Businessweek 20

An Up-Close Look at the Best Performers

This year’s Bloomberg Businessweek presents the top-performing U.S. stocks of the past five years, one of the most turbulent periods in our country’s economic history. Some of the companies on our list have thrived by creating new markets around unique products: Apple (No. 4) with the iPhone and now the iPad, medical innovators like Intuitive Surgical (No. 2) and Celgene (No. 13). Others powered through the recession by offering exceptional value propositions: Red Hat (No. 22) with its open-source business software, McDonald’s (No. 31) with its Value Meals, and of course Priceline—tops on our list--with its online marketplace for bargain-hunting travelers.

In a period of tremendous economic turbulence, the stocks on our list returned an aggregate 222.3 percent to shareholders, including reinvested dividends. Those who invested $10,000 in this portfolio five years ago and kept it there would have $32,250 in their pockets today. The S&P 500 index, over the same period from Mar. 31, 2005, to Mar. 31, 2010, returned 10 percent.

No. 1 Priceline.com
E-Commerce
Value of investment: $101,190.48*

5-year return: 911.9%
2009 revenues: $2.3 billion
2009 net income: $489.5 million

The big surprise on our list is at the top. No. 1: Priceline.com. This online discount travel agency nearly died in the dot-com bust and again in the aftermath of the terrorist attacks of September 11, 2001. Thanks to the management smarts of CEO Jeffery R. Boyd, who took over the top job in 2002, the company reinvented itself and went on to score a total return of 911.9 percent for shareholders over the past five years.

No. 2 Intuitive Surgical
Health-Care Products
Value of investment: $76,562.57*

5-year return: 665.6%
2009 revenues: $1.1 billion
2009 net income: $232.6 million

The first mover in the computer-assisted surgery market, Intuitive sells $1 million-plus systems that let surgeons remove tumors by looking at a monitor while guiding tiny scalpels and needles attached to robotic arms. That might seem to epitomize the runaway costs associated with U.S. health care (and a recent botched surgery in New Hampshire brought unwelcome headlines), yet CEO Gary Guthart, 44, argues that his systems allow surgeons to work more efficiently, producing better outcomes and less trauma. “In the end it saves money,” he says.

No. 3 Southwestern Energy
Oil & Gas
Value of investment: $57,392.53*

5-year return: 473.9%
2009 revenues: $2.1 billion
2009 net income: (-$35.7 million)

This domestic natural gas exploration and production company scored big five years ago when it discovered a rich field in Arkansas that today generates 2 percent of the yearly gas production in the U.S. Southwestern recorded a net loss in 2009 due to a writeoff that reflected last year’s natural gas price plunge. Although the company posted a profit in the first quarter, CEO Steve Mueller recently reduced his 2010 earnings forecast because of weather-related operational delays and continued soft pricing. Long-term, Mueller is upbeat: “As we move away from a hydrocarbon economy, gas is by far the cleanest way to bridge that gap.”

No. 4 Apple
Electronics
Value of investment: $56,378.69*

5-year return: 463.8%
2009 revenues: $42.9 billion
2009 net income: $8.2 billion

In late May, Apple’s market cap hit $222.1 billion—surpassing Microsoft’s and valuing The House That Steve Built at No. 2 in the U.S. after Exxon Mobil. Sales of iPhones account for nearly half the stock’s value, says Boston analytics company Trefis.

No. 5 salesforce.com
Software
Value of investment: $49,666.44*

5-year return: 396.7%
2010 revenues*: $1.3 billion
2010 net income*: $80.7 million

CEO Marc Benioff pioneered the market for Web-based enterprise software when he founded salesforce.com in 1999. Its customer relationship management (CRM) software helps companies share data regarding sales, service, and marketing operations. Benioff says the next computing trend will involve the integration of enterprise software with social networks. His first salvo: Chatter, a set of Facebook-like tools due to be released June 22, will allow users to collaborate and share data in real time. Salesforce recently acquired Jigsaw, an online business service whose users can access each others’ business contacts. “By combining CRM with business contact data, we can create an incredibly sticky experience,” Benioff says.
*Fiscal 2010 ending Jan. 31.

