With bearish sentiment increasing, investors are looking for themes and trends that are most likely to generate gains in 2019. Kyle Weaver, the primary manager at the $3.5 billion Fidelity Advisor Growth Opportunities Fund, tells Business Insider that he looks for "deep value" stocks, trading at low valuations, that can deliver high growth regardless of macro conditions, and thus have tremendous upside over the next five to 10 years.
In particular, Weaver seeks "idiosyncratic, resilient business models that have good long-term growth potential and are underappreciated by the market." These are the four big themes that he believes will deliver market-beating performance in 2019 and beyond:
4 Equity Themes To Bet On
- Battery technology
- Chinese internet giants
- Cloud-based software
- Decline of big tobacco
Significance For Investors
Weaver has been the primary manager of the Fidelity Advisor Growth Opportunities Fund since July 2015, and the class A shares have delivered average annual total returns, net of sales charges, of 13.4% over the past year and 14.2% over the past three years, versus 8.6% and 14.0% for its benchmark, the Russell 1000 Growth Index, per Fidelity. The fund also has the highest, five-star rating from Morningstar Inc. versus its rivals in the large growth category.
Battery technology. Weaver observes that the cost of energy storage in batteries has been coming down at an accelerating pace. Largely driven by the growing market for electric vehicles, he sees another key application "in the ability to store solar energy and improve the grid." He did not mention specific stocks to Business Insider, but Albemarle Corp. (ALB), Panasonic Corp. (PCRFY), and Tesla Inc. (TSLA) have been suggested by The Motley Fool. Japanese electronic giant Panasonic, the market leader in lithium ion batteries, is in partnership with Tesla, and specialty chemical maker Albemarle is the world's top producer of lithium.
Chinese internet giants. "Arguably their bigger franchises are more dominant than Google [Alphabet Inc. (GOOGL)] and Facebook [Inc. (FB)]," he claims. None of these stocks are in his top 10 holdings, but JD.com Inc. (JD), Weibo Corp. (WB), and NetEase Inc. (NTES) have been named by The Boston Consulting Group and Fortune magazine as being among "the global companies with the best prospects for future growth," as detailed in a previous Investopedia article. Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. (0700.Hong Kong) are two other leading players.
Cloud-based software. Calling Software as a Service (SaaS) "a very strong trend," Weaver says that one-time "speculative growth stories are now the clear category killers, and have become mega-cap stocks with operating leverage and real cash flow." Salseforce.com (CRM) fits that description and is among the fund's top ten holdings. Intuit Inc. (INTU) is an example of a leading software applications company that is shifting delivery to the cloud, and VMWare (VMW) is an example of a company whose technology is enabling the expansion of cloud computing, including SaaS.
Decline of big tobacco. "Big tobacco will be disrupted by better, cheaper, cleaner alternatives," Weaver says. One of his top 10 holdings is Juul Labs, a privately held maker of electronic cigarettes. Meanwhile, big tobacco company Altria Group Inc. (MO), formerly known as Philip Morris and the makers of Marlboro, recently bought a 35% stake in Juul for $12.8 billion, per Investor's Business Daily.
Trade conflicts with the U.S. have been damaging to Chinese stocks in 2018, and the outlook for resolution of this major negative in 2019 is uncertain at best. While not mentioned specifically by Weaver, Tesla is an example of a company with cutting-edge technology and a CEO with bold visions, but which nonetheless has yet to establish itself as solidly profitable, and thus is a highly volatile and speculative investment. Finally, even if Weaver is correct in picking these four trends for long-term potential, it's a risky bet to anticipate short term gains in 2019.