Investing in North Carolina stocks is not for the timid, as shown by this year’s annual list of the 75 largest public companies based in the state. While the Standard & Poor’s 500 notched a modest 5% gain during the year ended June 30, 32 Tar Heel companies gained or lost at least 20%. Big winners include small-capitalization drug stocks such as Cempra and Chimerix, which gained 220% and 111% respectively, while large-caps Lowe’s, Red Hat and Hanesbrands each jumped more than 35%. Several stocks disappointed, including SPX, Cree and EnPro Industries, each declining by more than 20%.
The average share price of the Top 75 at mid-year was about 22 times earnings, a red flag for most value-oriented investors, suggesting the market is near a peak, says Don Olmstead, managing director at Charlotte-based Novare Capital Management LLC, which compiled this year’s list. That’s higher than the ratio of 17.5 for the S&P because the North Carolina list includes more small, faster-growth companies. The average market cap of North Carolina-based companies is around $8 billion, while the S&P average is $32 billion.
But an elevated PE ratio isn’t a signal to dump shares, because interest rates are at record lows and the economy is improving, Olmstead notes. “A PE of 22 isn’t outrageous,” he says. “Most economists expect growth to pick up in the second half because sales of cars and homes are increasing, more people are working and consumer confidence seems robust.”
Stronger consumer spending boosted results for retailers such as Lowe’s and apparel companies VF and Hanesbrands. Lowe’s is now North Carolina’s second-most valuable company, overtaking Duke Energy, which lost a half percent. More home sales benefited LendingTree, which pairs buyers with lenders. Its shares have increased more than tenfold since 2010, including 170% last year.
The best North Carolina stock to own last year was one of the least known: Chapel Hill-based Cempra tripled because investors are bullish about its experimental treatment for bacterial pneumonia, the most common bacterial infection. Shares jumped another 30% during the first three weeks of July and have increased more than sixfold since its initial public offering in February 2012.
Four companies on the list had IPOs compared with seven in 2014 and six the previous year. Bojangles’ raised $147 million in its May debut, landing at No. 46. Biscuits haven’t proved popular with investors, with shares trading lower than the first-day closing price.
The list includes few energy companies, which have dragged down results on the S&P 500 because of slumping oil prices, says James Harlow, a Novare vice president who helped compile the list. The top 75 also has few companies dependent on international sales. The strong dollar has made American goods less competitive overseas.
Sealed Air, the largest corporate relocation in Charlotte history, starts at No. 12 after moving from New Jersey. The packaging company posted a 52% gain last year as margins improved after cost cutting.