Stock Market Today: Stocks Tread Water, Bitcoin Joins the Trillion-Dollar Club

We’ve discussed this week the idea that the stock market might be running out of gas, and that certainly appeared to be the case Friday, as stocks finished mixed after giving up most of their morning gains.

That wasn’t a problem for the digital currency Bitcoin, however.

Traders found several positive economic indicators to consider. U.S. businesses are expanding at their strongest rate in six years, according to IHS Markit’s flash reading of the purchasing managers index, which rose to 58.8 in February from 58.7 in the month prior. And Deere (DE, +9.6%) provided some optimism after raising its 2021 profit forecast amid expectations for better equipment sales.

However, a pop at the market open lost steam as the day progressed, fitting right in with a week that saw equities struggle up against all-time highs. The Dow Jones Industrial Average, up 154 points at its zenith, finished less than 1 point higher instead, closing at 31,494.

One potential problem remains just how optimistically priced stocks are already.

“Most of our indicators suggest stocks are pricing in a lot of good news,” says Savita Subramanian, equity and quant strategist for BofA Securities. “In fact, over $3T in stimulus may already be priced in on one measure: the ratio of S&P 500 market cap to the M2 money supply. The ratio currently stands at 1.7x, the highest level since Feb 2020, and to get to the post-crisis average of 1.4x, we estimate additional $3.1T of M2 would be needed.”

Other action in the stock market today:

  • The S&P 500 declined 0.2% to 3,906.
  • The Nasdaq Composite finished with a marginal gain to 13,874.
  • The small-cap Russell 2000 rebounded after a dreary Thursday, rising 2.2% to 2,266.
  • U.S. crude oil futures declined 0.8% to settle at $60.05 per barrel.
  • Gold futures gained 0.1% to $1,777.40 per ounce.

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Bitcoin: The Trillion-Dollar Cryptocurrency

If the stock market has lost its momentum this week, Bitcoin has surely found it. The digital currency, which has exploded by more than 1,300% since its 2020 bear-market lows, continues to grab Wall Street’s attention as it reaches new milestones.

On Friday, Bitcoin prices eclipsed the $55,000 mark and finished regular trading hours at $55,397. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.) That marks a 6.3% daily climb, and an 18.8% jump higher since Monday morning.

Assets invested in Bitcoin have now surpassed $1 trillion; for perspective, if Bitcoin were a publicly traded company, it would now be worth more than Tesla (TSLA, $749 billion) or Facebook (FB, $745 billion).

Fueling that gain is one of the drivers we cited in our 2021 outlook for Bitcoin: institutional investors, who are quickly pouring huge sums of money into Bitcoin and other digital currencies.

Should you join them?

Bitcoin remains a high-risk investment, and also a difficult-to-access one if you only have a traditional brokerage account – you can’t buy the digital currency without accessing a cryptocurrency exchange. But you can purchase crypto-connected companies such as these eight stocks. And you can also access crypto via a small but growing number of funds, similar to how you’d buy SPDR Gold Shares (GLD) to gain exposure to gold.

Read on as we introduce you to the newest option for crypto investors – a Bitcoin fund that charges less than half the fees of the current market leader – and explain its perks, as well as potential future threats.

Kyle Woodley was long Bitcoin as of this writing.


Stock Market Today: Blue-Chip Indices Close Out the Week on Top

The stock market was less escalator, more airport people-mover for much of the week, but the major indices managed to end the week on a (modestly) positive note, and at fresh highs.

President Joe Biden said Thursday that “we’re now on track to have enough [vaccine] supply for 300 million Americans by the end of July,” and The Associated Press reports that his administration is “on pace to exceed Biden’s goal of administering 100 million vaccine doses in his first 100 days in office.”

However, on Friday, the preliminary February estimate for the University of Michigan’s consumer sentiment index slipped to 76.2, from 79.0 in January.

“The loss was entirely driven by a drop in the expectations index as households turned less optimistic about their income prospects,” says Pooja Sriram, Vice President, U.S. Economist, at Barclays. “The press release notes that the lower optimism was seen mainly among households with incomes below $75,000 and more so for those in the bottom one-third of the income scale.”

The S&P 500 (+0.5% to 3,934) and Nasdaq Composite (+0.5% to 14,095) managed yet again to eke out new record closes. The Dow Jones Industrial Average did, too, though its 0.1% uptick to 31,458 was hampered by a 1.7% decline in Disney (DIS), which beat earnings expectations but had analysts questioning its valuation.

Also, take note: Monday is Presidents’ Day, which is a stock market holiday.

Other action in the stock market today:

  • The small-cap Russell 2000 scratched out a 0.2% gain to 2,289.
  • U.S. crude oil futures recovered from yesterday’s losses, gaining 2.1% to hit $59.47 per barrel.
  • Gold futures slid again, off 0.2% to $1,823.30 per ounce.
  • Bitcoin prices, at $48,379 on Thursday, slipped 1.5% to $47,662 on Friday. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

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Don’t Fear a Dip; Get Ready to Buy It

While many observers have warned of a potential market downturn, Ally Invest chief investment strategist Lindsey Bell reminds investors that selloffs aren’t always something to fear.

“If there is a pullback, have your wish list ready,” she suggests, noting that consumer staples stocks are perhaps being overlooked despite their strong earnings performance.

She also reminds investors to have cash ready.

“When the drop happens, you’ll need some cash,” Bell says. “Even though low-yielding cash gets a bad rap, it is an important part of any portfolio because without it you could miss the chance to take action when opportunity arises.”

You can learn more about raising cash here, but typically this means selling off various stocks. In some cases, that means trimming losers, but in other cases it means taking profits on stocks that have run fast and far, but might be running out of gas.

This list of 10 widely held S&P 500 stocks is an interesting blend of both ideas here. They currently trade at nosebleed prices, making them a prime starting point for locking in profits. But they’re also attractive long-term plays that might make for better buys amid a broader-market downturn.

Read on as we examine each of these extravagantly priced plays, and why they’re possibly flying a little too close to the sun (for now).

Kyle Woodley was long Bitcoin as of this writing.


Stock Market Today: Jobs Data Give Investors Cause for Pause

A day after Federal Reserve Chair Jerome Powell painted a less-than-rosy picture of the U.S. employment situation, economic data provided some support for that idea.

The Labor Department on Thursday reported 793,000 initial unemployment-benefits claims for the week ended Feb. 6. That was better than the prior week’s revised 812,000 filings, but more than the 760,000 expected by economists surveyed by Bloomberg.

Stocks broadly searched for direction for another day, though a couple pockets of the market had a very clear bent. Semiconductor stocks including Nvidia (NVDA, +3.3%) and Intel (INTC, +3.1%) shot higher on increasingly higher chip demand. Marijuana stocks, which had recently sprinted to downright giddy valuations, lost quite a bit of froth – Tilray (TLRY, -49.7%) and merger partner Aphria (APHA, -35.8%) were among the biggest decliners.

All of the major indices were in the red at some point Thursday, though several managed to reclaim positive territory. The Dow Jones Industrial Average declined marginally to 31,430, but the S&P 500 (+0.2% to 3,916) and Nasdaq Composite (+0.4% to 14,025) recovered and climbed just enough to set new all-time highs.

Other action in the stock market today:

  • The small-cap Russell 2000 gained 0.1% to 2,285.
  • U.S. crude oil futures finally ran out of gas, declining 0.8% to $58.24 per barrel, ending its win streak at eight consecutive sessions.
  • Gold futures settled 0.9% lower to $1,826.80 per ounce.
  • Bitcoin prices, at $44,775 on Wednesday, rebounded 8.0% to $48,379 on Thursday. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

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It’s Not Too Late for Economic Recovery Plays

For the past few months, you’ve heard about several “reflation trade” sectors (think bank stocks or oil plays) expected to bounce back as the economy does. While share prices in these sectors have been rising, as has the overall market, they still have ample fuel in the tank.

So says Canaccord Genuity equity strategist Tony Dwyer, who adds that we’ve seen similar market action before.

“We adopted the economic recovery theme last summer and suggested it was likely to be a multi-year thesis,” he says. “There has been nothing to alter our view despite the lackluster relative performance since last November. … The macro backdrop and market action coming off the March 2020 low continues to track the gains coming out of the Great Financial Crisis, which means corrections may be coming followed by even more gains.”

