Fidelity portfolio manager stock outlook 2021

by Fidelity Investments

Key takeaways

• Going into 2021, Fidelity stock portfolio managers are focused on opportunities emerging out of a recovering economy and return to normalcy.
• Technology will still be a key investment theme. Online shopping and digital payments have become features of modern life. Companies that make the parts needed to support technological advancement may be critical as well.

After a tumultuous 2020, Fidelity stock fund managers see opportunities as the economy picks up steam and we look forward to our lives going back to normal. Among some of the key themes they see playing out over the course of 2021:

• Value stocks may benefit from a resurgence in growth and inflation.
• Technology stocks may continue to benefit from current trends, including the high demand for hardware to power high-tech devices and equipment.
• A global economic recovery could benefit emerging markets such as China.
• The trend toward digital shopping and payments should continue to grow due to shifting preferences accelerated by the COVID crisis.
• The trends that powered large-cap stocks in 2020 should continue in 2021. Plus the rally in small-cap growth and value stocks may gain steam.

Here’s what some of Fidelity’s fund managers learned in 2020, plus their outlook for the coming year.

Growth investing

Sammy Simnegar
Fidelity^® Magellan Fund, Fidelity^® (FMAGX) Independence Fund (FDFFX)

It was hard to go wrong with large growth stocks this year. Sammy Simnegar, manager of Fidelity Magellan Fund, took a couple of good lessons away from 2020. “On sell-offs, consider growth,” he says. “The second lesson is, high-quality cyclical stocks may be the first ones to recover.”

Case in point: Nvidia (NVDA). ”That is a stock I bought during the sell-off,” says Simnegar. “It fell from $300 to $200 and it’s at $520 (as of Dec. 24, 2020). If they’re high quality, they can grow from cycle to cycle.”

When it comes to stock picking, cloud computing, e-commerce, interest rates, and pent-up consumer demand for experiences outside of the home are significant factors for Simnegar going into 2021.

For companies that may benefit from the shift to the cloud, Simnegar cites Amazon (AMZN) and Microsoft (MSFT) as potential opportunities.

Simnegar also has his eye on tower companies. “As consumers use more data, the towers may benefit.” He’s also partial to cable companies. “Again, working from home means more bandwidth,” Simnegar says.

Emerging markets

John Dance
Fidelity^® Emerging Markets Fund (FEMKX)

“I’m really focused on what I call structural growth. It’s the marriage of sustainable business models with improving customer value propositions,” says John Dance, portfolio manager of the Fidelity Emerging Markets Fund.

One set of stocks that did well in 2020 with good prospects for the future are “Chinese consumer staples, including a 300-year-old soy sauce company and a company that makes essences and flavors," says Dance.

“These are companies which remain under-penetrated in markets which are highly fragmented but over time I think they will continue to develop international businesses, similar to what we’ve seen in other markets like Japan,” Dance says.

For 2021, he plans to continue looking for sustainable growth opportunities. Dance cites Tencent Holdings (TCEHY), one of the largest companies in the emerging markets benchmark. "The company has an app called WeChat, which is like the Facebook Messenger of China. But on top of that, they’re also the major dominant player in video games globally, as well as moving into other media sources,” Dance says.

Of course, there is political risk when it comes to investing internationally. The Chinese government may limit the power of social media in the country and the US has moved to ban WeChat in the US.

Kweichow Moutai (Shanghai Stock Exchange: 600519), a Chinese liquor company that produces baijiu is another company that Dance believes may benefit from the return to normalcy. “It’s an aspirational brand and I think that as we move into a post-COVID world, they could benefit from people, hopefully, going out and celebrating and seeing loved ones.”

Small-cap value

Clint Lawrence
Fidelity^® Small-Cap Value Fund (FCPVX)

“I think value investing really is going to matter in 2021. Inflationary conditions are great backdrops for value stocks and value managers,” says Clint Lawrence, portfolio manager for the Fidelity Small-Cap Value Fund. He thinks inflation may begin to pick up due to the new administration’s policies as well as the potential pickup in the economy as things start to return to normal.

Some of the companies Lawrence believe may be positioned for earnings growth next year include those whose prices were hit hard in 2020 but were able to grow earnings despite COVID.

For instance, International Game Technology (IGT), which is a lottery and gaming service and infrastructure provider. “With the gaming market in the US exploding, I think this is a company that could benefit,” says Lawrence.

