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, +0.10% 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, +0.10% and the S&P Small Cap 600 Index SML, +0.32% 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, +0.06% for $65 a share, Occidental Petroleum OXY, +0.29% 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, +0.15% | Auto Parts: OEM | 56% |
| LKQ Corp. | LKQ, +0.88% | Automotive Aftermarket | 51% |
| Allergan plc | AGN, -0.09% | Pharmaceuticals: Generic | 45% |
| Conagra Brands Inc. | CAG, +0.45% | Food: Major Diversified | 39% |
| Electronic Arts Inc. | EA, +0.29% | Recreational Products | 34% |
| SVB Financial Group | SIVB, +0.22% | Regional Banks | 32% |
| Norwegian Cruise Line Holdings Ltd. | NCLH, +0.04% | Hotels/Resorts/Cruiselines | 30% |
| Alexion Pharmaceuticals Inc. | ALXN, -1.53% | Biotechnology | 14% |
| PVH Corp. | PVH, +0.02% | Apparel/Footwear | 13% |
| Pioneer Natural Resources Co. | PXD, +0.93% | Oil & Gas Production | 10% |
| Marathon Petroleum Corp. | MPC, +1.09% | Oil Refining/Marketing | 7% |
| TechnipFMC Plc | FTI, +0.13% | Oilfield Services/Equipment | 4% |
| Diamondback Energy Inc. | FANG, +0.68% | Oil & Gas Production | -5% |
| Halliburton Co. | HAL, +1.38% | Oilfield Services/Equipment | -5% |
| American Airlines Group Inc. | AAL, +1.65% | Airlines | -12% |
| Albemarle Corp. | ALB, +2.13% | Chemicals: Specialty | -12% |
| Concho Resources Inc. | CXO, +0.75% | Oil & Gas Production | -21% |
| Mylan NV | MYL, -1.87% | 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, +0.01% | Other Consumer Services | 82% |
| Lumentum Holdings Inc. | LITE, +0.60% | Telecommunications Equipment | 80% |
| MKS Instruments Inc. | MKSI, +0.07% | Electronic Production Equipment | 72% |
| MasTec Inc. | MTZ, +1.25% | Engineering & Construction | 52% |
| Knight-Swift Transportation Holdings Inc. Class A | KNX, -0.19% | Trucking | 48% |
| Boyd Gaming Corp. | BYD, +0.34% | Casinos/Gaming | 44% |
| Thor Industries Inc. | THO, -0.75% | Recreational Products | 36% |
| Brunswick Corp. | BC, -0.64% | Recreational Products | 32% |
| HealthEquity Inc. | HQY, +1.42% | Investment Managers | 22% |
| East West Bancorp Inc. | EWBC, +0.99% | Regional Banks | 14% |
| Cabot Corp. | CBT, -1.12% | Industrial Specialties | 13% |
| SLM Corp | SLM, +0.84% | Finance/Rental/Leasing | 9% |
| Apergy Corp. | APY, +0.79% | Oilfield Services/Equipment | 8% |
| WPX Energy Inc. | WPX, +5.04% | Oil & Gas Production | 5% |
| Patterson-UTI Energy Inc. | PTEN, +1.23% | Contract Drilling | 0% |
| Allegheny Technologies Inc. | ATI, -0.61% | Steel | -2% |
| Ligand Pharmaceuticals Inc. | LGND, +0.38% | Biotechnology | -22% |
| Granite Construction Inc. | GVA, -0.46% | Engineering & Construction | -29% |
| Callon Petroleum Co. | CPE, +4.66% | Oil & Gas Production | -32% |
| Inogen Inc. | INGN, -1.65% | 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, -0.11% | Pharmaceuticals: Other | 340.7% |
| Ultra Clean Holdings Inc. | UCTT, -1.11% | Electronic Production Equipment | 171.5% |
| Koppers Holdings Inc. | KOP, +2.09% | Chemicals: Specialty | 116.3% |
| Patrick Industries Inc. | PATK, -0.61% | Building Products | 72.5% |
| Helix Energy Solutions Group Inc. | HLX, +1.09% | Oilfield Services/Equipment | 69.3% |
| Cytokinetics Inc. | CYTK, -2.84% | Biotechnology | 61.4% |
| TTM Technologies Inc. | TTMI, +0.75% | Electronic Components | 51.7% |
| Nabors Industries Ltd. | NBR, +1.72% | Contract Drilling | 33.0% |
| Archrock Inc. | AROC, +0.48% | Oilfield Services/Equipment | 32.7% |
| Progenics Pharmaceuticals Inc. | PGNX, -0.29% | Biotechnology | 21.2% |
| Green Plains Inc. | GPRE, +5.36% | Chemicals: Specialty | 20.1% |
| Enova International Inc. | ENVA, -0.56% | Finance/Rental/Leasing | 19.4% |
| SMART Global Holdings Inc. | SGH, -1.01% | 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, +2.41% | Oilfield Services/Equipment | -15.7% |
| Stamps.com Inc. | STMP, -4.03% | Internet Software/Services | -48.2% |
| Ring Energy Inc. | REI, +10.78% | Oil & Gas Production | -54.3% |
| Rayonier Advanced Materials Inc. | RYAM, +4.90% | 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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