Those considering trying to make the most of this multiyear thesis can certainly do so via sector funds. However, those looking to generate a bit more alpha with more focused picks, should take note of who the pros like across (at a minimum) the rest of 2021. That includes financials and energy, as well as two areas that have some more catching up to do: materials and industrials. 

Kyle Woodley was long NVDA and Bitcoin as of this writing.


Explained: The Adrenaline-Driven Rise to GameStop Stock

January 28, 2021 &• 8 min read by Comments 0 Comments

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GameStop, a dying video game retailer, has blown past epic proportions to the point of hitting all-time highs in the stock market.

A few weeks ago, the company (stock trading as ticker: GME) traded around lows of ~$19. As of January 27th, 2021, the GameStop stock has reached an all-time high of $350. That’s a ~1700 percent increase! Currently, GameStop’s market capitalization is $24 billion, previously $500-$700 million.

Before its euphoric rise, GameStop was on a slow demise to bankruptcy, as it faced significant challenges to its business model from the internet. Similar to BlockBuster, people stopped buying video games in-person at retail stores. “Downloads became a thing, and GameStop’s business declined,” says Michael Pachter to BusinessInsider, who covers the video game industry.

Alongside GameStop’s faltering business model, GameStop also ran into issues with its poor business decisions. They embarked on new initiatives, including the acquisition of Spring Mobile in 2013. The company had bet on making money by buying smartphone stores. By 2016, GameStop had owned and operated approximately 1,500 mobile-phone stores under the Spring Mobile name, and in 2018, had sold the whole mobile-phone business.

So how did GameStop rise from the ashes?

Well, A Trading Euphoria Caused By …

An army of traders from the Reddit r/WallStreetBets has been at the center of the GameStop saga. WallStreetBets (WSB), a community of Millennial and GenZ traders, have helped drive a to-the-moon surge of GameStock’s stock price while halting trading multiple times, crashing Reddit, and even forcing the subreddit to go private. With 3.5 million traders following the subreddit, WSB users are known for purchasing extremely risky products, including leveraged ETFs, financial call and put options, as well as shorting equities.

These Reddit users have blown everyone’s expectations out of proportion. No one expected a group of online traders would have a massive effect on the stock market.

Most notably is perhaps the loser of this David and Goliath saga – Citron Research and Melvin Capital. Both of these investment firms took huge bearish bets against the GameStop stock, and even Citron had announced on Twitter that “GameStop buyers at these levels are the suckers at this poker game.” For those of you unfamiliar with stock trading, the two firms had shorted the GameStop stock by borrowing the stock to sell at a given price, with the idea that they will purchase back the stock later.

In this case, assume an individual sells short one share of GME at $19 in their margin account. What happens is they receive $19 from selling the share on the stock market, but they still owe their broker one share of GME. So, in this individual’s ideal scenario, they will want to buy back GME at a lower price to profit on the trade.

But in this trading saga, Reddit users had driven up the price by buying so much. Hence, increasing GME’s stock price. So, the individual holding the short position would have to purchase the stock back at a much higher stock price on the settlement date; thus, losing money.

The Squeeze

Due to the rampant rise in GME’s stock price, Citron Research and Melvin Capital had been taking on significant losses, and with due time, they would eventually have to close their position. Closing their position would squeeze them out of their position. For a short squeeze to happen, the firms’ losses have to be so high that the broker requires more capital to keep the position open. As of January 27th, both firms have closed their positions. Since then, hedge funds Citadel and Point72 have invested $2.75 billion into Melvin Capital.

The Question Still Remains – Why Did r/WallStreetBets Target Melvin Capital and Citron Research?

Greed has been present on Wall Street since the inception of the securities market. During the 2008 financial crisis downturn, banks were giving loans to anyone to make more and more money while selling mortgages to poor credit individuals. Their greed eventually reached a point where many homeowners could not make their mortgage payments causing foreclosures, and eventually, a recession. In the end, the banks received a bailout, and similarly, Melvin Capital received a bailout from other hedge funds.

In this ordeal, the two hedge funds shorting GME had become too greedy as they had driven GME’s share price from $20 to $10 and to $4. There was no means to an end for their greed and their hope for GameStop to go bankrupt. In part, short selling wipes out businesses. Elon Musk has also laid criticism to short-sellers, tweeting “short-sellers are jerks who want us to die.”

So, how does greed tie together with shorting a stock, hedge funds, Reddit users, and a video-game selling retailer?

Well, someone on WallStreetBets had noticed these hedge funds had sold short 140% of all shares available. The rule to short-selling is that ALL the shares they borrow MUST be paid back. Realizing these hedge funds had shorted GME by a ridiculous amount, these retail investors on Reddit (ordinary people like you and me) bought every share they could get their hands on. Thus, driving the price up like crazy and perhaps creating an arbitrage opportunity.

>> Learn more about investing in stocks with our investment guide for beginners.


These hedge funds would eventually HAVE to buy back these shares at whatever price they could purchase. They don’t have a choice. So, these Redditors bought all the GME shares they could buy and drove the prices up to ridiculous prices. Buying back these shares of GME would cost these hedge funds an arm and a leg.

Fast forward to today, January 27th, 2021, WallStreetBets users are creating memes, as well as notable people, including Elon Musk and Chamath Palihapitiya, who have influenced more people to buy GME stock. Hence, destroying these greedy hedge funds in the process.

Additionally, many Redditors felt crude sentiment towards these financial institutions as numerous Reddit posts complained about these institutions’ predatory actions. Even AOC tweeted, “Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino.”

Notable People’s Influence Behind The GameStop Stock Rally

As it’s been interesting to watch GameStop’s stock rally, there have been notable individuals placing their own opinion. Michael Burry, best known from “The Big Short” as one of the investors who had made money from the 2008 financial crisis, had been holding onto GameStop since 2019. Although he has a 2.4 percent stake in GameStop as of Sept 30, 2020, he has stated, “there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous”.

Contrarian Chamath Palihapitiya has also played a part, as he tweeted his purchase of $125,000 out of the money call options on GameStop.

For those unfamiliar with call options, call options are a financial derivative used to make speculative bets on the rise or fall of stock prices. In this case, Palihapitiya made a speculative bet for the increase of GameStop stock.

Elon Musk, well-known for the tweeting habits that have gotten him in trouble with the SEC, has also taken part in the GameStop rally by tweeting a subtle “Gamestonk!!”

How Does Reddit Feel About This?

Reddit’s r/WallStreetBets have broken all-time traffic records this week as millions of visitors flocked to the subreddit. According to Mashable, r/WallStreetBets received approximately 74 million page views in the past 24 hours. Note, Reddit had 52 million daily active users in October 2020.

One WallStreetBet moderator felt compelled to address the backlash with the narrative that the forum “is disorderly and reckless” and is involved in manipulation. He wrote, “What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living.”

Can Regulatory Bodies Do Anything?

The trading activity on GME reminds me of the old pump and dumps that ultimately harmed many traders.  The stock gets hyped up way out of proportion to its actual intrinsic value and essentially benefits the ones who are hyping it.  Will the stock really retain its value over the long haul?  If not, then the people who heard the hype and came late to buy it could suffer. – Eric founder of Mindful Trader

As the trading volatility ensues, regulators are becoming increasingly worried about all the signals this volatility is sending to traders, like TD Ameritrade and Schwab. Both brokerages have restricted certain kinds of trades in GameStop and AMC. TD Ameritrade said there was “an abundance of caution amid unprecedented market conditions and other factors.”

Regulators have been mindful of the action, as William Galvin, Massachusetts secretary of the commonwealth, told Barron’s that he was watching the story play out.

Regulators do monitor trading for any signs of market manipulation and what people say about stocks in public forums, according to Amy Lynch, a former SEC regulator. However, merely announcing to people that you are buying a specific stock and telling people they should as well have no legal repercussions.

The End of the GameStop Saga?

Ultimately, the GameStop saga has not run its full course, as trading is still occurring for the crazy stock. But, the two hedge funds that started all of this? They are entirely out. One hedge fund has wholly gone bankrupt, and other hedge funds have funded the other hedge fund. Will we be seeing this hedge fund enact vengeance on these Reddit users? Most likely not.

The takeaway we can all get from this whole ordeal is don’t mess with Reddit users, and perhaps the next generation of Millenials and Gen Z have more impact than we imagined?

