For investors that have enjoyed huge runups in their portfolios of late, it may be difficult to remember just how frightening the market's movements felt one year ago today. From February 19 through March 23, 2020, as Americans began to come to grips with the magnitude of Covid's potential impact on the economy, the S&P 500 fell by nearly 34%, the most precipitous drop in the history of the index.
Then, on March 24, things began to turn around. Not for everyone — plenty of industries were disproportionately affected by Covid-related economic shutdowns. But the market as a whole began to recover and then, led by a red-hot tech sector, to soar.
A bull market is a rally of at least 20%, typically from a bear market low. By that measure, March 23 marks the one-year anniversary of what has been a gangbusters bull market: Stocks in the S&P 500 have returned an eye-watering 76% in the past 12 months. Leading stocks come from a variety of successful companies, including some that benefited from the ways in which Covid reshaped American life and others that market-watchers believe are positioned to deliver strong returns long after the pandemic subsides.
The list of the top 10 performers includes some names you might expect, such as electric automaker Tesla, along with some that aren't familiar to casual investors (unless they're really into copper mining).
And some highly publicized pandemic winners, such as Moderna and Peloton, just missed the cut.
The Grow team used data from YCharts to find the 10 stocks in the Russell-1000 — an index tracking the 1,000 largest U.S. stocks — with the highest returns over the past 12 months.
The big winner, online furniture retailer Wayfair, has returned more than 1,000% since the market bottomed last March. The company benefited from a pandemic-driven acceleration in the shift among consumers toward shopping online: The retailer's revenues increased by 55% over the previous year in 2020.
Some stocks benefited from consumer behavior during lockdown. L Brands, which owns consumer brands such as Bath & Body Works, saw runups in soap, sanitizer, and home fragrances in 2020 as consumers focused on self care. Social media platform Pinterest enjoyed a 37% boost in active users last year due to global shelter-in-place orders, say analysts at CFRA.
Rounding out the list are firms that analysts expect to continue to thrive as the economy begins to normalize. For example, investors are betting that the new ViacomCBS streaming service Paramount+ will help the media conglomerate compete with other streaming names as the economy opens up. And those placing their bets on Capri Holdings, the owner of such luxury brands as Jimmy Choo and Michael Kors, are hoping that pent-up consumer demand will drive shoppers back to stores.
Other online retail beneficiaries on the list include internet-based used car seller Carvana and craft goods marketplace Etsy. Mobile payments firm Square just missed placing in the top 10.
Tesla, copper miner Freeport-McMoRan, and solar company Enphase Energy are, among other things, bets on the long-term prospects of alternative energy: Tesla for its batteries and electric cars, Enphase for its home solar energy systems, and Freeport because of alternative energy sources such as wind and solar consume four to five times the amount of copper that traditional fossil fuel energy sources use, according to CFRA.
When it comes to the market's highest-flying names, investors shouldn't necessarily expect more of the same. As a general rule of thumb, investors should always remember that past performance is not an indicator of future results. What's more, after each of these stocks has at least quadrupled in value, buying now means you're likely paying a high price for the shares.
That doesn't mean that Wayfair stock, or any other stock on the list, won't continue to go up. But it goes to the point that buying any individual stock requires serious analysis of the company's underlying fundamentals and an understanding of the future trajectory of the business.
Video by Helen Zhao
"You shouldn't buy a stock without having a rationale for why you think it's attractive," says Charles Rotblut, vice president of the American Association of Individual Investors. "Before you buy on a tip, ask yourself: 'What is it about this company that I like? What do I think it's going to do? What could possibly go wrong?'"
Rotblut suggests heading to the company's website to read earnings statements and SEC filings, focusing on trends in revenues and earnings as well as any potential risks to the businesses that executives highlight. It's also worth browsing investor presentations in which execs detail their future plans for the company, he says.
Maybe you know you want to up your portfolio's exposure to e-commerce, for instance, but don't want to dig through Wayfair's or Carvana's financials. This is where a thematic exchange-traded fund can come in handy, says Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "If you have a core part of your portfolio using S&P 500 index fund or a total stock market fund, then you could use this as an opportunity to complement, supplement, and take on additional risk."
These funds, which allow you to invest in multiple businesses that fit a particular theme, come with less risk than holding any individual stock, which could go up or down based on company-specific factors. "You could pick a thematic ETF tied to something that resonates with you, that you understand, and that you think has long-term potential," he told Grow.
If you think one of these stocks is exemplary of a particular theme you're interested in, use an online tool to find ETFs that hold one or more specific stocks. The tool at ETF.com allows you to find funds with the biggest holdings in a particular name.
A search for Freeport-McMoRan, for instance, might lead you to the Global X Copper Miners ETF (COPX), which holds a basket of copper-mining firms, or to the SPDR S&P Metals and Mining ETF (XME), which holds a more diversified portfolio of companies that mine for various metals.
Video by Jason Armesto
The ETF screeners at several major online brokerages, including Fidelity, allow you to search for ETFs that hold up to five stocks. Investors interested in e-commerce might plug in Wayfair and Etsy and find the ProShares Online Retail ETF, which counts both stocks among its top-five holdings.
And you may unearth ideas you hadn't considered yet. Tesla, Square, Carvana, and Wayfair are all prominent holdings in the Global X Founder-Run Companies ETF (BOSS), a fund that tracks the performance of firms whose founders still run the show.
When choosing any ETF, check under the hood to make sure the holdings align with the theme you're hoping to add to your portfolio. When comparing two ETFs that track the same theme, favor the one offering consistent, long-term performance and low expenses, says Rosenbluth: "Don't just pick the one that performed the best lately."
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