By Michael Brush
Example #1 : I took a decidedly contrarian stance near the lows for the year in a March 25 column favoring all the hardest-hit sectors that the crowd hated the most. At the time, it didn’t make sense to me that Covid-19 would wipe out growth for years, as stock prices suggested. I figured the Federal Reserve, Washington, D.C., and biopharma companies would step in to fix things with stimulus, vaccines and therapies.
So, I used my system of insider analysis and company analysis to single out my favorites in the worst hit sectors. My 20 stocks were up 64% by the end of the year, a lot better than the 51.7% gain for the S&P 500, and the Dow Jones Industrial Average gain of 44.4%. My group of stocks lagged behind the 75% gain for Nasdaq, because it contained no tech.
The March 25 column mirrored a theme I was suggesting in my stock letter. Eight public-gathering-space stocks in my letter on March 17 were up 108% by the end of the year, more than twice the 49% gain for the S&P 500 over the same time. My contrarian names were in airlines, banking, housing energy and what I called “public gathering space” stocks. My stock letter portfolio included names like Cedar Fair /zigman2/quotes/205497488/composite FUN +1.32% , Royal Caribbean Cruises /zigman2/quotes/208854639/composite RCL +0.14% , Carnival /zigman2/quotes/202325446/composite CCL -0.09% , Planet Fitness /zigman2/quotes/203234487/composite PLNT -0.59% and Churchill Downs /zigman2/quotes/205054336/composite CHDN +0.31% .
Example #2 : A group of five contrarian “great outdoors” names I picked with help from money manager Eric Marshall at Hodges Capital Management in Dallas in a May 14 column were up 112.7% by the end of the year. That was more than three times the 31.7% gain in the S&P 500, and almost double the 59.6% gain in the Russell 2000, an apt comparison since our five names are mid-cap stocks.
Example #3 : In July, the consensus call was that insurance companies would get slammed by claims from businesses shuttered by Covid-19. The fear was they’d get hit by business-interruption claims, meddling politicians who want to “socialize” virus-related losses, and a prolonged slowdown that could cripple demand. But these worries seemed overblown. There were bullish capacity and pricing trends in the sector, and there still are.
Plus, I thought the economy would recover sooner than the crowd expected. As people came around to my view, the group of six insurers in a July 8 column beat the market by advancing 19.6% by year-end, compared with 18.5% for the S&P 500. I think this play still has legs. A group of 10 insurers I put in my stock letter on July 6 was up 29% by the end of the year, compared with 19.4% for the S&P 500.
Example #4 : This wasn’t a matter of simply always being bullish. I also made a contrarian call suggesting caution in an Aug. 27 column , because investors were too bullish and insiders were cautious. By Sept. 22, the S&P 500 had fallen 7%.
Example #5 : Here’s a bonus lesson in contrarianism: It pays to go with safer “power brands.” In an April 14 column, I went with five of them. One criteria was they had to be in the “public space” group I liked the most at the time. By the end of the year, these five names were up 55%, compared with 32% for the S&P 500. The five were: Walt Disney /zigman2/quotes/203410047/composite DIS +2.40% , McDonald’s /zigman2/quotes/203508018/composite MCD -0.19% , Nike /zigman2/quotes/203439053/composite NKE -0.89% , Starbucks /zigman2/quotes/207508890/composite SBUX -1.13% and Chipotle Mexican Grill /zigman2/quotes/200781108/composite CMG +0.39% .
When tracking insiders, I usually ignore money managers who have to report as “insiders” because they own large positions. The reason is most money managers lag behind the market.
However, some of them are very good. It is worth knowing who they are, and considering their favorite names. A good medium-term record over three to five years is key to avoid the flash in the pan. (I use Morningstar data.)
Once a month in this column I feature outperforming mutual fund managers so we can all learn investing lessons from them. A key angle is their favorite stocks. It’s best when they actually dig through their holdings for favored names, rather than go with the obvious. Veteran tech money manager Kevin Landis of the Firsthand Technology Opportunities Fund /zigman2/quotes/203635118/realtime TEFQX +2.48% did us that favor in a March 6 column .
He looked beyond popular tech companies like Alphabet /zigman2/quotes/205453964/composite GOOG +0.18% /zigman2/quotes/202490156/composite GOOGL +0.05% , Netflix /zigman2/quotes/202353025/composite NFLX +5.76% and Amazon.com /zigman2/quotes/210331248/composite AMZN -0.75% . Instead, he cited three that did much better by tripling or more by year-end — Roku /zigman2/quotes/205087179/composite ROKU +3.70% , Twilio /zigman2/quotes/205796518/composite TWLO +2.14% and Enphase Energy /zigman2/quotes/207948472/composite ENPH +1.44% . He also suggested Chegg /zigman2/quotes/205655041/composite CHGG -0.89% , Cree and SolarEdge Technologies /zigman2/quotes/207754270/composite SEDG +0.83% , which more than doubled, and Nvidia /zigman2/quotes/200467500/composite NVDA +1.90% , which almost doubled.
The key takeaway here: The media love Buffett, but he isn’t the only investing guru to follow closely.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned KOD, ACAD, CCL and CHDN. Brush has suggested AMGN, GILD, KOD, ACAD, INTC, TXN, QCOM, CTSH, ADI, BRKB, TSLA, FUN, RCL, CCL, PLNT, CHDN, DIS, MCD, NKE, SBUX, CMG, GOOGL, NFLX, AMZN, CREE and NVDA in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.