Saturday, January 25, 2014

Illinois companies delivered in 2013

You had to try hard to lose money in Illinois stocks in 2013.

Like the overall market, a wide array of Illinois-based company stocks provided sweet rewards to investors last year, as individuals and institutions bought shares in anticipation of a stronger U.S. economy, while also taking comfort in the security doled out by the Federal Reserve.

Stocks from all major sectors of the economy gained handsomely. The consumer discretionary category - which includes everything from carmakers to restaurants and travel sites - soared the most. The group of stocks gained 41 percent nationally, even though Americans remained careful about spending.

Financial, health care and industrial sectors each climbed more than 33 percent, while only telecommunications and utilities lagged. Yet they were still positive. Even the unpopular telecom sector gained 6.5 percent as the stock market as a whole - measured by the Standard & Poor's 500 index - enriched investors about 30 percent (33 percent if you include dividends). In other words, if you are holding a stock that didn't enrich you with at least a 30 percent gain, you have a laggard.

Among the surprising laggards in Illinois was one recent dream stock: Ulta Salon Cosmetics and Fragrance. The Bolingbrook-based company, which sells cosmetics in a fast-expanding chain of stores, soared to the top of the Illinois list the past few years. But it fell close to the bottom in 2013. That tumble is what can happen to highflying, expensive stocks when momentum cools. Investors do not respond kindly to companies that don't deliver profits or sales as much as analysts predicted, even if substantial growth remains.

Peoria-based Caterpillar suffered the same fate - going from one of the most beloved stocks a couple of years ago to one cast aside by investors, as China and other emerging markets cooled along with demand for construction equipment.

It was not a stellar year for companies that depend on emerging market consumers and businesses. Yet, Chicago-based Boeing soared to the top of the Dow Jones industrial average, in part, because there's been an appetite for its planes throughout the world, and also because analysts have praised the company for innovation and strong production plans. That's in spite of its stumbles on the 787 plane rollout.

Repeatedly, companies ranging from Oak Brook's McDonald's to Caterpillar talked in 2013 about a challenging global environment, with the U.S. in recovery but growing slowly, Europe in recession much of the year and China slowing in its role of global economic powerhouse.

Still, investors became excited as the U.S. housing market picked up and car and truck sales started to approach levels seen before the financial crisis. That carried auto-related stocks higher, enriching investors in Illinois stocks such as Lisle-based Navistar International and Lake Forest's Tenneco. Investors who weren't discouraged by Navistar's troubles the past few years gained 75 percent on the stock in 2013, and auto parts company Tenneco jumped 61 percent.

Investors also liked distressed companies that were showing signs of hope with new management and new strategies. Navistar was one of these; as was Chicago-based Groupon, the young company that slumped badly as individuals seemed to get tired of emailed coupon deals. A new chief executive, co-founder Eric Lefkofsky, and an acquisition that hinted at a new strategy gave the company a second chance with investors. The stock gained 142 percent in 2013.

A wide array of industrial companies became favorites as investors prepared for the next cycle of strength in the economy. Transportation was hot, especially airlines, which have been enjoying lower fuel costs, efficiencies and extra fees. Chicago-based United Continental Holdings' stock was up 62 percent, but it trailed others, such as Delta Air Lines' 131 percent gain and Southwest Airlines' 84 percent. Travel sites also have had an extraordinary year, including Chicago's Orbitz, with the stock up 164 percent. Outside Illinois, TripAdvisor's stock climbed 97 percent and Priceline was up 87 percent.

Investors' appetite for innovation and products that will be in demand as the industrial economy gains strength, helped drive Power Solutions International of Wood Dale to first place among the biggest Illinois stocks. The stock for the company, which makes alternative fuel power systems, gained 364 percent as investors sought companies with fast growth during a period in which growth was relatively slow.

Despite trepidations about what the Affordable Care Act might do to health care companies, the sector was second only to consumer products in 2013, with a gain of almost 39 percent. In Illinois, investors also enjoyed sizable returns in health care - from a 22 percent gain in Lake County health products giant Abbott Laboratories to 84 percent in Lake Forest-based Akorn, a pharmaceutical company growing through acquisitions.

In retail, Hoffman Estates-based sears parts Holdings continued to struggle in 2013. Elsewhere in the sector, Morningstar analyst R.J. Hottovy noted, e-commerce sites such as represent more than 6 percent of retail sales and should be 10 percent by 2017.

The retail shake-up is also making investors nervous about the future of malls and shopping centers. Among some of the bottom performers in Illinois' stock list are Chicago's General Growth Properties and Oak Brook's Retail Properties of America. But it hasn't just been retail real estate that's been snubbed. Real estate investment trusts have been unpopular lately because investors are anticipating higher yields on bonds. That would make the high dividends paid by REITs less attractive. Other Chicago REITs low on the list are Equity LifeStyle Properties, Ventas and Equity Residential.

As bond yields have been rising, investors have lost interest in utilities. Besides operational issues for electric power companies, being in the unpopular utility sector has contributed to investor attitudes toward companies such as Chicago's Exelon and Integrys Energy. Twitter @gailmarksjarvis

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