Fortune - USA (2019-12)

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FORTUNE.COM // DECEMBER 2019

accessories, has a new designer in place who

could spark sales with new products. It’s also

one of the cheaper luxury consumer stocks out

there. Gautrey says he wouldn’t be surprised if

Burberry saw a bump of 50% or more in share

price: “If things go well, it could be there

within 12 months.”

EMERGING MARKE TS

In China, India, and Southeast Asia, the

middle class is here to stay.

B

ETWEEN TRADE TENSIONS in Asia

and near-recessionary condi-

tions in Europe that have hurt

companies that export their

goods there, international equi-

ties have had a tough run. After two years of

retailer is seeing consistent demand from an

older, affluent demographic for DIY prod-

ucts—a trend many investors believe would

be resistant to any downturn. Watts notes that

Home Depot has grown its dividend over the

past five years and has posted revenue growth

of almost 6% in the past 12 months.

Another big-box retailer, Target, has con-

tinued to prove it can thrive in an e-commerce

universe. Target is poised to grow revenue next

fiscal year by 3%—small change in some indus-

tries but a healthy jump for a retailer.

Bold Bet

EVEN IF U.S. GROWTH were to slow down, it

wouldn’t keep the fast-growing affluent de-

mographic in countries like China, Brazil, and

Indonesia from spending on luxuries. Schrod-

ers’s Gautrey sees an upside in British retailer

and “turnaround story” Burberry. The brand,

known for high-end trench coats and myriad

STOCKS AND FUNDS

HOW FORTUNE DID

The Best Kind of ‘Upside Surprise’

kept that trend alive.

We got market-beating

returns from Face-

book, Alphabet, and

Amazon—but we have

doubts that the party

will last much longer.

Financial Folly

We foresaw that a vol-

atile year would mean

more business for bro-

kerages and traders;

Asia Ascendant

Some of our best-

performing picks were

in Asia, where fast-

growing middle-class

populations drove

big gains for Meituan

Dianping (the “Grub-

hub of China”) and

Hong Kong casino op-

erator Melco Resorts

& Entertainment. And

while tariff battles hurt

we didn’t realize how

much technological

changes and competi-

tion would hurt their

profits. Shares in TD

Ameritrade fell 25% as

a zero-commissions

battle eroded earnings

across the brokerage

industry. Options- and

futures-trading giants

CME Group and CBOE

were also laggards.

Healthy Returns

In a year when health-

care stocks in general

underperformed, we

reaped big returns on

two innovators whose

products won approval

from the FDA: Exact

Sciences, which makes

noninvasive colorectal

screening tests, and

Vertex Pharmaceuti-

cals, which develops

therapies for cystic

fibrosis. —MATT HEIMER

some semiconduc-

tor makers, our picks

Taiwan Semiconduc-

tor and U.S.-based

Texas Instruments

returned 48% and 30%,

respectively.

Ever Bigger Tech

U.S. tech giants have

generated a huge share

of the past decade’s

stock gains, and 2019

A YEAR AGO, OUR INVESTMENT TEAM believed that rising interest rates and grim

trade tensions would be a drag on the stock market. We predicted that when it came

to earning steady returns, the best offense would be a good defense. As it turned

out, U.S. stocks did just fine—and senior writer Jen Wieczner’s “Safety Meets

Strength” portfolio did even better. Over 12 months, her 30 stock picks averaged

returns of 20.2%, including dividends, compared with 14.4% for the S&P 500. An

interesting footnote: Seven of our nine non-U.S. picks beat the S&P, even as global

stocks in general lagged American ones. Here, a roundup of our hits and misses.