, Inc. C -20.48 -28.17 -50.07 MetroPCS Communications, Inc. PCS 16.56 -24.3 -48.82

 

All data as of 12/22/2009