No. 6 Express Scripts
Pharmaceuticals
Value of investment: $46,684.25*

5-year return: 366.8%
2009 revenues: $24.7 billion
2009 net income: $827.6 million

Pharmacy benefits manager Express Scripts handles prescription drug coverage for health insurers and employers, including the U.S. Defense Dept. To reduce costs and increase profits for clients, CEO George Paz has been applying the principles of behavioral economics to encourage smarter consumer practices such as mail order prescriptions.

No. 7 Flowserve
Diversified Machinery
Value of investment: $44,217.07*

5-year return: 342.2%
2009 revenues: $4.4 billion
2009 net income: $427.9 million

Flowserve has thrived by selling and servicing valves, pumps, seals and other machinery for energy producers. Now CEO Mark A. Blinn’s Irving (Tex.)based company stands to benefit from the Obama Administration’s proposed subsidy increases for nuclear energy production.

No. 8 FMC Technologies
Oil & Gas Services
Value of investment: $41,037.65*

5-year return: 310.4%
2009 revenues: $4.4 billion
2009 net income: $361.8 million

With strong demand for its subsea drilling and production technology, FMC Technologies has capitalized on the offshore boom. Now it may have to contend with a post-BP offshore bust. Although demand is expected to slow in the short term because of the federal moratorium on offshore drilling, CEO Peter D. Kinnear recently raised his earnings estimate for 2010, citing strong overseas demand and higher margins in the subsea business.

No. 9 Cliffs Natural Resources
Iron & Steel
Value of investment: $40,689.19*

5-year return: 306.9%
2009 revenues: $2.3 billion
2009 net income: $205.1 million

Chinese demand has fueled growth at North America’s No. 1 iron ore producer. With iron and steel prices rebounding after a weak 2009, CEO Joseph A. Carrabba expects more than $1.5 billion in cash from operations in 2010.

No. 10 Amazon.com
Internet
Value of investment: $39,606.07*

5-year return: 296.1%
2009 revenues: $24.5 billion
2009 net income: $902 million

Amazon’s sales surged 28 percent last year. Despite the challenge from Apple’s iPad, CEO Jeff Bezos seems confident future growth will be driven by sales of electronics (including the Kindle e-reader) and general merchandise, which now account for nearly half of total revenues and are expanding three times faster than sales of books and other media.

No. 11 Titanium Metals
Mining
Value of investment: $37,859.76*

5-year return: 278.6%
2009 revenues: $774 million
2009 net income: $34.5 million

This Dallas-based titanium supplier had a weak 2009 coming off several years of sales growth fueled by aerospace demand. CEO Bobby D. O’Brien is optimistic about 2010, thanks to more stable commercial aerospace inventory levels and a strengthening global economy.

No. 12 Cummins
Diversified Machinery
Value of investment: $37,834.42*

5-year return: 278.3%
2009 revenues: $10.8 billion
2009 net income: $428 million

The diesel engine maker is reaping the benefits of CEO Tim Solso’s expansion into emerging markets, including China, India, and Brazil. The company reported sales of $2.48 billion in the first quarter of 2010, up 2 percent from 2009. North American revenues fell 27 percent, but that dip was offset by brisk sales overseas.

No. 13 Celgene
Biotechnology
Value of investment: $36,393.54*

5-year return: 263.9%
2009 revenues: $2.7 billion
2009 net income: $776.7 million

Thalidomide was understandably vilified in the 1960s because it induced birth defects. Celgene CEO Sol J. Barer, 63, has built his company (which began as the biotech group within chemical maker Celanese before it was spun off in 1986) around new, benign applications for the drug. Celgene’s Thalomid is used to treat a complication of leprosy as well as myeloma, a blood cancer. The company, which makes drugs to combat other cancers, expects 25 percent sales growth this year.