This post originally appeared on Your Money Geek 

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The 25 Best Low-Fee Mutual Funds You Can Buy

The Kiplinger 25 list of our favorite no-load mutual funds dates back to 2004, and our coverage of mutual funds goes all the way back to the 1950s. We believe in holding funds rather than trading them, so we focus on promising mutual funds with solid long-term records – and managers with tenures to match.

Over the past 12 months, U.S. stocks hit new highs, and then a viral pandemic snuffed out a nearly 11-year bull market, wiping out gains in just days … and then stocks bounced back into a new bull market just a few months later. The major indices have been roaring ever since, and have been regularly setting all-time highs of late.

That has many (but not all) of our Kiplinger 25 picks looking like their old selves.

Over the past decade, for instance, the 11 U.S. diversified stock funds with 10-year records returned an average of 13.4% annualized, right on par with the S&P 500 Index. Our seven bond funds as a group beat the Bloomberg Barclays U.S. Aggregate Bond Index over the past five and 10 years on an annualized-return basis.

Here are our picks for the best 25 low-fee mutual funds: what makes them tick, and what kind of returns they’ve delivered.

Data is as of Jan. 28, unless otherwise noted. Three-, five- and 10-year returns are annualized. Yields on equity funds represent the trailing 12-month yield. Yields on balanced and bond funds are SEC yields, which reflect the interest earned after deducting fund expenses for the most recent 30-day period.
– Fund not in existence for the entire period.

1 of 25

Dodge & Cox Stock

Composite image representing Dodge & Cox's DODGX fundComposite image representing Dodge & Cox's DODGX fund
  • Symbol: DODGX
  • 1-year return: 10.1%
  • 3-year return: 4.9%
  • 5-year return: 14.7%
  • 10-year return: 11.5%
  • Yield: 1.7%
  • Expense ratio: 0.52%

The focus: Cheap shares in large firms.

The process: Ten managers home in on well-established companies with attractive prices and long-term prospects. Portfolio managers are patient and invest with a three- to five-year horizon in mind.

The track record: The fund is prone to streaky returns because the managers’ out-of-favor bets can take time to play out. Be patient. Over the past 10 years, the fund’s 11.5% annualized return beats 95% of its peers, which are funds that invest in bargain-priced large-company stocks. But, like many value-oriented funds, it lags Standard & Poor’s 500-stock index, which boasts a 13.5% annual total return (price plus dividends).

The upshot: Markets are cyclical, and this investing style will come back.

2 of 25

Mairs & Power Growth

  • Symbol: MPGFX
  • 1-year return: 17.4%
  • 3-year return: 11.0%
  • 5-year return: 15.6%
  • 10-year return: 12.9%
  • Yield: 1.0%
  • Expense ratio: 0.65%

The focus: Upper Midwest firms of all sizes with durable competitive advantages, trading at bargain prices.

The process: Three managers spend months analyzing a company’s niche in its market and its management team before they buy. The fund tilts toward health care and industrial firms. While MPGFX does hold some tech and communications giants, such as Microsoft (MSFT), Google parent Alphabet (GOOGL) and chipmaker Nvidia (NVDA), the fund’s top 10 holdings aren’t as heavy on tech names as many large-cap U.S. stock funds.

The track record: The fund “struggles in strong markets and picks up ground in downturns,” says lead manager Andy Adams. Growth’s 15-year annualized return beats 70% of similar funds. But over the past 12 months, it beats about half.

The upshot: The pandemic may have roiled stocks last year, but the managers will “stick to their knitting,” says Adams.

3 of 25

Primecap Odyssey Growth

  • Symbol: POGRX
  • 1-year return: 25.6%
  • 3-year return: 10.6%
  • 5-year return: 19.4%
  • 10-year return: 15.0%
  • Yield: 0.4%
  • Expense ratio: 0.65%

The focus: Long-term bets on attractively priced, fast-growing firms.

The process: Five managers run a portion of assets independently. They all look for companies with better growth prospects than their share prices imply. And they buy for the long term: The typical holding period is 10 years.

The track record: This aggressive growth fund’s one-year return ranks behind 94% of its peers, in part because of big drops in Alkermes (ALKS) and Southwest Airlines (LUV). Smart investors will hold on. The fund’s 15-year record beats the S&P 500 by an average of 1.6 percentage points per year.

The upshot: These proven managers know how to block out the noise. We’re hanging in.

4 of 25

T. Rowe Price Blue Chip Growth

Composite image representing T. Rowe Price's TRBCX fundComposite image representing T. Rowe Price's TRBCX fund
  • Symbol: TRBCX
  • 1-year return: 30.5%
  • 3-year return: 17.1%
  • 5-year return: 22.5%
  • 10-year return: 17.6%
  • Yield: 0.0%
  • Expense ratio: 0.69%

The focus: Established companies with strong growth prospects.

The process: Manager Larry Puglia favors firms with sustainable competitive advantages over rivals, strong cash flow, healthy balance sheets and executives who spend in smart ways. The company’s top holding is (AMZN, 11.3% of assets), which has been one of the darlings of the COVID-period market, up 76% in 2020 versus 18% for the S&P 500. In April, Puglia took on an associate manager, Paul Greene, but says he has no plans to retire.

The track record: Puglia beats the S&P 500 index handily over the past three, five and 10 years – and, despite the recent market volatility, over the past 12 months as well.

The upshot: Blue Chip Growth was a prime beneficiary of the long bull market, but the fund has held up well since the market crashed. And over the long stretch of a full market cycle, Puglia has outpaced the S&P 500.

5 of 25

T. Rowe Price Dividend Growth

  • Symbol: PRDGX
  • 1-year return: 11.3%
  • 3-year return: 11.3%
  • 5-year return: 15.8%
  • 10-year return: 13.1%
  • Yield: 1.0%
  • Expense ratio: 0.63%

The focus: Firms with a mindset to increase dividend payouts over time.

The process: Manager Tom Huber focuses on large, high-quality companies that generate strong free cash flow (cash profits after capital expenditures) and have the capacity and willingness to raise their payouts.

The track record: PRDGX lags the S&P 500 by more than 6 percentage points over the past year. But its 15-year annualized return slightly edges out the S&P 500 and beats 86% of its peers (funds that invest in stocks with value and growth traits).

The upshot: T. Rowe Price Dividend Growth, an all-weather portfolio, keeps pace in good markets and holds up well in down markets.

6 of 25

Vanguard Equity-Income

Composite image representing Vanguard's VEIPX fundComposite image representing Vanguard's VEIPX fund
  • Symbol: VEIPX
  • 1-year return: 3.5%
  • 3-year return: 4.5%
  • 5-year return: 11.9%
  • 10-year return: 11.3%
  • Yield: 2.6%
  • Expense ratio: 0.27%

The focus: Dividend-paying stocks.

The process: Wellington Management’s Michael Reckmeyer runs two-thirds of the assets; Vanguard’s in-house quantitative stock-picking group manages the rest. Together, they build a portfolio of about 180 large companies, including Johnson & Johnson (JNJ), Procter & Gamble (PG) and JPMorgan Chase (JPM).

The track record: Health care stocks were a boon to the fund in 2019, but it has struggled over the past year, with a mere 3.5% gain. Nonetheless, over the past decade, VEIPX has beaten 93% of its peers (funds focused on large, value-priced firms). 

The upshot: The fund offers above-average returns for below-average risk.

7 of 25

DF Dent Midcap Growth

  • Symbol: DFDMX
  • 1-year return: 21.4%
  • 3-year return: 18.0%
  • 5-year return: 21.6%
  • 10-year return:
  • Yield: 0.0%
  • Expense ratio: 0.98%

The focus: Growing midsize companies.

The process: Four managers find solid businesses that dominate their industries, generate plenty of cash and are run by executives who spend wisely. The fund will hold on to shares as long as a firm is still growing fast. Shares in large-cap stock Ecolab (ECL) have been in the fund since 2011.

The track record: DFDMX has beaten the majority of its peers in seven of the past nine calendar years.

The upshot: Mid-cap stocks are often in the market’s sweet spot. Typically, these firms are growing faster than large companies and are less volatile than small businesses.

