Deep Dive: Here’s how Wall Street’s favorite stock picks turned out in 2019

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As we head to a new year, predictions for financial markets and stock picks for 2020 are flowing. It’s also time for annual mea culpas, as stock pickers admit their failures — and, of course, brag about their successes.

It’s difficult for a fund manager to beat the broader market, which is a reason why low-cost index funds are so popular. The S&P 500 Index SPX, +0.14%  has returned 30% (with dividends reinvested) through Dec. 16. The benchmark index last performed so well in 2013, when it jumped 32%.

MarketWatch’s Jeff Reeves wrote an entertaining piece about his mixed record for 2019 stock selections, and readers chimed in with their own amusing comments.

We have already listed the favorite large-cap, mid-cap and small-cap stock picks among Wall Street analysts for 2020. Let’s see how their selections for 2019 performed.

How Wall Street’s favorites fared

On Jan. 2, we narrowed the S&P 500, the S&P 400 Mid Cap Index MID, +0.16%  and the S&P Small Cap 600 Index SML, +0.36% to companies covered by at least five sell-side analysts with at least 75% “buy” or equivalent ratings. We then listed the 20 for each index with the highest implied upside for 2019, based on consensus price targets.

Large-cap

A favorite large-cap stock pick for 2019 was Anadarko Petroleum. The stock closed at $43.84 on Dec. 31, 2018, and analysts’ consensus price target for the shares on that date was $76.86. After Anadarko agreed in April to be acquired by Chevron CVX, +0.01%  for $65 a share, Occidental Petroleum OXY, +0.13%  outbid Chevron to take out Anadarko for $76 a share in August. Activist investor Carl Icahn sent a letter to Occidental’s shareholders criticizing the deal, and Occidental’s management team and board of directors.

The consensus price target wasn’t met, but that $76 takeout price was a 73% premium from Anadarko’s share price on Dec. 31. So this one is in the “win” column for the analysts.

Here are the other 19 large-cap picks for this year, with total returns (which include reinvested dividends) through Dec. 16, 2019:

Company Ticker Industry Total return – 2019
Aptiv PLC APTV, +0.26% Auto Parts: OEM 56%
LKQ Corp. LKQ, +0.79% Automotive Aftermarket 51%
Allergan plc AGN, -0.02% Pharmaceuticals: Generic 45%
Conagra Brands Inc. CAG, +0.68% Food: Major Diversified 39%
Electronic Arts Inc. EA, +0.18% Recreational Products 34%
SVB Financial Group SIVB, +0.25% Regional Banks 32%
Norwegian Cruise Line Holdings Ltd. NCLH, +0.07% Hotels/Resorts/Cruiselines 30%
Alexion Pharmaceuticals Inc. ALXN, -1.46% Biotechnology 14%
PVH Corp. PVH, +0.27% Apparel/Footwear 13%
Pioneer Natural Resources Co. PXD, +1.19% Oil & Gas Production 10%
Marathon Petroleum Corp. MPC, +1.07% Oil Refining/Marketing 7%
TechnipFMC Plc FTI, +0.18% Oilfield Services/Equipment 4%
Diamondback Energy Inc. FANG, +0.34% Oil & Gas Production -5%
Halliburton Co. HAL, +1.46% Oilfield Services/Equipment -5%
American Airlines Group Inc. AAL, +1.70% Airlines -12%
Albemarle Corp. ALB, +2.39% Chemicals: Specialty -12%
Concho Resources Inc. CXO, +0.98% Oil & Gas Production -21%
Mylan NV MYL, -1.68% Pharmaceuticals: Generic -31%
Source: FactSet

Including Anadarko, eight of the 20 large-cap picks matched or beat the return of the S&P 500 in 2019. So 12 underperformed the index, with six having negative returns. Eleven of the 20 returned at least 10%.

