Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, discusses the investment outlook for 2021.
Q: Where is the economy headed?
A: The economy has been uneven, and that will continue until we get a vaccine — which is why the Pfizer news of a successful trial is so important. Pockets have done well — housing, autos and manufacturing have seen a V-shaped recovery. But there’s a lot of bad: travel, leisure and hospitality, small and medium-size businesses closing every day, 10 million people unemployed. It’s important for the good pieces to pick up the slack until we get another stimulus package. You could potentially see gross domestic product growth of 4% to 5% in 2021.
Q: How will the market adjust to a new president?
A: I think the market likes a Biden win with a split Congress because it’s gridlock — you don’t get many surprises. But research from Capital Group shows that over the past eight decades, in 18 of 19 presidential elections, no matter which party won, a hypothetical $10,000 investment made at the beginning of each election year would have gained in value over the next 10 years, and in 15 of those 10-year periods, it would have more than doubled.
Q: What would you focus on?
A: I have learned over my career that stocks follow profits, and if profits are going higher, stocks eventually will. Earnings are recovering nicely, which tells me that fiscal and monetary stimulus is doing its job. Next year we could see earnings growth of 30%-plus. Find good companies with high market share and good balance sheets.
Q: What are some examples of stocks to consider for 2021?
A: In tech, I like Salesforce.com (symbol CRM) and NXP Semiconductors (NXPI). I like autos, but instead of Ford or GM, I want to own auto parts companies, like Aptiv (APTV), which provides safety technology and connectivity in the car. I like what Fortinet (FTNT) is doing in cybersecurity. In industrials, I like Caterpillar (CAT) and United Parcel Service (UPS)— that’s a great company with a new CEO. Housing is a powerful theme. Look at a builder, such as D.R. Horton (DHI), or toolmaker Stanley Black & Decker (SWK). You can offset safe housing stocks with hospitality stocks, which are still down a lot. Marriott International (MAR) is interesting, as is Wynn Resorts (WYNN). You can’t get over your skis in these stocks until we get a COVID vaccine, but these are quality companies. I love the animal health business. I’m putting my chips on Zoetis (ZTS).
Q: What’s your take on fixed-income investing?
A: With interest rates so low, we have to think out-of-the-box for yield. Depending on your risk profile and your time line, maybe that’s a combination of Treasury inflation-protected securities, preferred stocks, gold, bond-like stocks — such as an AT&T or Verizon — and stock-like bonds, including investment-grade corporate debt. I’d put a little emerging-markets debt in that basket too.
(Anne Kates Smith is executive editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)
©2020 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.