8 of 25

Parnassus Mid Cap

  • Symbol: PARMX
  • 1-year return: 12.4%
  • 3-year return: 9.6%
  • 5-year return: 14.6%
  • 10-year return: 11.9%
  • Yield: 0.2%
  • Expense ratio: 0.99%

The focus: Growing midsize firms that pass environmental, social and governance (ESG) measures.

The process: Two longtime managers, 18 analysts and a dedicated ESG team pick 40 stocks, with sustainability in mind. Hologic (HOLX), a diagnostics and medical imaging company, and Republic Services (RSG), a waste-collection service, are among the top holdings.

The track record: PARMX’s one-year return has beaten 68% of its peers. Over 10 years, the fund’s 12.0% annualized return beat 87% of its peers.

The upshot: At the moment, technology is the largest sector allocation at more than a quarter of assets. The fund is also heavily invested in industrials (21%) and healthcare (14%).

9 of 25

T. Rowe Price Small-Cap Value

  • Symbol: PRSVX
  • 1-year return: 15.5%
  • 3-year return: 7.5%
  • 5-year return: 15.3%
  • 10-year return: 10.8%
  • Yield: 0.4%
  • Expense ratio: 0.83%

The focus: Unloved, under-the-radar, bargain-priced small companies.

The process: Financially sound firms with a competitive edge over rivals and a strong management team make it into the fund. PennyMac Financial Services (PFSI), a national mortgage lender, and Belden (BDC), a maker of networking and cable products, are among PRSVX’s top holdings.

The track record: Small-cap value stocks have been the worst-performing U.S. category in recent years. But this fund is only a little behind the Russell 2000 index over the trailing five-year period.

The upshot: Small-cap stocks have gained some wind in their sails of late, but they still have some catching up to do compared to their large-cap brethren. PRSVX provides exposure to the some of the best values among smaller companies.

10 of 25

T. Rowe Price QM U.S. Small-Cap Growth

  • Symbol: PRDSX
  • 1-year return: 24.0%
  • 3-year return: 13.2%
  • 5-year return: 19.0%
  • 10-year return: 14.5%
  • Yield: 0.0%
  • Expense ratio: 0.79%

The focus: Small, growing companies.

The process: Using quantitative models (hence the “QM” in its name) developed initially while he was in academia, Sudhir Nanda and his team focus their sights on high-quality, highly profitable firms with reasonably priced shares. Samuel Adams beer crafter Boston Beer (SAM) and semiconductor-materials provider Entegris (ENTG) are among top holdings.

The track record: The fund has handily beaten the Russell 2000 small-cap stock index over the past three, five and 10 years.

The upshot: Since the end of 2019, shares in small companies are up less than 7%. But Nanda focuses more on an individual company’s business characteristics than on big-picture market or economic issues.

11 of 25

Wasatch Small Cap Value

  • Symbol: WMCVX
  • 1-year return: 20.1%
  • 3-year return: 8.4%
  • 5-year return: 16.7%
  • 10-year return: 12.1%
  • Yield: 0.0%
  • Expense ratio: 1.20%

The focus: Temporarily underpriced shares in small, fast-growing firms.

The process: This is a growth-ier value fund. The portfolio’s 60-odd stocks fall into one of three buckets: undiscovered, little-known companies; firms suffering a temporary setback; and cheap stocks in steadier, slow-growth businesses.

The track record: The fund is back in a groove, with a 20% gain over the past 12 months. Its three-, five- and 10-year records rank among the top 68%, 77% and 85% of similar funds, respectively.

The upshot: Despite their recent poor performance, small-cap stocks offer higher growth potential than their large-company brethren. To cash in, you must have a long-term view and be willing to bear some turbulence.

12 of 25

Fidelity International Growth

  • Symbol: FIGFX
  • 1-year return: 16.2%
  • 3-year return: 9.0%
  • 5-year return: 13.5%
  • 10-year return: 9.1%
  • Yield: 0.1%
  • Expense ratio: 1.01%

The focus: Growing foreign companies.

The process: Manager Jed Weiss homes in on firms with good growth prospects and strong niches in their businesses that give them pricing power – the ability to hold prices firm in bad times and raise them in good times.

The track record: Weiss outpaced the MSCI EAFE index in 10 of the past 12 calendar years. His fund’s average 10-year return beats 78% of all foreign large-company stock funds. FIGFX tends to hold up well in bad markets.

The upshot: Weiss picks stocks one at a time, but he says long-term growth theme are set to propel returns going forward. At the moment, top holdings include the likes of Japanese sensor firm Keyence and multinational chemicals firm Linde (LIN).

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Janus Henderson Global Equity Income

HFQTX stock tickerHFQTX stock ticker
  • Symbol: HFQTX
  • 1-year return: 3.7%
  • 3-year return: 0.3%
  • 5-year return: –
  • 10-year return: –
  • Yield: 7.5%
  • Expense ratio: 0.97%

The focus: High income in international-company equities.

The process: The fund aims “to provide a consistently high level of income while investing in overseas markets with a value bias,” says Ben Lofthouse, one of the fund’s three comanagers. “We look for the dividend to be sustainable.” To that end, firms with strong balance sheets, steady profits and cash flow are ideal for the fund. “Profitable companies have downside protection when things don’t go as well,” says Lofthouse.

The track record: Relative to other large-company foreign value stock funds, Global Equity Income shines. Over the past three years, the fund ranks among the top 33% of its peers. It currently yields 7.9%, and the fund says the annualized distribution yield “has consistently been around 6%.”

The upshot: In recent years, the managers have put aside some value measures, such as share price in relation to book value (assets minus liabilities), in favor of other gauges, such as the price-to-cash-flow ratio, that they say are better predictors of future returns. That should help them better identify values going forward.

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Baron Emerging Markets

  • Symbol: BEXFX
  • 1-year return: 33.7%
  • 3-year return: 6.2%
  • 5-year return: 15.6%
  • 10-year return: 7.3%
  • Yield: 0.0%
  • Expense ratio: 1.35%

The focus: Emerging-markets firms of all sizes.

The process: Manager Michael Kass favors profitable, growing firms with steady competitive advantages. Asian tech giants Samsung, Tencent Holdings (TCEHY) and Taiwan Semiconductor (TSM) top the portfolio.

The track record: After a decade of sluggish returns, peppered with a few good years (such as 2019), emerging-markets stocks got socked again, this time by the coronavirus. But they have roared back. Over the past year, the fund has beaten the MSCI Emerging Markets index by more than 6 percentage points.

The upshot: There’s still uncertainty about the impact of the coronavirus on emerging-markets economies, but BEXFX should continue benefiting as EMs recover.

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AMG TimesSquare International Small Cap Fund

  • Symbol: TCMPX
  • 1-year return: 15.3%
  • 3-year return: 0.6%
  • 5-year return: 10.7%
  • 10-year return:
  • Yield: 1.4%
  • Expense ratio: 1.23%

The focus: Small firms in developed foreign countries.

The process: Four managers circle the globe to find best-in-class companies. Japan, the U.K. and Italy are the fund’s biggest country exposures.

The track record: Small-cap foreign stocks have not fared well compared with shares in larger companies in recent years, but TCMPX has beaten its benchmark, the MSCI EAFE Small Cap Index, since inception in 2013.

The upshot: Volatility doesn’t faze these managers. “We can’t guess what the market will do tomorrow, but we can invest in outstanding companies we think can continue to grow,” says lead manager Magnus Larsson.

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Fidelity Select Health Care

  • Symbol: FSPHX
  • 1-year return: 25.9%
  • 3-year return: 17.5%
  • 5-year return: 18.1%
  • 10-year return: 18.9%
  • Yield: 0.5%
  • Expense ratio: 0.70%

The focus: Healthcare stocks.

The process: Eddie Yoon, manager since 2008, divides the portfolio into three parts: steady, growing firms, which make up the biggest chunk of the fund; fast-growing, proven companies with focused niches; and emerging biotech businesses.

The track record: Yoon’s 10-year annualized record beats 80% of all healthcare-focused funds.

The upshot: Yoon is getting defensive, piling into stable growers, while keeping an eye on innovative firms in areas such as gene and cell therapy.