Another company Lawrence likes is Renewable Energy Group (REGI), the largest provider of biofuel and biodiesel in the US. “I want to be positioned in names that score well on various ESG-metrics,” he says. (ESG stands for environmental, social, and governance.) “Particularly, the governance aspect but I’m increasingly looking to invest in companies that score high in the E, environment. I think these companies can benefit from that theme.”

When people go back to the office, real estate transactions may increase and office maintenance services could be more in demand again. To try to capitalize on that trend, Lawrence gives 2 names. RLJ Lodging Trust (RLJ), a real estate investment trust that invests in hotels, and Jones Lang LaSalle Inc. (JLL) a real estate brokerage.

Global income

Ramona Persaud
Fidelity^® Global Equity Income Fund (FGILX)

2020 offered plenty of challenges for Ramona Persaud, manager of the Fidelity Global Equity Income Fund. The fund's style leans more toward value, which usually calls for patience, but the market drop in March offered the chance to buy some stocks on sale.

The global recovery will be one of the main factors Persaud is watching in 2021. Some areas where there may still be good values include travel, food service, and consumer discretionary.

“These areas are poised to benefit from economic recovery but still remain very dislocated,” says Persaud. “A lot of those are in travel. There’s a travel booking system company in Europe that still remains reasonably cheap, an airport retailer in the UK, and apparel names are still fairly cheap."

For more ideas, Persaud is looking in multi-industrial transports, airports, travel booking systems, airport retailers, call centers, event-planning companies, and caterers.

Blue chip growth

Sonu Kalra
Fidelity^® Blue Chip Growth (FBGRX)

Sonu Kalra, portfolio manager of the Fidelity Blue Chip Growth Fund, was able to act decisively in 2020 thanks to knowing his companies well and the deep research available to him from his team.

In 2020, electric car company Tesla (TSLA), was a big contributor to the fund and Kalra still likes it. “It’s a company that we’ve known for a very long time and have done a lot of deep research into understanding their advantages versus other traditional car manufacturers, but also other electric vehicle (EV) manufacturers as well,” he says.

“Another one I would mention is Amazon (AMZN), which has been another big holding in the fund for many years,” says Kalra. Speedy home delivery was a key differentiator for the company versus its peers—and continues to be critical.

In 2021, technology and the hardware that powers it will likely remain critical. “I’ll mention Marvell Technology Group (MRVL). It makes semiconductors for 5G networks. We’re seeing a big evolution in wireless networks around the world, going from 4G technology to 5G technology,” he says.

International growth

Jed Weiss
Fidelity^® International Growth Fund (FIGFX)

There are 3 basic factors Jed Weiss, manager of the Fidelity International Growth Fund, looks for in stocks for his funds: multi-year structural earnings growth, high barriers to entry businesses (often reflected in product pricing power at every point of an economic cycle), and attractive valuations based on his earnings forecast.

“I have a wishlist of securities,” says Weiss. “Many of the companies may check some of the boxes but the valuation isn’t right. So when there is a market dislocation like the one this year, I can swoop in and buy them. You have to do your work ahead of time so you can take advantage of these opportunities when they come along. You can’t wait for a sell-off and then start your research,” Weiss says.

For 2021, Weiss anticipates that some trends accelerated by COVID could be here to stay, including e-commerce, digital payments, cloud computing, and gaming. He’s also looking for companies that will emerge from the 2020 crisis structurally more attractive than they were when it began.

“I’m looking at hard-hit sectors where a business's prospects are structurally more attractive than their competitors. For instance, there is a Spanish software company in the travel sector with 2 major competitors. Coming into the crisis, they had a relatively robust balance sheet while the 2 competitors had a lot of debt on their balance sheets,” Weiss says. With less debt to pay off during a time of depressed income, the company with more cash was able to put more money toward research and development.

He anticipates that some themes he likes won’t change in 2021, like some technology names. “ASML Holdings (ASML) is a Dutch company and the largest supplier of EUV to the semiconductor industry. Extreme ultraviolet lithography (EUV) is technology used in semiconductors that is enabling Moore’s Law—essentially helping computers to be made smaller, more powerful, and for less money,” Weiss explains. (Moore's Law refers to the prediction in 1965 by Gordon E. Moore, co-founder of Intel, that the number of transistors on a microchip will double every 2 years, though the cost of computers will be halved.)

The digital payments trend was big before the crisis, but it was accelerated by the COVID crisis with individuals avoiding cash and buying things online. Next year “there may also be an opportunity for the industry to expand in the area of commercial (business-to-business) payments,” says Weiss.