No. 14 DeVry
For-Profit Education
Value of investment: $34,815.60*

5-year return: 248.2%
2009 revenues: $1.5 billion
2009 net income: $165.6 million

A for-profit university with 90 locations in the U.S. and Canada, DeVry offers associate, bachelor’s, master’s, and online degrees in fields from computer science to nursing. Students, many of whom complete four-year programs in three years, pay fees comparable to those at leading state universities, says CEO Daniel Hamburger. Tuition and fees for a BA in business cost $21,230 a year over three years.

No. 15 Precision Castparts
Metal Components
Value of investment: $33,165.03*

5-year return: 231.7%
2010 revenues: $5.5 billion*
2010 net income: $921.8 million*

A maker of fasteners, castings, and other components for jet engines, gas turbines, and industrial metalworking, Precision Castparts saw sales drop 19 percent in the fiscal year ending Mar. 31, 2010, because of a slump in aerospace demand. Revenues are projected to rise 10 percent in fiscal 2011 as Boeing rolls out its Dreamliner and airlines resume modernizing their fleets.
*Fiscal 2010 ending Mar. 31.

No. 16 Google
Internet
Value of investment: $31,411.56*

5-year return: 214.1%
2009 revenues: $23.7 billion
2009 net income: $6.5 billion

The search giant recently acquired AdMob, an ad sales platform for mobile devices, for $750 million. As Google’s Android smartphone takes on Apple’s iPhone, CEO Eric Schmidt aims to extend his advertising dominion from online to mobile.

No. 17 Range Resources
Gas Exploration & Production
Value of investment: $30,599.99*

5-year return: 206%
2009 revenues: $840.4 million
2009 net income: (–$53.9 million)

Range has outperformed all other U.S. gas companies, with a stock price up 2,500 percent in the past decade, because of finds such as the giant Marcellus Shale in Pennsylvania. Gas prices are now low, and Range took a net loss in 2009 after a noncash asset writedown due partly to the closure of a plant, but CEO John Pinkerton is bullish thanks to his company’s rich reserves.

No. 18 Western Digital
Computers
Value of investment: $30,580.39*

5-year return: 205.8%
2009 revenues: $7.5 billion
2009 net income: $470.0 million

More businesses are using the launch of Microsoft’s Windows 7 operating system as an excuse to replace old PCs—and the world’s No. 2 hard drive manufacturer (after Seagate) is cashing in. CEO John Coyne announced second- quarter gross margins of 25.2%.

No. 19 Big Lots
Retail
Value of investment: $30,299.50*

5-year return: 203%
2010 revenues*: $4.7 billion
2010 net income*: $200.4 million

Big Lots caters to bargain-hunting Americans. The company, led by retail veteran Steven S. Fishman, uses its purchasing muscle to buy excess inventory from makers of toys, housewares, and other goods, passing the savings on to customers at 1,400 stores. In the first quarter of 2010, Big Lots’ same-store sales rose 6 percent over the first quarter of 2009.
*Fiscal 2010 ending Jan. 31.

No. 20 Cameron International
Oil & Gas Services
Value of investment: $29,966.79*

5-year return: 199.7%
2009 revenues: $5.2 billion
2009 net income: $475.5 million

Cameron International, which built the failed Blowout Preventer on the Deepwater Horizon rig, faces lawsuits and a swooning stock price. But only 5% of CEO Jack Moore’s oil-field equipment revenues come from the Gulf of Mexico, and global demand for Cameron’s deepwater drilling services is expected to remain strong. “We anticipate that any lull in [oil industry] capital spending will be short-lived,” Standard & Poor’s analyst Stewart Glickman wrote in a recent note on Cameron.

*For all slides as of 3/31/10
- http://www.businessweek.com/investor/content/jun2010/pi20100616_807732.htm