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Vanguard Wellington

Composite image representing Vanguard's VWELX fundComposite image representing Vanguard's VWELX fund
  • Symbol: VWELX
  • 1-year return: 9.1%
  • 3-year return: 7.6%
  • 5-year return: 11.7%
  • 10-year return: 9.5%
  • Yield: 1.5%
  • Expense ratio: 0.25%

The focus: A balanced portfolio of roughly 65% stocks and 35% bonds at the moment. Buy shares through Vanguard if you’re new to the fund; otherwise, it’s closed.

The process: Managers focus on large-company, dividend-paying stocks, high-quality government bonds and investment-grade corporate debt. The fund yields 1.5%.

The track record: Despite the corona­virus, the fund has beaten 82% of its peers over the past five years.

The upshot: The managers like a bargain. Before the pandemic, they were waiting for discounts in large banks and consumer names. Defensive moves on the bond side, such as focusing on the highest-quality corporate debt and setting aside cash for a correction, were well timed.

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DoubleLine Total Return Bond

  • Symbol: DLTNX
  • 1-year return: 2.9%
  • 3-year return: 4.0%
  • 5-year return: 3.1%
  • 10-year return: 4.1%
  • Yield: 2.8%
  • Expense ratio: 0.73%

The focus: Mortgage-backed securities.

The process: Three managers balance government-guaranteed mortgage-backed bonds – which are sensitive to interest-rate moves (when interest rates rise, bond prices fall, and vice versa) but have no default risk – with non-agency mortgage bonds, which have some risk of default, but little interest-rate sensitivity.

The track record: The fund holds no corporate debt, which has hurt relative returns in recent years. Over the past five years, the fund’s 3.1% annualized return lags the Bloomberg Barclays U.S. Aggregate Bond index.

The upshot: Mortgage rates continue to sit near all-time lows. And the primary risk for most mortgage-backed bonds is the potential that mortgage holders will prepay their principal. We’re watching DLTNX closely. Meanwhile, it yields 2.8%.

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Fidelity Intermediate Municipal Income

  • Symbol: FLTMX
  • 1-year return: 3.7%
  • 3-year return: 4.4%
  • 5-year return: 3.3%
  • 10-year return: 3.8%
  • Yield: 0.8%
  • Expense ratio: 0.35%

The focus: Debt that is exempt from federal income taxes, issued by states and counties to fund expenses such as schools and transportation.

The process: Four managers choose high-quality, attractively priced muni bonds. Managing risk is a priority, too.

The track record: This fund consistently posts above-average returns in its category. It rarely tops the charts, but it tends to hold up better in downturns.

The upshot: Muni bonds were richly priced until COVID-19 events fueled a selloff. But low rates and steady demand has propped prices back up. The fund yields 0.8%, or 1.4% for investors in the highest tax bracket.

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Fidelity New Markets Income

  • Symbol: FNMIX
  • 1-year return: 2.5%
  • 3-year return: 1.5%
  • 5-year return: 6.3%
  • 10-year return: 5.5%
  • Yield: 4.1%
  • Expense ratio: 0.82%

The focus: Emerging-markets debt.

The process: Longtime manager John Carlson has retired, but his replacements, Jonathan Kelly and Timothy Gill, are longtime analysts for the fund. Not much will change. The fund will still focus on dollar-denominated government bonds, but Kelly says he will likely hold a more consistent position in corporate debt, now 15% of assets. Mexico, Turkey and Ukraine are its top country exposures.

The track record: Carlson’s 15-year return was in the top 23% of emerging-markets debt funds. We’re watching closely to see how Kelly and Gill do.

The upshot: Yields on emerging-markets debt are still near historic lows. But the exit path from the coronavirus is still uncertain, so while a recovery is expected at some point, a shadow remains over near-term economic growth projections in emerging countries. Even so, the fund’s yield, 4.1%, is attractive.

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Metropolitan West Total Return

Composite image representing Metropolitan West's MWTRX fundComposite image representing Metropolitan West's MWTRX fund
  • Symbol: MWTRX
  • 1-year return: 6.8%
  • 3-year return: 6.0%
  • 5-year return: 4.3%
  • 10-year return: 4.4%
  • Yield: 0.9%
  • Expense ratio: 0.68%

The focus: High-quality intermediate-maturity bonds.

The process: Four bargain-minded managers make the big-picture calls on the economy and invest accordingly in investment-grade bonds (those rated triple-B or better).

The track record: The fund got defensive early, nipping returns in 2016 and 2017. But its conservative position – it’s currently loaded up on Treasuries, government mortgage-backed bonds and investment-grade corporates – has been a boon over the past year, especially since the start of 2020. Total Return’s one-year return beats 63% of its peers, and its 10-year annualized return beats 65% of its peers. Both returns beat the Bloomberg Barclays U.S. Aggregate Bond index.

The upshot: The managers are “patient and disciplined,” says Morningstar analyst Brian Moriarty, and that should continue to set this fund’s performance apart over the long term.

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Fidelity Advisor Strategic Income

  • Symbol: FADMX
  • 1-year return: 6.9%
  • 3-year return: 5.1%
  • 5-year return: 6.3%
  • 10-year return: 4.8%
  • Yield: 2.4%
  • Expense ratio: 0.68%

The focus: The fund seeks to deliver more yield than the Bloomberg Barclays Aggregate U.S. Bond index by investing in a blend of government debt and junkier, higher-yielding bonds. The fund yields 2.4%.

The process: Comanagers Ford O’Neil and Adam Kramer make broad calls on which bond sectors to emphasize while specialists do the individual bond picking.

The track record: The fund has returned 6.3% annualized over the past five years, which has handily beaten the Agg index.

The upshot: These days, the fund holds mostly high-yield debt (roughly 46% of assets), government securities (20%) and emerging-markets bonds (15%).

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Vanguard High-Yield Corporate

  • Symbol: VWEHX
  • 1-year return: 5.0%
  • 3-year return: 5.6%
  • 5-year return: 7.4%
  • 10-year return: 6.2%
  • Yield: 3.0%
  • Expense ratio: 0.23%

The focus: Corporate debt rated below investment grade.

The process: Manager Michael Hong keeps risk at bay by focusing on debt rated double-B, the highest quality of junk bonds.

The track record: The fund struggles to top the charts in go-go years, but it leads in so-so years. All told, its 10-year annualized return beats 86% of its peers. It yields 3.0%.

The upshot: High-yield rates, on average, were near historic lows until the pandemic bumped them above 6% in early March, though they’ve since come back down to record lows from there. (When rates rise, bond prices fall, and vice versa.) We’re watching VWEHX carefully.

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Vanguard Short-Term Investment Grade

  • Symbol: VFSTX
  • 1-year return: 4.5%
  • 3-year return: 4.0%
  • 5-year return: 3.2%
  • 10-year return: 2.6%
  • Yield: 0.7%
  • Expense ratio: 0.20%

The focus: To deliver a higher yield than cash and short-term government bonds. VFSTX currently yields 0.7%.

The process: Three managers, who took over in April 2018, invest in high-quality corporate debt, pooled consumer loans and Treasuries, with maturities that range between one and five years.

The track record: The fund has returned 3.5% annualized over the past three years, which outpaces 87% of its peers.

The upshot: Low rates mean low yields for now. But pressing uncertainties, such as the unknown recovery time from coronavirus, negative rates in other parts of the world and geopolitical risks, make this fund a welcome haven.

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TIAA-CREF Core Impact Bond

  • Symbol: TSBRX
  • 1-year return: 5.1%
  • 3-year return: 5.3%
  • 5-year return: 4.2%
  • 10-year return:
  • Yield: 1.0%
  • Expense ratio: 0.64%

The focus: Bonds issued by companies that meet high ESG standards, as well as projects that deliver a measurable environmental or social impact.

The process: Veteran bond picker and lead manager Stephen Liberatore invests just under two-thirds of the fund in attractively priced, high-quality debt issued by firms that pass his own carefully honed ESG measures. He devotes about 40% of the fund’s assets to fund projects related to alternative energy, affordable housing or community development. The fund was formerly called Social Choice Bond.

The track record: The fund’s 4.2% an­nualized return over the past five years is just slightly below similar bond funds and the Agg index.

The upshot: Investors don’t sacrifice much performance or yield with these ESG- and impact-focused bonds.


13 Best Consumer Discretionary Stocks for 2021

Consumer discretionary stocks are inherently cyclical investments, meaning they rise and fall with broader economic trends. After all, the very nature of a “discretionary” purchase means you’re making a choice to spend the cash.

