The S&P 500 concluded a winning first quarter of 2023 on Friday, overcoming a shock to the U.S. banking system in March to rise around 7%. The tech-heavy Nasdaq Composite proved to be the real standout, soaring nearly 17%. The 30-stock Dow Jones Industrial Average, meanwhile, eked out a roughly 0.4% gain.

Stocks’ rip-roaring January eased in February, with all three major Wall Street indexes finishing lower in that month. Then came the failure of three U.S. banks within days of each other starting March 8, which spooked investors and further stoked recession fears. The S&P 500 briefly went negative for the year on March 15, a rough session defined by banking concerns spreading to Europe. But as the bank crisis stabilized over the past two weeks, the averages more than bounced back.

Here’s a look at the best and worst performers in the Club’s 25-stock portfolio for the first quarter, beginning with the top four gainers.

Tech stocks lead the way

Advanced Micro Devices (AMD) had the best performance in the first quarter, with shares advancing just over 51.3%.

• On Jan. 31, AMD CEO Lisa Su called the bottom in the chipmaker’s beleaguered PC business, saying the first quarter should be the trough with growth returning in the second quarter and into the rest of the year. That important statement gave investors confidence the chip inventory glut that crushed the company — and industry peers alike — last year was nearing an end.

• All signs also continue to point to AMD taking share from chief rival Intel (INTC) in the data center processor market. Su said AMD expects more share growth to occur in the third and fourth quarters, along with an overall improvement in the data center market.

• AMD also is seen as another winner in AI adoption, which has helped lift sentiment around the stock in the first quarter. In the second half of this year, AMD is expected to launch its next-generation supercomputer processor, which can be used for large language model applications. (ChatGPT is one example of a large language model, though it was trained on a Microsoft-built supercomputer that used Nvidia chips).

Checking in second was Salesforce (CRM), which saw its stock price climb 50.7% in the first quarter.

• The enterprise software maker’s stellar earnings report and guidance March 1 cemented investors’ warming attitude toward the company. Salesforce surged 11.5% the following day, one of its best single-session gains in a decade, because it was clear significant profitability improvements were underway.

• Salesforce shares were up more than 20% year to date before that earnings print, amid a broader rotation into the tech stocks that struggled in 2022, and on hopes that the five activist investors with stakes in the company could bring about margin expansion. The actual report confirmed CEO Marc Benioff is delivering on what investors care about — becoming more profitable and managing dilution with an enhanced buyback.

• Salesforce expects an adjusting operating margin of 27% in fiscal 2024, much better than analysts’ 22.8% estimate. Its share repurchase authorization increased to $20 billion, doubling the $10 billion buyback program first announced last year.

What’s the common denominator among the winners? These two names were beaten up last year as the Federal Reserve got aggressive with interest-rate hikes, crushing stocks with premium valuations and causing slowdowns in each business due to economic uncertainty. But as the calendar turned, investors realized they were far too negative on these tech stocks and regained appreciation of their secular growth stories.

First quarter laggards

Halliburton (HAL) shares fell 19.6% in the first quarter, making the oilfield services firm the Club’s worst-performing stock in the period.

• Halliburton’s weakness is tied to factors outside the company’s control — specifically, the roughly 6% decline in West Texas Intermediate crude prices in the first quarter. Keep in mind Halliburton shares also soared 55% in the fourth quarter, so the stock entered the new year vulnerable to profit taking.

• Fundamentally, Halliburton offered investors a lot to like in the first three months of the year. In late January, it raised its dividend by a third to $0.16 per share and announced the resumption of its stock buyback program. It also reported better-than-expected fourth quarter numbers and a robust full-year outlook, with CEO Jeff Miller saying customer spending is expected to grow by at least 15% in 2023. He also indicated Halliburton continues to have pricing power.

The second-worst performing Club stock in the first quarter was Johnson & Johnson (JNJ), which saw its stock price decline 12.3% over the three-month stretch.

• A broader rotation out of health-care stocks, one of 2022′s top sectors, contributed to Johnson & Johnson’s weakness in the first quarter. For context, the Club’s three other health stocks — Eli Lilly (LLY), Humana (HUM) and Danaher (DHR) — also ended the quarter in the red.

• However, concerns about J&J’s ongoing talc litigation resurfaced in the quarter following an unfavorable court ruling on the drugmaker’s strategy to resolve the claims. That ruling, handed down Jan. 30 by a U.S. appeals court, has proven to be an additional overhang on J&J shares.

• Despite the stock struggles, J&J’s most recent quarterly results showed healthy growth and solid free cash flow generation.

What is the common denominator among the laggards? It’s pretty simple to see. They all outperformed the S&P 500 by a wide margin last year. The total return (including dividends) on Halliburton was 75%, Johnson & Johnson around 5% compared with the S&P 500′s total return of about minus 18%. As the old saying goes, one key to investing is buying low and selling high. That’s what the market did to a lot of stocks in the first quarter. It sold off the favorites of last year to buy what got crushed and historically does better when there is light at the end of the Fed tightening cycle. 

Bottom Line

After reflecting on our winners and losers, we are actually pleased to see that the winners outperformed due to positive changes in the underlying fundamentals, while the losers underperformed simply because they need to give the stage for the winners. If we take a look at last year, the reverse would be true. AMD and Salesforce were down >50%, while Halliburton and Johnson& Johnson were up huge compared to an S&P 500 that was down ~20% in 2022. We see no deterioration in the fundamental of Halliburton and Johnson& Johnson, and have been treating the underperformance as an opportunity to scale up our position. Again, as the old saying goes, we want to buy low and sell high.