Institutional Investor's Home-Run Hitters didn't get to swing at too many fat pitches last year. Stocks were pretty unforgiving as investors fretted about soaring oil prices, creeping interest rates and a slowing economy. The Dow Jones industrial average declined by 0.6 percent (not counting dividends) in 2005, the index's first down year since 2002. The Standard & Poor's 500 index managed a meager 3.0 percent rise, and the Nasdaq composite index hardly budged, rising just 1.4 percent.
Even in that lackluster environment, however, there were some inevitable bright spots. Not surprisingly, energy was one. Fully half of the top gainers among large- and small-capitalization stocks tracked for us by FactSet Research Systems were oil companies: Valero Energy Corp., EOG Resources and Burlington Resources among large caps, and Arena Resources and Parallel Petroleum Corp. among small caps.Naturally, energy analysts dominate our Home-Run Hitters for 2005. In research, as in baseball, it's good to be in the right place at the right time.
Among the ten stocks that were the biggest winners last year, small caps trounced large caps: an average return of 245.63 percent versus 115.32 percent. The top gainer overall, however, was not an energy company -- at least, not in any conventional sense. Small-cap beverage maker Hansen Natural Corp. makes a hugely popular "energy" libation called Monster Energy, and had a compound annual return of 332.90 percent. Singular Research's Harris Hall gets the Golden Can for finding the stock.
In a dull year for stocks, Sandler O'Neill & Partners analyst Richard Repetto had the counterintuition to recommend a stock exchange: the Nasdaq Stock Market, which rose 244.90 percent. Other winning small-cap pickers: Neal Dingmann of Pritchard Capital Partners, whose Arena Resources selection shot up 224.71 percent; Frank Bracken of Jefferies & Co., whose Parallel Petroleum pick returned 215.58 percent; and Meredith Adler of Lehman Brothers, whose Great Atlantic & Pacific Tea Co. recommendation posted a 210.05 percent gain.
On the large-cap side, Valero had the greatest appreciation in 2005 -- 128.46 percent. Morgan Stanley's Douglas Terreson called that one. For a second year in a row, Apple Computer was a home run, rising 123.26 percent; UBS analyst Benjamin Reitzes foresaw the iPod revolution. (Last year's Home-Run Hitter on Apple, Charles Wolf at Needham & Co., lifted his buy rating in early 2005.) John Kreger of Wm. Blair & Co. put a buy on mail-order-pharmaceuticals company Express Scripts; it gained a hefty 119.26 percent. EOG Resources, picked by Howard Weil analyst Leonard (Larry) Benedetto, rose 106.26 percent. Sanders Morris Harris veteran Irene Haas saw one of her picks, Burlington Resources, post a 99.35 percent return.
To choose this year's Home-Run Hitters, we asked Norwalk, Connecticutbased FactSet to identify the five best-performing large cap (above $5 billion) U.S. stocks and the five best-performing U.S. small caps ($75 million to $1 billion). The firm based its rankings on total return with dividends reinvested. Any stock that made its initial public offering in 2005 and whose shares opened below $5 was excluded. To determine which analysts had covered the winning companies and when they recommended them, II relied on data from publicly available sources, such as Investars.com, a New Yorkbased research performance measurement company; corporate Web sites and investor relations officers; and other sources. The analysts we designate Home-Run Hitters were the fundamental researchers whose recommendations were in force in 2005 and produced the highest total returns.