In 2020, a lot of attention was on consumer staples stocks that were reliable performers during the pandemic. Particularly with folks spending more time at home, grocery store purchases seemed a pretty sure thing.

But now that vaccines are starting to roll out and there is optimism that 2021 will look a lot different than last year, investors have begun to engage with consumer discretionary stocks that may provide upside if and when things get back to normal.

Here are 13 of the best consumer discretionary stocks for 2021. Most have decent share momentum right now, based on decent performance during a challenging 2020. Some even used the COVID-19 disruptions to their advantage, and are now set up for what could be a very big year.

If you’re looking for consumer-facing plays in 2021, this wide-ranging list of top companies might have something worth putting your shopping cart.

Data is as of Jan. 28. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in alphabetical order.

1 of 13

A bouquet of flowersA bouquet of flowers
  • Market value: $2.1 billion
  • Dividend yield: N/A

If you were looking to say “I love you” in 2020, chances are you considered spending a few bucks via (FLWS, $32.13) to send a care package in the age of social distancing.

But FLWS stock was not just a flash-in-the-pan pandemic play, as evidenced by a big run of 37% since Dec. 1.

That growth is thanks to continued strong results, including recent revenues for the first quarter of the company’s fiscal Q1, which gapped up more than 50% year-over-year. Part of the reason this business is sticky is that while it’s pretty easy to comparison-shop for clothing or electronics at any online merchant, few other companies have a nationwide network of florists and delivery services to compete with the 1-800-Flowers platform.

The challenge, of course, is that a lot of the business on FLWS is seasonal, so the upcoming Valentine’s Day bonanza is an important measure for whether this growth will continue to stick. But investors should be encouraged that after shares cooled off in October, they came roaring right back. This is a hint that strong results could again be in the works for this consumer discretionary stock.

2 of 13 trucks
  • Market value: $1.6 trillion
  • Dividend yield: N/A

It’s difficult to talk about the consumer sector without including (AMZN, $3.237.62) as a big part of that conversation.

The dominant e-commerce portal for most of the world, AMZN continues to defy naysayers who think it has grown so big that it can’t keep growing quickly.

Consider that this fiscal year, revenue is projected to grow 35% to a staggering $380 billion. Add to that the expectations on Wall Street for another 18% growth in the top line in 2022. No wonder the stock is one of four trillion-dollar tech stocks, and continues to widen its lead over the also-rans at a breakneck pace. Share prices surged more than 70% over the last 12 months, yet analysts still think there’s about 20% upside based on current price targets.

To be fair, there are real concerns for Amazon in the form of growing backlash to this kind of scale. There’s a recent drive to unionize in an Alabama warehouse, and in late 2020, the European Union brought antitrust charges against the tech giant.

But AMZN has defied gravity before, and it’s difficult to believe consumers turn away from this e-commerce powerhouse in the near future regardless of these risks.

3 of 13

Callaway Golf

Callaway golf clubsCallaway golf clubs
  • Market value: $2.5 billion
  • Dividend yield: N/A

One of the few hobbies that actually got a big tailwind from the pandemic, golfing is having a bit of a renaissance right now as folks have picked up the sport in earnest once more. And as new duffers get ready for warmer weather, the time is perfect for many of them to upgrade their starter set to the higher-quality products offered by Callaway Golf (ELY, $27.38), including Big Bertha drivers, Odyssey putters and Ogio bags and gear.

Adding to the potential momentum is the recent acquisition of high-tech driving range company Topgolf, which combines a bar-like atmosphere with quality food and drink alongside microchipped balls that allow golfers to score points by aiming for targets. If you’ve ever been to a Topgolf facility, it is a marked upgrade above just teeing off from a regular driving range for a half hour.

Next fiscal year, revenue is set to surge almost 80% thanks to the combination of this new business line and a tailwind from the pandemic. Shares have rallied more than 30% over the last three months in anticipation of these strong results. But the majority of analysts who cover ELY remain in the Buy camp, seeing still-higher prices for this consumer discretionary stock in 2021.

4 of 13

Deckers Outdoor

Pair of Ugg bootsPair of Ugg boots
  • Market value: $8.2 billion
  • Dividend yield: N/A

Footwear giant Deckers Outdoor (DECK, $290.65) shined in 2020, with returns of more than 65% over the past 12 months thanks to a strong brand and direct-to-consumer model.

With loyal customers eager for its Ugg boots and Teva sandal brands, Deckers was able to command premium prices – but more importantly, it attracted folks to its internal e-commerce engine even as third-party retailers at the mall took a hit. That didn’t just prop up revenue, but generated higher margins in the process.

Consider that last spring, online sales more than doubled even as Americans were forced to forgo the mall. And with projected revenue growth of 13% in the next fiscal year, investors can expect this operational momentum to continue.

Deckers isn’t just resting on its laurels, however, as it has put a lot of energy into a new line of healthy leisure products, led by its Hoka One One running shoes. Sales aren’t even close to dominant brands like Nike (NKE), but there is plenty of room in this consumer discretionary category to seize on, as evidenced by staggering 83% growth in its Hoka line reported back in October.

5 of 13

General Motors

Chevy CorvetteChevy Corvette
  • Market value: $72.8 billion
  • Dividend yield: N/A

While high-profile electric vehicle stocks get more of the attention these days, legacy automaker General Motors (GM, $51.04) may be worth a look in 2021.

For starters, GM stock has tacked more than 50% gains over the last year and have roughly tripled from their March lows. The momentum has been strong of late, too – shares are up more than 20% in the past month.

Part of the reason Wall Street has taken notice is a new partnership between GM’s Cruise self-driving car subsidiary and Big Tech icon Microsoft (MSFT). This, as well as the company’s recent pledge to eliminate gas- and diesel-powered vehicles by 2035, proves that General Motors is not just stuck in the past, but looking to the future.

Furthermore, GM is also pushing into the EV market with other companies, though perhaps in a different way. Namely, its BrightDrop subsidiary has plans to launch an electric delivery van boasting a 250-mile range on a single charge.

These future growth plans are coming amid some strong performance for its biggest-margin vehicles lately, too, including trucks and SUVs. Consider the price of more than half of all the recently redesigned luxury Cadillac Escalade SUVs sold in the fourth quarter was $100,000 or higher thanks to fancy trim options and onboard entertainment gear.

Nobody is going to pretend that General Motors is anything like Tesla (TSLA). But that doesn’t mean it can’t be one of the best consumer discretionary stocks for investors looking to gain exposure to the automotive industry.

6 of 13


A Monopoly boardA Monopoly board
  • Market value: $12.9 billion
  • Dividend yield: 2.9%

In 2020, toy giant Hasbro (HAS, $95.14) manage to strike out despite an environment that would seemingly be tailor-made for a company offering at-home fun. Despite recovering substantially from its March 2020 lows, shares remain down more than 20% from 2019 highs.

That’s because Hasbro’s core business of dolls and board games was overshadowed by an ill-advised push into the content production business. In the age of streaming video and 1980s nostalgia, Hasbro banked on returning to its glory days some of us may remember with dominant cartoons like G.I. Joe and My Little Pony. Its acquisition of studio Entertainment One in 2019 was supposed to fuel that growth, but it ultimately has just been a money-sucking disappointment as its entertainment segment has continued to bleed red ink.

Here’s the good news: Film and TV production ground to halt in part because of the pandemic, and allowed Hasbro to pause and rethink. It also has allowed HAS to reconnect with consumers using blockbuster brands like Play-Doh and Monopoly. With current-year revenue trending up 15% and another 12% growth next fiscal year, 2021 might be the right time to bank on Hasbro getting its entertainment arm in order and building on the success of its more traditional toy brands.

7 of 13


A Lovesac storeA Lovesac store
  • Market value: $814.9 million
  • Dividend yield: N/A

Lovesac (LOVE, $55.29) is a niche consumer discretionary stock that designs “foam-filled furniture,” which mostly includes bean bag chairs. The store has about 90 showrooms at malls around the country, but business is largely driven by online sales. That has been a boon over the last 12 months, as folks have been both reliant on e-commerce and spending more time at home.

The Lovesac is a little old place where you can get together, relaxing after a tough day of distance learning or telecommuting, and has really caught on.

