The Nasdaq 100 Index posted a solid gain of about 6% in 2016, and even though that was less than what most other major market benchmarks returned last year, investors were still largely pleased. Moreover, many stocks posted truly outstanding returns, helping to pull the entire index higher. Below, we'll look at 2016's 10 top-performing stocks in the Nasdaq 100 Index to see what they say about the condition of the stock market right now.
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Data source: S&P Global Market Intelligence.
As you can see, the stocks above show how the Nasdaq 100 has a bias toward technology stocks. Indeed, the tech sector played an important role in the Nasdaq's gains during 2016, but other stocks also contributed to the index's growth.
Image source: Micron Technology.
Chip stocks look tasty
Half of the top performers in the Nasdaq 100 came from one particular subsector of the technology industry: semiconductors. In some cases, specific products that had particular promising applications provided the upward momentum for the stock price of the companies that made them. Yet more broadly, favorable industry conditions combined with natural rebounds from poorer performance in the past brought a large part of gains.
As an example, Micron Technology entered 2016 with a great deal of pessimism, as price wars on its key memory chip products had dragged down profits across the industry. Yet as the year progressed, pricing for its DRAM and NAND chips led to steady improvements in Micron's overall performance. By last month, Micron reported results that were much higher than investors had expected for its fiscal first quarter, and it projected that those favorable conditions would continue into 2017. Higher demand and limited supplies from competitors also played a role in Micron's resurgence, but even Micron itself understands that the chip business is cyclical and that it needs to make the most of favorable conditions as long as they last.
How non-tech stocks helped lift the Nasdaq 100
In addition to technology, other components of the Nasdaq 100 index contributed to its positive returns. Ulta Salon continued its impressive long-term run higher, as customers kept appreciating the value of its store concept. Ulta combines the cosmetics and beauty supplies that you can get at a number of retail outlets with the convenience of an in-store salon, giving customers the opportunity not just to buy products for in-home use but to get immediate feedback on what they look like when applied by professional experts. The company's success has spurred management to push up its plans to expand its store network, adding hundreds of additional stores across the nation to take full advantage of its market-beating performance. Despite the ever-present threat of online retail competition, Ulta sells the salon experience along with products, and that's something that e-commerce might never be able to match effectively.
Meanwhile, even industrial companies managed to add to the Nasdaq's gains last year. Railroad giant CSX had gone through hard times in past years, with its emphasis on coal shipments becoming less important over time because of the ongoing shift toward cheap natural gas for electricity generation. In response, the railroad has emphasized the important of efficiency. CSX has cut costs while seeking to improve on operational metrics like on-time originations and departures and train speeds. The rebound in the energy market has helped as well, and CSX believes that it should be able to adapt to changing market conditions while squeezing more profit from its business going forward.
Investors didn't get huge performance from the Nasdaq 100 in 2016, but these 10 stocks definitely pulled their weight in producing the index's gains. Looking forward, it's uncertain how much further the semiconductor cycle can carry chip stocks higher, but favorable business conditions for Ulta and CSX have the potential to last well into 2017 and beyond.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia, Paccar, and Ulta Salon, Cosmetics and Fragrance. The Motley Fool recommends CSX and T-Mobile US. The Motley Fool has a disclosure policy.