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It has been a very good year for the Nasdaq 100 (.IXIC). The index, which consists of the Nasdaq Stock Market's 100 largest non-financial companies by market capitalization, has gained 33.7% in 2013. That beats Standard & Poor's 500-stock index (.SPX), up 29.6%, and the Dow Jones industrial average (.DJI), up 26.2%.
Unlike the Dow and S&P 500, the Nasdaq 100 didn't surpass its record high during 2013, but the index is still home to highfliers. The main difference now compared with 2000, when the Nasdaq 100 peaked during the dot-com boom, is that not all of the fastest growers are pure tech plays.
Case in point: The index's best performer in 2013 was Tesla Motors (TSLA), which soared an eye-popping 336.9%. At $148, it trades at nearly 100 times 2014 estimated earnings, compared with 19 for the Nasdaq 100. (All prices and returns are as of December 18.)
There's a lot to like about the Palo Alto, Cal., company. Tesla is the only automaker that produces electric cars exclusively. Founded in 2003, it struggled much of the past decade with product delays and management change. Then, in 2012, the company introduced the Model S. The car was a slam dunk, winning numerous industry awards and rave reviews from Kiplinger's car writer, Jessica Anderson. Tesla's stock skyrocketed from $28 at the start of 2012 to an all-time high of $193 by the fall of 2013.
The company, which has a market capitalization of $18.1 billion, is still up against challenges. In the fall, two Model S cars in the U.S. caught fire when their undercarriage struck highway debris. The National Highway Traffic Safety Administration has opened a formal investigation. Because the shares are "priced for a perfect future," as we wrote recently when we named Tesla one of five stocks to consider selling, such setbacks hit shareholders hard. Between the beginning of October and the end of November, as news of the fires and resulting federal probe spread, Tesla's stock lost one-third of its value.
But if those fire worries are put to rest — as many analysts believe they will be — demand for Tesla vehicles could grow. The company is due to roll out the Model X crossover in 2014. As a result, analysts expect Tesla's earnings to increase by more than 150% in 2014. "We continue to believe that Tesla shares will approach $300 in several years," wrote analysts in a Deutsche Bank report.
The second-best stock of the Nasdaq 100 in 2013 may feel closer to home — literally. Netflix (NFLX), the video-streaming and DVD-by-mail service, is on the rebound, up 306.4% for the year.
Back in 2011, Netflix's stock was approaching $300 when the company, based in Los Gatos, Cal., announced a plan to raise subscription prices and split its business in two. Angry at the changes, some 800,000 customers dropped their service. Netflix abandoned the plan, but the damage was done: The stock dropped to $64 within the year.
Since then, Netflix shares have been on an up-and-down ride. But over the past year, the company surprised analysts and increased its subscriber base from fewer than 30 million worldwide to more than 40 million. As a result, the stock was not only 2013's second-best performer of the Nasdaq 100 index but also the top-performing component of the S&P 500 index. Netflix's market cap is now up to $22 billion.
Uncertainty remains about whether Netflix can continue to attract new customers and fend off competitors. But Tony Wible, an analyst at Janney Montgomery Scott, believes so. He says Netflix's large media library and focus on creating original content, including hit series such as "Orange Is the New Black" and "House of Cards," is a big advantage. "The barriers to entry to compete with Netflix just continue to grow," says Wible, who believes the stock could exceed $400 in the next year, up from about $375 today. Overall, analysts expect Netflix's earnings to more than double in 2014, giving the stock a forward P/E of 93.
Other top performers in the Nasdaq 100 trade at a fraction of that amount, including Micron Technology (MU), a semiconductor maker, which climbed 244.0% in 2013. It's valued at 10 times estimated earnings for the fiscal year that ends in August. Facebook (FB), up 108.8% for the year, has a P/E of 49 for the same period. But both companies are expected to grow more slowly than a company like Tesla or Netflix. "If you want to buy growth, there are going to be aspects of the stock that will make you uncomfortable, like the valuation and volatility," says Kevin Landis, chief investment officer of Firsthand Capital Management.
As for the worst Nasdaq 100 stock of 2013, the dubious distinction goes to Nuance Communications (NUAN). Shares of the maker of speech-recognition software lost 33.6% for the year. Nuance is one of five stocks being replaced in the index, effective December 23.
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