Mid-cap

Here’s how the 20 mid-cap picks performed in 2019 through Dec. 16:

Company Ticker Industry Total return – 2019
Marriott Vacations Worldwide Corp. VAC, +0.19% Other Consumer Services 82%
Lumentum Holdings Inc. LITE, +0.64% Telecommunications Equipment 80%
MKS Instruments Inc. MKSI, +0.06% Electronic Production Equipment 72%
MasTec Inc. MTZ, +1.29% Engineering & Construction 52%
Knight-Swift Transportation Holdings Inc. Class A KNX, -0.14% Trucking 48%
Boyd Gaming Corp. BYD, +0.57% Casinos/Gaming 44%
Thor Industries Inc. THO, -0.59% Recreational Products 36%
Brunswick Corp. BC, -0.57% Recreational Products 32%
HealthEquity Inc. HQY, +1.42% Investment Managers 22%
East West Bancorp Inc. EWBC, +1.08% Regional Banks 14%
Cabot Corp. CBT, -0.76% Industrial Specialties 13%
SLM Corp SLM, +1.29% Finance/Rental/Leasing 9%
Apergy Corp. APY, +0.99% Oilfield Services/Equipment 8%
WPX Energy Inc. WPX, +5.00% Oil & Gas Production 5%
Patterson-UTI Energy Inc. PTEN, +1.13% Contract Drilling 0%
Allegheny Technologies Inc. ATI, -0.56% Steel -2%
Ligand Pharmaceuticals Inc. LGND, +0.40% Biotechnology -22%
Granite Construction Inc. GVA, -0.18% Engineering & Construction -29%
Callon Petroleum Co. CPE, +5.11% Oil & Gas Production -32%
Inogen Inc. INGN, -1.31% Medical Specialties -43%
Source: FactSet

Eight of the 20 mid-cap picks beat the 25% return of the S&P 400 Mid Cap Index during 2019 through Dec. 16. That matches the success of the large-cap group. Five of the mid-cap stocks had negative returns, with four down more than 20%, while 11 had returns of at least 10%.

Small-cap

One of the small-cap picks was Control4 Corp., which closed at 17.60 a share on Dec. 31, 2018. Analysts’ consensus price target for the stock at that time was $31.75. The company was acquired by privately held SnapAV for $23.91 a share on Aug. 4. So the price target wasn’t met, but the company was taken out at a 36% premium to the Dec. 31, 2018 price. So this one was a winner for the analysts.

Here’s how the other 19 small-cap picks did:

Company Ticker Industry Total return – 2019
Medicines Co. MDCO, -0.10% Pharmaceuticals: Other 340.7%
Ultra Clean Holdings Inc. UCTT, -0.59% Electronic Production Equipment 171.5%
Koppers Holdings Inc. KOP, +1.68% Chemicals: Specialty 116.3%
Patrick Industries Inc. PATK, -0.09% Building Products 72.5%
Helix Energy Solutions Group Inc. HLX, +1.15% Oilfield Services/Equipment 69.3%
Cytokinetics Inc. CYTK, -2.65% Biotechnology 61.4%
TTM Technologies Inc. TTMI, +1.02% Electronic Components 51.7%
Nabors Industries Ltd. NBR, +2.67% Contract Drilling 33.0%
Archrock Inc. AROC, +0.69% Oilfield Services/Equipment 32.7%
Progenics Pharmaceuticals Inc. PGNX, +0.00% Biotechnology 21.2%
Green Plains Inc. GPRE, +5.68% Chemicals: Specialty 20.1%
Enova International Inc. ENVA, -0.65% Finance/Rental/Leasing 19.4%
SMART Global Holdings Inc. SGH, -0.96% Semiconductors 16.2%
Vonage Holdings Corp. VG, -0.07% Specialty Telecommunications -15.5%
TETRA Technologies Inc. TTI, +11.62% Oilfield Services/Equipment -15.5%
ProPetro Holding Corp. PUMP, +2.70% Oilfield Services/Equipment -15.7%
Stamps.com Inc. STMP, -3.82% Internet Software/Services -48.2%
Ring Energy Inc. REI, +11.42% Oil & Gas Production -54.3%
Rayonier Advanced Materials Inc. RYAM, +5.15% Chemicals: Specialty -62.0%
Source: FactSet

Twelve of the small-cap picks matched or beat the 21% return for the S&P Small Cap 600 Index through Dec. 16, with three more than doubling. Fourteen had returns of at least 10%, while six had negative returns. Three fell more than 20%.

So there you have it — a decent record for the small-cap stocks (with three big losers) and records of mostly underperformance for the large-cap and mid-cap groups.

This sheds light on one of the problems with Wall Street: 12-month price targets. That’s a short period for serious long-term investors who believe in the companies they own. When doing your own stock-picking homework, you might build confidence that a company’s financial condition and business strategy are in a position to compete effectively over the next decade. That can carry you through a bad year for the stock.

Don’t miss: Wall Street’s top dividend stock picks for 2020

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