U.S. Markets closed

Industry Strength Broadens At Year-End

2014: A Look Back And Ahead A buoyant market in 2013 surprised even the most steadfast bulls.

From an industry perspective, the year's advance was broad — 186 out of 197 industry groups moved higher. Some 51 groups climbed more than 50%.

The top four industries posted triple-digit gains for the year: Auto makers (up 173%), solar energy (168%), consumer electronics retailers (140%) and Media-Radio/TV (126%).

Among the other key leaders for the year, the Machinery-Material Handling/Automation group sprang up 98%, largely on the strength of 3D printer makers including 3D Systems (DDD) and Stratasys (SSYS).

Leisure-Movies and Related vaulted 92%, lifted not only by Netflix's (NFLX) 298% gain across the year, but also by DreamWorks Animation (DWA) and Discovery Communications (DISCA), which soared more than 100% each.

Upstart Industries

As the new year begins, industries accelerating near the end of the year are often more telling than those that saw the largest gains across the full year.

In the last four weeks of 2013, eight industries posted double-digit gains. Two of those, Media-Newspapers and Finance-Bank Check, climbed 23% and 14% respectively, but offer no potential leading stocks. The Commercial Services Staffing group ended the year ahead 75%, with a 10% gain in late December. It served up a pair of stocks on the borderline of leadership status, ManpowerGroup (MAN) and Korn Ferry International (KFY).

Computer - Data Storage

Stocks in the data storage industry collectively advanced only 22% for 2013, but surged 15% in the last four weeks of the year. The group still ranked a weak No. 143, but was edging higher in IBD's industry rankings.

A critical factor in its climb was Nimble Storage (NMBL), a Dec. 13 IPO that vaulted 116%. The maker of in-demand hybrid flash chip/disk drive storage systems has yet to report a profitable quarter. But analysts expect EPS of 16 cents and a 74% advance in revenue in fiscal 2015 vs. forecasts of a 58-cent loss for the 2014 fiscal year ending Jan. 31.

Computer hard drive makers Western Digital (WDC) and Seagate Technology (STX) were the group's Clydesdales. Seagate added 9% in the final four weeks of December, bringing its gain for the year to 85%. Western Digital's final four-week gain was 6%, putting it ahead 97% for 2013.

Citi upgraded both Seagate and Western to buy from neutral on Dec. 13. Analyst Joe Woo noted flagging PC industry sales had begun to improve in the U.S. and appeared to have stabilized in emerging markets. He estimated the companies' exposure to PC sales at 50% of revenue, and wrote the pair would "be one of the major beneficiaries of an improving PC market in 2014.

Alternative Energy

Alternative energy, a catchment for companies reaching from ethanol refiners to fuel cell developers to wind, water and geothermal power producers, gained 64% in 2013. Fourteen percent of that climb came in the last four weeks.

The group's most attractive stocks tend also to be borderline in terms of leadership status: either thinly traded or with struggling fundamentals. But the companies also tend to be relatively young, giving them the cachet of IPO strength.

ClearSign Combustion (CLIR), maker of emissions-scrubbing technologies used in power plants, rocketed 78% in 2013's final weeks. That hoisted the April 2012 new issue to a fresh high above an 11.31 buy point in a seven-month base. Pattern Energy Group (PEGI), which went public in September, rose 12% in the closing weeks of the year, ending 38% above its IPO price. The wind energy utility cleared a brief IPO base early in November.

The group's top-ranked stock, NRG Yield (NYLD), is a portfolio of renewable and conventional power generation operations. It edged up 5% late in the year after clearing a flat base early in December. It ended Tuesday 82% above its July initial offering price.

A Late Sprint By 2013 Leaders

The year's top-gaining group, automakers, dropped 16% in the fourth quarter, but turned to climb 4% in the year's last four weeks. Much of that action was dictated by luxury battery-powered car maker Tesla (TSLA), which rose a blistering 474% for the year through September. It then dropped 40% from the start of the fourth quarter to Nov. 26, turning to gain 9% in the last four weeks. Volkswagen (VLKAY) and Daimler (DDAIF) both rose 7% in the same period, with Volkswagen ending the year at a new high. The group had fallen to a No. 102 ranking.

The Energy-Solar group plowed forward 35% in Q4, the quarter's second-best gain among industries, then dropped a fraction in the final four weeks. Most of the group's top stocks ended the year in consolidations, with many working to build cup-shaped patterns.

Arizona-based First Solar (FSLR) continued to trend lower in light trade, ending the year 17% below its Nov. 14 high.

Needham analyst Edwin Mok forecasts China's solar module suppliers will see continued growth in China and Japan, but also face rising costs as prices weaken. Prospects are good for U.S. solar markets, he noted in a Jan. 3 forecast. But based on the year's run-up in share prices, he counsels investors to focus on companies with strong development pipelines.

Energy Conundrum

Booming production at U.S. shale oil and natural gas fields was a leading news story throughout 2013. But oil and natural gas-related industry groups largely underperformed the market.

Of the 10 oil and gas groups tracked by IBD, only one — oilfield services — was able to narrowly outperform the Nasdaq. The group's heavyweights, Halliburton (HAL) and Schlumberger (SLB), start the year in consolidations and with analysts calling for stronger sales and earnings in 2014.

Oil and gas prices will be key to those results. We began 2013 with a number of analysts forecasting a collapse to $80 oil, and such a reality might not be far off.

A partnership between Enterprise Products Partners (EPD) and Enbridge (ENB) reversed the Seaway Pipeline to move oil 500 miles from Cushing, Okla., to Freeport, Tex., just south of Houston.

The line ramped up to its 400,000 barrels-per-day capacity in 2013, easing a long-standing glut in Cushing and pouring new product into Gulf Coast facilities. The Enbridge/Enterprise partnership expects to complete construction of a twinned line in the first half of this year, raising Seaway's capacity to 850,000 bpd.

In December, TransCanada (TRP) began filling its Gulf Coast pipeline, a conduit from Cushing to Port Arthur, Tex. Regulatory filings marked Jan. 3 as the line's official launch date. The company puts the 36-inch-diameter line's initial capacity at 700,000 bpd, with potential for 850,000 bpd.

An outlook for a rising glut along the Gulf Coast, and for ongoing downward pressure on oil prices, sent oil refining stocks into 2014 on a wave of momentum. The refiners group gained 17% in the fourth quarter vs. single-digit gains for all other oil and gas groups. Phillips 66 (PSX), Marathon Petroleum (MPC) and Valero (VLO) posted some of the industry's top gains.

Losing Momentum

The few industries that lost ground near the end of the year saw mild losses, with no declines beyond mid-single digits. Retail-based industries represented four, and medical industries five, of the 10-worst losses among industry groups in the final four weeks of the year.

The specialty retail and discount and variety groups each fell hardest, down 5%. The only real meltdown in the two groups came from Ulta Beauty (ULTA), which collapsed 22% between Dec. 3 and Dec. 10.

On the medical side, managed care providers, diversified medical, outpatient/home care providers and drug wholesalers all slipped 1% in December's final four weeks. But the leading stocks in those groups showed generally constructive chart action, with HealthSouth (HLS) being the only leading stock to visibly weaken toward the end of the year.

Industry Snapshots/Themes

IBD's Industry Snapshot articles run on Mondays and provide detailed reporting on industries ranked in the top 50 among 197 groups. IBD's daily Industry Themes articles provide a running commentary on industry group action.