LOVE is starting to become profitable thanks to big-time revenue growth that is blowing away expectations. For instance, the company recently reported third-quarter earnings of 16 cents per share, up from a 46-cent loss in the year-ago period. Revenue leaped by 44% to $74.7 million compared with $52.1 million the prior year.

There are plenty of discretionary stocks out there that simply deal in commodities that are easily found elsewhere. But it’s pretty safe to say there’s not a huge number of furniture companies focused on the bean bag market. LOVE might never grow to massive size given this niche, but it does allow it room to run – as evidenced by recent financials and share performance. The stock has sprinted 1,210% since the spring 2020 lows.

8 of 13

Papa John’s

Papa John's locationPapa John's location
  • Market value: $3.4 billion
  • Dividend yield: N/A

After hitting all-time highs in 2016, Papa John’s International (PZZA, $104.59) got a bit stale for a few years as competitors took a toll on its sales volume and Wall Street soured on the once-impressive growth story. But now, the pizza shop seems to have gotten its act together once more.

Specifically, Papa John’s reported earnings in November that shows sales volumes were up an impressive 18% in its core U.S. market to top analyst expectations. But the numbers alone might obscure a broader success story that began a couple years ago with a big culture change.

Hedge fund Starboard Value took a stake in PZZA and kicked off a number of changes, including ousting divisive founder John Schnatter and installing food industry veteran Rob Lynch to rebuild the brand. The pandemic helped accelerate sales a bit, but the real credit goes to management for setting the company up for success after doing the hard work of rethinking Papa John’s.

Shares have climbed nearly 60% in the last year, and there is chatter that the rebuilt pizza chain may now be attractive as an asset for a bigger conglomerate such as Restaurant Brands (QSR) or to a private equity firm that could squeeze out even more value off public markets. If that happens, investors in this consumer discretionary stock could expect an instant buyout premium on top of prior gains.

9 of 13

Peloton Interactive

A Peloton bikeA Peloton bike
  • Market value: $42.4 billion
  • Dividend yield: N/A

Shares of exercise bike icon Peloton Interactive (PTON, $145.83) have taken investors on quite a ride over the last year, surging about 360% in 12 months. But after climbing to a market capitalization of roughly $45 billion at its peak, shares have pulled back a little on fears that the stock might have gotten ahead of itself.

Growth-oriented investors shouldn’t worry too much about the naysayers, however, as the fundamentals continue to show a stock with a bright future. Specifically, the current fiscal year should wrap up with revenue growth of more than 110%; next year, Wall Street is still expecting robust sales growth of 35%.

PTON just swung to profitability in part because of this big top-line expansion, but more importantly because its model includes regular classes that keep clients as paying customers long after they make the initial purchase of Peloton hardware. The pandemic has proven the power of this sticky revenue stream, and with more people continuing to sign, driving the Peloton community up to nearly 4 million people at present, the momentum should continue in 2021 for this consumer stock.

10 of 13


Close-up image of a camera lensClose-up image of a camera lens
  • Market value: $2.4 billion
  • Dividend yield: 1.3%

You might not think much of a stock photo service, but Shutterstock (SSTK, $66.55) is the right business at the right time to play consumer spending trends.

Think of it this way: If you’re a local restaurant or retailer who has been forced to build out e-commerce operations, where are you going to get all the images on that new website and app?

The pandemic-related boom in digital licensing has served SSTK well, but it also has a long tail as these clients continue to maintain their properties and build out new offerings. The megatrend of streaming video and audio got another boost as people have been stuck at home, too, and SSTK’s archive is also positioned to serve podcasters and videographers.

The numbers tell this growth story in a pretty compelling way, as Shutterstock reported the number of subscribers to its services surged to 255,000 in Q3 compared with just 184,000 in Q3 2019. That’s a recurring charge for those customers, so the revenue will be sticky. Even more impressive is that like any good technology-focused company, bigger scale just means bigger profitability. The third quarter’s adjusted earnings per share of 80 cents blew away forecasts, and it was about 175% higher than the prior year! That allowed the company to juice its quarterly dividend by 24% to 21 cents per share this year.

If you want to play consumer media trends, then SSTK is a growth story to watch. And with shares up about 50% in the last year, the company has strong momentum as we enter 2021.

11 of 13


A Skechers storeA Skechers store
  • Market value: $5.5 billion
  • Dividend yield: N/A

Like the previously mentioned footwear company Deckers, Skechers USA (SKX, $34.91) has also benefitted from a strong brand and a direct-to-consumer model. But what really makes this sneaker company look like one of the best discretionary stocks for 2021 are the hopes that its international growth plans are finally starting to pay off after many years of big investment.

Specifically, roughly half of the company’s sales now coming from beyond America’s borders. Furthermore, it continues to see strong growth in these markets, as evidenced by October earnings that showed Chinese sales growth of nearly 24% year-over-year. On top of that, about 25% of revenue comes from high-margin “direct to consumer” e-commerce operations.

There’s risk here, of course, given Skechers’ history of volatility in shares. Since 2015, the stock has regularly gyrated between the low $20s to the low $40s. But since the March 2020 lows, SKX stock has seen a steady upward climb that has be accompanied by a steady flow of strong earnings reports. That hints that momentum in 2021 could continue as this consumer discretionary stock once again challenges pre-pandemic highs.

12 of 13

TJX Companies

T.J.Maxx storeT.J.Maxx store
  • Market value: $78.6 billion
  • Dividend yield: 1.6%

Best known for its TJ Maxx discount stores, the TJX Companies (TJX, $65.49) has seen better days as it remains reliant on the brick-and-mortar retail model of the past. However, a number of conditions seem to be setting TJX up for a pretty good year in 2021.

For starters, as the parent of several discount store chains, TJX is primed to benefit from shoppers who are downgrading from more luxuriant stores. With unemployment still elevated at 6.7% compared with a rate of about half that before the pandemic, it’s safe to say that on the whole more people are looking to save than looking to splurge in 2021.

TJX shoppers also are the prime target of potential stimulus checks. Many high-income Americans will be left out, and the lower-income customers that frequent discounters will spend that money very quickly on staples – including clothes and housewares sold at TJ Maxx stores.

This tailwind comes as structural changes have helped set TJX up for success, such as the reinstatement of its dividend. Not only is the payout back, reviving interest from income investors, but it’s now at 26 per share – a 13% increase over the company’s last disbursement, in March before the pandemic hit.

And looking forward, revenue is set to surge 31% according to Wall Street forecasts for the next fiscal year. This hints at a strong present and a bright future for TJX stock.

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A pair of "Mini Winnies."A pair of "Mini Winnies."
  • Market value: $2.2 billion
  • Dividend yield: 0.7%

The pandemic has proven once again that there really are two economies in the U.S.: one for lower-income folks who have been struggling amid the shutdown, and one for high-income Americans who have been able to work from home and continue saving and spending without disruption.

It’s tempting to moralize over this, but as an investor, sometimes the best course of action is simply to follow the profits. And if that’s your mindset, Winnebago Industries (WGO, $67.59) offers some serious profit potential right now.

The RV giant saw big sales growth as dealerships couldn’t keep enough of the vehicles in stock following COVID-19-related shutdowns and the obvious appeal of campers for folks looking to get away. Consider Winnebago’s Q1 report, which has a laundry list of impressive metrics – including a 35% increase in revenue, margins up 390 basis points and adjusted EPS surging 132%.

While folks will certainly resume some of their typical vacation habits once the pandemic is fully over, we are a long ways away from that point. It seems that many well-off Americans continue to be looking for alternatives via Winnebago as they anticipate another spring break or summer vacation stuck at home with the kids, which will continue to provide a strong tailwind for this consumer stock in 2021.


Should You Keep Investing At All-Time Highs?

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A note from a dedicated reader inspired today’s article. It’s a question about the stock market and investing at all-time highs. It reads:

Table of Contents show

Hey Jesse. So, back in March you said that you were going to keep on investing despite the major crash. Fair enough, good call!

Note: here and here are the two articles that likely inspired this comment

But now that the market has recovered and is in an obvious bubble (right?), are you still dumping money into the market?

Thanks for the note, and great questions. You might have heard “buy low, sell high.” That’s how you make money when investing. So, if the prices are at all-time highs, you aren’t exactly “buying low,” right?

I’m going to address this question in three different ways.

