This year, we wrote our second annual “5 Stocks on Santa’s Shit List”. As we took a moment to review last year’s s@@@ list, we realized that a couple of last year’s candidates completely killed it this year. So if we’re going to go all snarky when they’re sucking it up, it’s only fair to give credit where it’s due.
(Note 2: The YTD numbers are based on when the article was written on Dec. 10, 2015.)
Amazon
- YTD: +114.65%
- Nice list rating: 5 out of 5 pink peppermints
Why it made the list: Amazon (NASDAQ:AMZN) was struggling last year, getting 4.5 out of 5 lumps of coal for a -23.31% slide. We complained about the company’s lack of interest in turning a quarterly profit and its at-cost strategy for selling its flagship devices. And let’s just not talk about the Fire phone.
But here’s the dealio: Jeff Bezos still doesn’t care what Wall Street thinks. And it seems that Wall Street has not only come to accept that, but they’ve also accepted that it’s OK to have a 20-year-old company still in growth mode, as long as the revenue numbers justify it (and they do). Revenue growth was as follows:
2015 is also the year of AWS (Amazon Web Services). The company broke out its AWS performance in its Q1 report, showing revenue of $1.57 billion and an operating profit of $265 million. Since then, AWS has continued to grow at a breakneck pace, giving investors every reason to believe that Amazon will be a major player in the cloud computing industry for years to come.
Amazon has also shown shareholders that it really can turn on the earnings spigot whenever it wants, turning a profit gain in both Q2 and Q3. With more and more products and services being shipped consistently, there’s no reason to think Amazon won’t be on Santa’s nice list again next year. Then again, Wall Street is a fickle mistress, so who knows for sure.
Netflix (NFLX)
- YTD:151.54%
- Nice list rating: 5 out of 5 pink peppermints
Why it made the list: Everyone’s favorite streaming service has been on an amazing streak in 2015, which is impressive considering its lackluster 2014, where it saw a 5% loss. The biggest reason for the impressive turnaround is its subscriber growth — something investors take seriously in this industry. For example, the company’s 69 million subscribers in Q3 2015 was a full-year 20.2% increase from the total number (57.4 million) in Q3 2014.
How does Netflix plan to sustain that growth? Its original content continues to impress, so much that the company announces recently that it plans to double the number of original series in 2016, as well as 10 original feature films. Another way Netflix plans to stay on Santa’s nice list next year is by expanding its empire from 80 countries to 200 by the end of 2016.
Of course, there are challenges that come with expanding internationally. Because studios sell rights regionally, the company will have a difficult time licensing such content for a global audience. That’s another reason for original content, as Netflix has full rights and can do whatever it wants with it.
What about the competition? Hulu’s losing money with its terrible ad-riddled subscription service (you can’t even escape the ads with its supposedly ad-free subscription), though it remains a threat only because its owners — NBC, FOX and Disney — are more than willing to foot the bill until it either becomes a streaming powerhouse or it’s past the point of no return.
Amazon Prime, on the other hand, continues to pump out award-winning content of its own, though arguably the majority of Prime subscribers aren’t there for the streaming. As a subscriber to both, I can say you’re going to scroll a lot longer to find something to watch on Amazon Prime than you are on Netflix.
All said, Netflix is still the alpha male in the streaming industry and will likely remain so for the foreseeable future. With next year’s expansion and continued focus on original content, there’s no reason why you shouldn’t buy now.
Alphabet (Google)
- YTD: 42.77%
- Nice list rating: 4.5 out of 5 pink peppermints
Why it made the list: Last year, Google(NASDAQ:GOOG) sputtered for the first time since 2011, with shares losing 5.74% in the process. The main culprit was uncertainty over Google’s hold on search advertising. With Facebook bringing solid competition and the fight moving away from desktop toward mobile, there was a moment or two when Google seemed like I had lost its touch. Then there was Google Glass (cue the snickering).
This year, the company got a huge boost when it restructured, forming a new holding company called Alphabet and creating subsidiaries for its myriad business segments, including one for Google. The move was a big win for transparency, as the company’s several moonshot and other projects were buried deep in Google’s income statement and balance sheets — so far that investors never knew whether they were contributing to the bottom line or wasting shareholder value.
That’s not the only reason the company is back on Santa’s nice list, though. The company impressed with every earnings report in 2015, and it seems that the company has figured out how to stay competitive in the mobile push, with paid clicks rising 23% year over year in the latest quarterly report.
While Alphabet may not be as much a value investment as it was, it’s still a solid choice for investors looking to earn steady growth in the short term and in the future.
- YTD: 35.12%
- Nice list rating: 4.5 out of 5 pink peppermints
Why it made the list: Despite Facebook’s (NASDAQ:FB) solid year in 2014, where its shares rose 42%, investors didn’t take it well when CEO Mark Zuckerberg announced last October that the company would increase its expenses in 2015 by 55% to 75%.
It was ridiculously irrational for the stock to drop roughly 10% after that announcement. Investors had been speculating for a while about how sustainable the company’s core product is and how it can possibly avoid plateauing at some point in the near future. So the answer was obvious: the company needs to reinvest its profits ASAP to build a moat around its core product — and it did just that.
Throughout 2015, it seems as if Facebook was announcing a new product or service every other week: Facebook Lite, 360 videos, Instant Articles, a new search function (that actually works), a standalone Groups app, and more. The company also started its monetization efforts on Instagram, which grew from 300 million monthly active users last December to 400 million in September. WhatsApp also hit a major milestone in September with 900 million users. While there are no concrete plans to monetize WhatsApp currently, you can bet it will happen in the next couple years.
With everything that Facebook has done this year, there’s no reason to believe the stock won’t continue to soar. Unlike other tech companies (cough, cough, Twitter) that have struggled to maintain a positive bottom line, Facebook’s future profitability is solidified.
McDonald’s
- YTD: 23.75%
- Nice list rating: 4 out of 5 pink peppermints
Why it made the list: McDonald’s (NYSE:MCD) shares didn’t do all that poorly in 2014, losing only 2.81% on the year. But that number belies what was really going on during the year. The company’s same-store sales were either negative or flat all year and it struggled through some major food scandals in Asia. The only thing that kept investors hanging on was its impressive dividend yield, which typically hovers around 4%.
This year, McDonald’s has made a major turnaround. It started with a new CEO, Steve Easterbrook, who came on in March. The company then started making changes, including introducing all-day breakfast, moving toward franchising more of its restaurants, and working toward giving customers healthier options.
All in all, I’m impressed. Signs that the turnaround plan is actually working surfaced in October’s earnings release when same-store sales rose in every one of the company’s segments. Management also wisely stopped publishing monthly same-store sales to help the company and its shareholders to focus more on the long term.
With the company’s solid dividend and continued progress toward a turnaround, 2016 is looking to be a solid year.
(Note: There are obviously several stocks that could or should have made the list based on their performance this year. We specifically chose a few from last year’s shit list to show their amazing comeback. Also, we try to focus on well known stocks. Basically, we know you might have a different list and if you don’t like ours, we don’t care.)
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