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A New Year: Value or Growth? Zacks JAN 2021 Strategy

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The following is an excerpt from Zacks Chief Strategist John Blank’s full Jan Market Strategy report To access the full PDF, click here.

Yes. A New Year brings new possibilities.

More prosaically, it also brings fresh U.S. nonfarm payroll macro data (-140K jobs in December), and an update on the critical household unemployment situation (6.7% in December). Amidst this pandemic, such data is not a surprise.

But for this first Market Strategy report for 2021, we must discuss $1,000+ share prices.

My concerns come to you in two table forms.

  • Issue One: I have concerns about the intense day-trading of selected momentum/growth stocks.
  • Issue Two: I have concerns about tech stock index accomplishments that were so concentrated in a few stocks last year

Here is the common rub both share: How much further can fancy “momo” stocks run?

The first table (below) shows 20 amazing single tech stock performances from last year.

20 Big Tech Stock Gains in 2020

A second table (below) shows the percentage of the Nasdaq 100 (NDX) gains that 6 individual stocks claimed.

60% of 2020 Nasdaq 100 (NDX) gains came from 6 stocks
(1) Apple (AAPL)             19.87%
(2) Amazon (AMZN)        13.70%
(3) Tesla (TSLA)              13.03%
(4) Microsoft (MSFT)         9.56%
(5) Nvidia (NVDA)             4.13%
(6) Paypal (PYPL)            

The Bloomberg screen shot (below) shows the top 18 contributors to the NDX’s rise in 2020. It also shows the bottom 18 names, that dragged the index down last year.

Inspect both rows for a full perspective on concentrated moves within the Nasdaq 100.


What should you conclude? Worry a bit folks. Or at least take some profits!

Don’t ignore these 2020 annualized share price facts entering 2021.

One tactical tech stock rotation to consider? Call it the “Dogs of the Large-Cap Nasdaq.”

Sell any of the top 18 names above, or a triple-digit gainer.

Buy into the bottom 18 names.

Zacks January Sector/Industry/Company Telescope

We had four strong sectors this month, which is bullish.

Consumer Discretionary was one of those top areas again this month. COVID has a trifecta of strong spending spots that hit home again.

Two internationally exposed sectors – Materials and Industrials – also came in at the top, as well. Think about buying into Steel, Paper, Containers & Glass, Metals-Non-Ferrous and Semis.

Finally, the Financial sector came in much stronger this month, and was the surprise upgrade to a Very Attractive rating.

Health Care fell softly towards a Market Weight.

Energy and Utilities were at the back of the sector train.

(1) Consumer Discretionary stayed Very Attractive. Consumer Electronics, Home Furnishing-Appliance and Autos/Tires/Trucks stand out as a COVID triple play.

Top Zacks #1 Rank (STRONG BUY) Stock: Target (TGT - Free Report)

(2) Materials
rose up again to Very Attractive from Attractive. Steel, Paper, Containers & Glass and Metals-non-Ferrous look best.

Top Zacks #1 Rank (STRONG BUY) Stock: Vale S.A. (VALE - Free Report)

(3) Industrials rose back to Very Attractive from Market Weight. Pollution Control, Construction Building-Services, Airlines, and Machinery were the top industries.

Top Zacks #1 Rank (STRONG BUY) Stock: International Paper (IP - Free Report)

(4) Financials rose to Very Attractive from a Market Weight. Investment Banking and Banks-Major, and Banks & Thrifts look good. Higher rates would help all of these.

(5) Info Tech stayed Attractive. The Semis alone look excellent.

(6) Consumer stayed at a Market Weight. Consumer Products-Misc. Staples, Beverages, and Food/Drug Retail are the solid middle-of-the-road industries.

(7) Health Care fell to Market Weight. Drugs looked a tad better than the others.

(8) Communications Services rose a notch to Market Weight. Telco Equipment was a strong spot.

(9) Utilities stayed Unattractive.

(10) Energy came in at Unattractive.


How do I want to finish this month’s Zacks January Market Strategy summary?

When I started this narrative, I detailed the 20 stellar individual share return stories from last year. 2020 was one of selected buying of large cap tech growth stocks.

For the year ahead?


I want to share a short and somewhat revised excerpt from 10 Blue-Chip “Dogs of the Dow” for 2021, with 4.1% Dividends, by Brett Owens, of “The Contrarian Outlook.”
I conclude with his simple individual stock portfolio management tactics --

For income investors, dividend strategies don’t come any easier than the “Dogs of the Dow.”

Let’s review the mechanics of the popular contrarian strategy:

Step 1: After the final trading day of the year, identify the 10 highest-yielding stocks in the Dow. [Brett uses annual dividend yields.]

Step 2: Buy all 10 in equal amounts.

That’s it.

In just a couple of quick steps, executed just once every year, you can put together a mini-portfolio of 10 blue-chip stocks.

They typically out-yield the S&P 500, and currently offer 2.5 times more dividends than the broad market index.

Unfortunately, the “Dogs of the Dow” strategy worked the opposite of how it should have in 2020.

The Dogs produced a -8% total return across 2020, while the 10 next-best-yielding stocks produced a modest +3.2% return, and the 10 lowest yielders—in theory, the 10 most “overpriced” stocks—carried the Dow with nearly +25% returns.

To add insult to injury, two of last year’s dogs, Pfizer (PFE - Free Report)  and Exxon Mobil (XOM - Free Report) , were booted from the DJIA.

Was 2020 an anomaly?

Or, has the U.S. economy shifted permanently?

So that the highest yielding Dow stocks are still “cheap for a reason?”

We shall see.

My point in reproducing old income investor tactics –

2021 may be the year to think a little more like a Value investor.

Happy Trading AND Investing to all in 2021!


Warm Regards,

John Blank


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