Investors Call the Big-Tech Companies that Led the National Market Rallies the “Magnificent Seven.”
As the year 2023 came to a close, investors in Minnesota were not only celebrating the success of the “Magnificent Seven” big-tech companies that dominated the national stock market, but also the outstanding performance of their own local stocks – the “Fantastic Four.” These four companies, each with a total return of over 70%, showcased a diverse mix of industries. Hawkins Inc., APi Group, Winmark Corp., and CVRx were the local heroes that outperformed expectations and delivered exceptional returns.
Hawkins Inc.
Hawkins Inc., a chemical company based in Roseville, led the pack with an impressive 85% return. Its focus on clean water solutions, particularly in the water-treatment segment, proved to be a winning strategy. Hawkins acquired three companies to expand its water-treatment unit, and it now provides chemicals to treat an estimated 5.2 trillion gallons of water annually at various facilities across 25 states. Furthermore, the company’s strong cash flow in 2023 enabled it to pay down its long-term debt, further boosting investor confidence.
APi Group
Following closely behind was APi Group, a New Brighton-based life safety, security, and services provider, with a total return of 84%. APi Group experienced significant growth through strategic acquisitions, most notably the $3.1 billion deal for Chubb Fire & Security in January 2022, which nearly doubled the company’s size.
Winmark Corp.
Winmark Corp., a specialty retailer known for its resale concepts like Play it Again Sports and Plato’s Closet, achieved a remarkable return of 83%. The company positioned itself as a desirable investment option during times of high inflation, emphasizing the quality resale market.
CVRx
Rounding out the “Fantastic Four” was CVRx, a medical device company based in Brooklyn Park, with a total return of 71%. CVRx specializes in developing neuromodulation treatments for heart failure and experienced a turnaround in 2023. Despite trading down for most of the year, CVRx received critical new FDA approvals for its Barostim treatment in late December, which expanded its total addressable market by approximately 60%.
Market Trends for 2024
The broader market is expected to witness growth and diversification in the coming year. Craig Johnson, the chief market technician for Piper Sandler, predicts a shift away from the dominance of the “Magnificent Seven.” Johnson notes that since mid-October, small-cap and mid-cap stocks have outperformed the big-tech companies, indicating a broadening of market trends that is likely to continue in 2024. This broadening market participation bodes well for Minnesota’s industrial companies, as the state doesn’t have many large tech players.
Minnesota’s industrial sector had a stellar performance in 2023, with companies like Fastenal, nVent Electric, Pentair, Protolabs, and Tennant achieving total returns of over 40%. Johnson attributes their success to the reshoring trend in industrial manufacturing and increased infrastructure spending in the U.S. These factors are expected to drive long-term growth for industrial stocks and contribute to the state’s economic prosperity.
However, not all Minnesota companies fared as well in 2023. UnitedHealth Group, the state’s largest public company and typically one of its best performers, underperformed the broad S&P 500 index with a minimal total return of less than 1%. The health care sector as a whole also struggled, rising only 2.6%. Managed-care companies faced additional challenges due to increased medical loss ratios resulting from the resumption of normal healthcare activities post-pandemic.
Two other notable underperformers were Target Corp. and Best Buy Co. Inc., both large-cap retailers. Target experienced a share value loss of 1.4%, while Best Buy only added 2.5%. On the other end of the spectrum, Foxo Technologies, a Minneapolis-based life insurance company, saw a drastic decline of 92% in its stock value since going public in September 2022. Bright Health Group, which recently underwent a reverse stock split, also witnessed an 85% decrease in its stock price.
Despite the challenges faced by certain companies, the overall market outlook for Minnesota remains positive. The “Fantastic Four” and the strong performance of the state’s industrial sector create a promising foundation for future growth and investment opportunities. As the market continues to evolve and diversify, investors can look forward to a broader range of viable options in 2024.
Analyst comment
Positive news: The “Fantastic Four” companies in Minnesota outperformed expectations and delivered exceptional returns, showcasing a diverse mix of industries. The strong performance of the state’s industrial sector, driven by reshoring and increased infrastructure spending, bodes well for future growth. The broader market is expected to witness a shift away from the dominance of big-tech companies, indicating a broadening of market trends.
Short analyst statement: Minnesota’s industrial sector had a stellar performance in 2023, driven by reshoring and increased infrastructure spending. The market is expected to see a broadening of trends and a shift away from big-tech dominance in 2024, creating a promising foundation for future growth and investment opportunities in the state.
