2013 and 1997: 2 Winning Years and Their Strange Coincidences
The S&P 500 has had a huge year in 2013, hitting dozens of new record highs and giving investors a total return of more than 30%. That ranks as the best annual performance since 1997, prompting comparisons between the bull market of the mid- to late 1990s and the current five-year run that stocks have enjoyed since the depths of the financial crisis.
But if you look more closely at 1997 and compare it to 2013, you'll find another interesting yet strange coincidence. Several of the stocks that were among the best performers in 1997 have also done quite well this year. Let's look at two of them -- Yahoo! and Best Buy -- as well as two other top-performing 1997 stocks that have some parallel winners in the current market.
Yahoo! has been a big winner in 2013, more than doubling since the beginning of the year, but those gains pale in comparison to the 511% return that the online search company produced in 1997. Back then, Yahoo! was in its hyper-growth mode, with rival Google not even having been registered as a domain until September of that year. In order to retain market share against its rivals, Yahoo! was involved in an arms race with web portals like Lycos and Excite, whose names have largely faded into history. As strong as 1997's gains were for Yahoo!, the company's stock would eventually climb almost 30-fold from its year-end 1997 levels before finally plunging into the tech bust three years later, losing just about all of those gains for a time.
In 2013, Yahoo! found itself in a completely different situation, having to play catch-up against Google and other companies in various aspects of Internet services. But new CEO Marissa Mayer, poached from Google, has helped turn the company around, spearheading efforts to change the company's overall strategy and make it more relevant as a provider of high-value, timely and attractive content. A full redesign of the portal has resulted in a big climb in the number of visitors to its website, and although it's too early to claim complete victory, Yahoo! has done a good job proving that it's far from down-and-out in the Internet business.
Similarly, Best Buy has come almost full circle between 1997 and now. Back then, the company was still heading up, taking advantage of the rise of DVD technology to provide both high-end video players and content that would eventually transform the marketplace. Its growth trajectory eventually placed it among the largest electronics retail stores in the nation.
By 2013, though, Best Buy looked as though it couldn't survive the onslaught of online retailers encroaching on its territory. But this year, Best Buy fought back, more than tripling as the company met its rivals head-on with price-matching policies that largely eliminated the advantages of its competitors. More importantly, its store-within-store formats for makers of popular mobile devices and computers have drawn interest from major manufacturers, letting Best Buy take advantage of its retail space to give it competitive advantages that online retailers can't match.
The other 1997 trend
1997 and 2013 have their parallels, but not everything matches up perfectly. For instance, in 1997, it was cable operators like Cablevision and Time Warner -- prior to its spinoff of its cable division into a separate company -- that helped lead the way, with gains of 213% and 172% respectively that year. At the time, cable was still coming into its own as an entertainment medium, and the true value of content hadn't yet been established.
Fast forward to today, and cable companies are just one part of the content equation. Video streaming has made a huge challenge to cable-based content delivery, and investors have been rewarded accordingly. Moreover, content providers have a lot more leverage over cable operators, and negotiations have been fiercely contested, often resulting in a game of chicken with dramatic consequences for the companies involved and their viewers.
As investors celebrate a strong 2013, it's useful to look back at how history tends to run in cycles. You can't count on complete repetition of past positive trends, but if you know what to look for, you can recognize similar patterns when they come up again.
Don't let history pass you by
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The article 2013 and 1997: 2 Winning Years and Their Strange Coincidences originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Yahoo! Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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