Happy New Year!
The S&P 500 closed the year at a new high in price despite record new COVID-19 cases worldwide. A new, more contagious variant of the virus is also being ignored as investors are instead focused on an economic recovery buoyed by the rollout of vaccines.
Last year, Growth stocks led the way, with the Tech-heavy Nasdaq gaining 43.7%, driven higher by outsized returns in Software and Semiconductor companies that kept locked-down employees and students connected. Subscribers to my MEM Edge Report experienced triple-digit gains as high as 203% among Growth stocks that were highlighted on our Suggested Holdings List.
While many of last year's winners are expected to continue to trade higher, there's been a shift in the near-term toward recovery stocks that will benefit as the economy emerges from coronavirus restrictions.
Let's take a look at global payment processor Visa (V), which was among the major credit card companies that saw double-digit drops in profit for their 3rd quarter. These companies derive a large portion of their revenues from cross-border payments, and travel restrictions put a big dent in their growth.
DAILY CHART OF VISA, INC. (V)
Visa (V) is now in a strong buy zone following last week's 4-month base breakout on volume. Not only do the prospects of a pickup in travel have analysts raising estimates, but Visa is the first credit card to offer Bitcoin rewards rather than airline miles. The company rolled this feature out last month and the move has already increased adoption of the card.
Bank stocks are also springing back to life as loan default fears amid historical levels of unemployment have receded. The group also received a boost last month from the Federal Reserve's decision to allow share buybacks among the largest Banks.
DAILY CHART OF COMERICA, INC. (CMA)
The Fed's action confirms the strong balance sheets and growth prospects going forward for Banks such as Comerica (CMA), which has estimates for a 38% pickup in earnings in 2021 over last year. This 4.9% yielder recently broke out of a 7-week base and is poised to trade higher.
And with travel restrictions expected to be lifted over time, Hotel and Lodging stocks are also getting a boost, with names such as Hilton Worldwide (HLT) poised to break out of 7-week base. A breakout at the $117 level would be very bullish for the stock.
DAILY CHART OF HILTON WORLDWIDE HOLDINGS, INC. (HLT)
The global hotelier responded quickly to unprecedented challenges that were brought on by the pandemic with contactless guest experiences and industry-setting cleaning standards, all while continuing to open new locations around the world. Analysts are calling for 713% growth in earnings in 2021 from depressed levels last year.
In addition to recovery stocks joining already-strong Growth stocks, I'm anticipating renewed interest in Cyclical stocks as the new year takes shape. Subscribers to my MEM Edge Report were alerted to Cyclical bank stock Comerica (CMA) in late October, and the stock has since outpaced the S&P 500 by 40%.
If you'd like to be alerted to when a more pronounced shift into Cyclical stocks takes place, as well as which names will benefit the most, take a 4-week trial of my MEM Edge Report for a nominal fee. You can check out some of our recent picks, as well as a sample of this detailed, bi-weekly report by using the above link as well.
And to all those who already subscribe to the top performing MEM Edge Report, thank you! Here's to 2021 being our best year yet.
Mary Ellen McGonagle, MEM Investment Research