  1. General ideas about investing
  2. Back-testing historical data
  3. Identifying and timing a bubble

Long story short: yes, I am still “dumping” money into the stock market despite all-time highs. But no, I’m not 100% that I’m right.

General Ideas About Investing

We all know that that investing markets ebb and flow. They goes up and down. But, importantly, the stock market has historically gone up more than it has gone down.

Why does this matter? I’m implementing an investing plan that is going to take decades to fulfill. Over those decades, I have faith that the average—the trend—will present itself. That average goes up. I’m not betting on individual days, weeks, or months. I’m betting on decades.

It feels bad to invest right before the market crashes. I wouldn’t enjoy that. But I’m not worried about the value of my investments one month from now. I’m worried about where they’ll be in 20+ years.

Stock Market Crash GIFs | Tenor

Allowing short-term emotions—e.g. fear of an impending crash—to cloud long-term, math-based thinking is the nadir of result-oriented thinking. Don’t do it.

Don’t believe me? Here’s a fun idea. Google the term “should I invest at all-time highs?”

When I do that, I see articles written in 2016, 2017, 2018…you get it. People have been asking this question for quite a while. All-time highs have happened before, and they beg the question of whether it’s smart to invest. Here’s the S&P 500 data from 2016 to today.

S&P 500 – Past five years. Punctuation my own addition.

So should you have invested in 2016? In 2017? In 2018? While those markets were at or near all-time highs, the resounding answer is YES! Investing in those all-time high markets was a smart thing to do.

Let’s go further back. Here’s the Dow Jones going back to the early 1980s. Was investing at all-time highs back then a good idea?

I’ve cherry-picked some data, but the results would be convincing no matter what historic window I chose. Investing at all-time highs is still a smart thing to do if you have a long-term plan.

Investing at all-time highs isn’t that hard when you have a long outlook.

But let’s look at some hard data and see how the numbers fall out.

Historical Backtest for Investing at All-Time Highs

There’s a well-written article at Of Dollars and Data that models what I’m about to do: Even God Couldn’t Beat Dollar-Cost Averaging.

But if you don’t have the time to crunch all that data, I’m going to describe the results of a simple investing back-test below.

First, I looked at a dollar-cost averager. This is someone who contributes a steady investment at a steady frequency, regardless of whether the market is at an all-time high or not. This is how I invest! And it might be how you invest via your 401(k). The example I’m going to use is someone who invests $100 every week.

Then I looked at an “all-time high avoider.” This is someone who refuses to buy stocks at all-time highs, saving their cash for a time when the stock market dips. They’ll take $100 each week and make a decision: if the market is at an all-time high, they’ll save the money for later. If the market isn’t at an all-time high, they’ll invest all their saved money.

The article from Of Dollars and Data goes one step further, if you’re interested. It presents an omniscient investor who has perfect timing, only investing at the lowest points between two market highs. This person, author Nick Maggiulli comments, invests like God would—they have perfect knowledge of prior and future market values. If they realize that the market will be lower in the future, they save their money for that point in time.

What are the results?

The dollar-cost averager outperformed the all-time high avoider in 82% of all possible 30-year investing periods between 1928 and today. And the dollar-cost averager outperformed “God” in ~70% of the scenarios that Maggiulli analyzed.

How can the dollar-cost averager beat God, since God knows if there will be a better buying opportunity in the future? Simple answer: dividends and compounding returns. Unless you have impeccable—perhaps supernatural—timing, leaving your money on the sidelines is a poor choice.

Investing at all-time highs is where the smart money plays.

Identifying and Timing a Bubble

One of my favorite pieces of finance jargon is the “permabear.” It’s a portmanteau of permanent and bear, as in “this person is always claiming that the market is overvalued and that a bubble is coming.”

Being a permabear has one huge benefit. When a bubble bursts—and they always do, eventually—the permabear feels righteous justification. See?! I called it! Best Interest reader Craig Gingerich jokingly knows bears who have “predicted 16 of the last 3 recessions.”


Suffice to say, it’s common to look at the financial tea leaves and see portents of calamity. But it’s a lot harder to be correct, and be correct right now. Timing the market is hard.

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

Peter Lynch

Predicting market recessions falls somewhere between the Farmers’ Almanac weather forecast and foreseeing the end of the world. It takes neither skill nor accuracy but instead requires a general sense of pattern recognition.

Note: The Farmers’ Almanac thinks that next April will be rainy. Nice work, guys. And I, too, think the world will end—at least at some point in the next few billions of years.

I have neither the skill nor the inclination to identify a market bubble or to predict when it’ll burst. And if someone convinces you they do have that skill, you have two options. They might be skilled. Or they are interested in your bank account. Use Occam’s Razor.

Just remember: some permabears were screaming “SELL!” in late March 2020. I’ve always heard “buy low, sell high.” But maybe selling your portfolio at the absolute market bottom is the new secret technique?

“But…just look at the market”

I get it. I hear you. And I feel it, too. If feels like something funny is going on.

The stock market is 12% higher than it was a year ago. It’s higher than it was before the COVID crash. How is this possible? How can we be in a better place mid-pandemic than before the pandemic?

Crazy Pills GIFs | Tenor

One explanation: the U.S. Federal Reserve has dropped their interest rates to, essentially, zero. Lower interest rates make it easier to borrow money, and borrowing money is what keeps businesses alive. It’s economic life support.

Of course, a side effect of cheap interest rates is that some investors will dump their cheap money into the stock market. The increasing demand for stocks will push the price higher. So, despite no increase (and perhaps even a decrease) in the intrinsic value of the underlying publicly-traded companies, the stock market rises.

Is that a bubble? Quite possibly. But I’m not smart enough to be sure.

The CAPE ratio—also called the Shiller P/E ratio—is another sign of a possible bubble. CAPE stands for cyclically-adjusted price-to-earnings. It measures a stock’s price against that company’s earnings over the previous 10-years (i.e. it’s adjusted for multiple business cycles).

Earnings help measure a company’s true value. When the CAPE is high, it’s because a stock’s price is much greater than its earnings. In other words, the price is too high compared to the company’s true value.

Buying when the CAPE is high is like paying $60K for a Honda Civic. It doesn’t mean that a Civic is a bad car. It’s just that you shoudn’t pay $60,000 for it.

Similarly, nobody is saying that Apple is a bad company, but its current CAPE is 52. Try to find a CAPE of 52 on the chart above. You won’t find it.

So does it make sense to buy total market index funds when the total market is at a CAPE of 31? That’s pretty high, and comparable to historical pre-bubble periods. Is a high CAPE representative of solid fundamentals? Probably not, but I’m not sure.

My Shoeshine Story

There’s an apocryphal tale of New York City shoeshines giving stock-picking advice to their customers…who happened to be stockbrokers. Those stockbrokers took this as a sign of an oncoming financial apocalypse.

The thought process was: if the market was so popular that shoe shines were giving advice, then the market was overbought. The smart money, therefore, should sell.

I recently heard a co-worker talking about his 12-year old son. The kid uses Robin Hood—a smartphone app that boasts free trades to its users. Access to the stock market has never been easier.

According to his dad, the kid bought about $100 worth of Advanced Micro Devices (ticker = AMD). When asked what AMD produces, the kid said, “I don’t know. I just know they’re up 60%!”

This, an expert might opine, is not indicative of market fundamentals.

But then I thought some more. Is this how I invest? What does your index fund hold, Jesse? Well…a lot of companies I’ve never heard of. I just know it averages ~10% gains every year! My answer is eerily similar.

I’d like to believe that I buy index funds based on fundamentals that have been justified by historical precedent. But, what if the entire market’s fundamentals are out of whack? I’m buying a little bit of everything, sure. But what if everything is F’d up?

Closing Thoughts

Have you ever seen a index zealot transmogrify into a permabear?

Not yet. Not today.

I do understand why some warn of a bubble. I see the same omens. But I don’t have the certainty or the confidence to act on omens. It’s like John Bogle said in the face of market volatility:

Don’t do something. Just stand there.

John Bogle

Markets go up and down. The U.S. stock market might crash tomorrow, next week, or next year. Amidst it all, my plan is to keep on investing. Steady amounts, steady frequency. I’ve got 20+ years to wait.

History says investing at all-time highs is still a smart thing. Current events seem crazy, but crazy has happened before. Stay the course, friends.

And, as always, thanks for reading the Best Interest. If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

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