The past two weeks have not been kind to the stock market.
First, the Federal Reserve cut basis points by “only” 25 basis points in late July — many investors were expecting a 50 basis point cut — and then Fed Chair Jerome Powell sounded less dovish than expected in the following press conference with respect to future rate cuts. The next day, U.S. President Donald Trump — perhaps in an attempt to force the Fed to cut rates — upped the trade war ante by announcing a 10% tariff on $300 billion worth of Chinese goods. A few days later, China responded by directly devaluing its currency against the U.S. dollar.
It has been nothing but bad economic news over the past two weeks for markets. Stocks have consequently taken a step back. As of this writing, the S&P 500 trades 5% off its all time highs.
But, not all stocks have stepped back with the market. Instead, some stocks have shrugged off the trade war noise, and have powered to fresh 2019 highs in early August.
Which stocks have done that? More importantly, will they stay in rally mode?
Let’s answer those questions and more by taking a look at five stocks that rushed to fresh 2019 highs amid recent market turbulence.
Hot Stocks Hitting 2019 Highs: Gold Stocks (GLD, AUY, KGC, GFI, HMY, RGLD, etc)
YTD Change: 17% (for GLD)
Pretty much every gold and gold-related stock — Yamana Gold (NYSE:AUY), Kinross Gold Corporation (NYSE:KGC), Gold Fields (NYSE:GFI), Harmony Gold Mining (NYSE:HMY), and Royal Gold (NASDAQ:RGLD) — has rushed to fresh 2019 highs in August as the trade war heats up.
This makes 100% sense. Gold is often perceived as a hedge against risk of all sorts: geopolitical, economic, and financial market risk. All three of those risks are rising right now and have been rising all year long. The global geopolitical landscape is on rocky footing, with threats ranging from trade wars to political tensions. The global economy is slowing. Financial assets, particularly U.S. stocks and bonds, are trading at very rich valuations.
As such, it makes complete sense that the SPDR Gold Trust ETF (NYSEARCA:GLD) is up 17% year-to-date, and at a multi-year high.
This rally in gold and gold-related stocks should persist. The aforementioned geopolitical, economic, and financial market risks may cool going forward. But, they won’t all together disappear. Throw in the fact that we are in the midst of the longest bull market in history, and it seems like investors will increasingly buy gold and gold-related stocks as a hedge against risk for the foreseeable future.
YTD Change: 117%
Growth stocks have been hit hard amid the recent market sell-off. Not Match (NASDAQ:MTCH). The online dating giant — which owns Match.com, Tinder, Hinge, and many other dating platforms — just reported second quarter numbers that breezed past expectations. It broadly affirmed that online dating is a global phenomena which nearly every single person wants to participate in.
MTCH stock popped 25% to new all-time highs in response, and is now up nearly 101% year-to-date.
Can the rally continue? Yes. Ultimately, Match has turned into the Facebook (NASDAQ:FB) of online dating, since they have basically acquired all their competitors (outside of Bumble) and own the entire online dating space.
Online dating is a global phenomena. There’s tons of room left for further subscriber and revenue growth here. All of the revenues are produced through a high-margin subscription model. Thus, there’s visibility to huge profit growth over the next several years, and stocks with huge profit growth potential will out-perform so long as real rates remain next to zero.
But, don’t confuse a favorable market backdrop (real rates near zero) for fundamental support. MTCH stock now trades at 50 times forward earnings. Adjusted EBITDA grew 16% last quarter. That’s a sharp disconnect that is supported only because of low rates. Thus, if rates move higher, MTCH stock will move lower.
Until that happens, MTCH stock will stay on an uptrend.
Most Solar Stocks (TAN, SEDG, ENPH, VSLR, etc)
YTD Change: 66% (for TAN)
Solar energy stocks have on been fire in 2019, with the Invesco Solar Portfolio ETF (NYSEARCA:TAN) up nearly 67% year-to-date, as the long-term growth fundamentals underlying the industry have materially improved.
Specifically, for the first time ever, solar energy is going mainstream. There are few fundamental drivers here. First, the numbers finally check out, as the cost of renewable energy has come down substantially. Second, consumers have increasingly adopted a “save the environment” approach to their consumption behavior, and part of that approach includes pivoting to solar. Third, legislation globally has increased incentives for solar tech adoption. Fourth, the underlying technology has improved meaningfully.
These four fundamental drivers should persist for the foreseeable future. That means big growth is here to stay for solar companies. Just look at the profit growth estimates for these companies over the next few years. We are largely talking 20%-plus profit growth over the next several years. That’s an attractive growth profile. It’s especially attractive against the backdrop of low rates.
Shake Shack (SHAK)
YTD Change: 103%
Shares of Shake Shack (NYSE:SHAK) powered to all-time highs in early August after the company reported second-quarter numbers which smashed expectations across the board. Importantly, the numbers and management commentary on the quarter confirmed that delivery expansion presents a huge revenue growth opportunity going forward, and that this growth opportunity won’t meaningfully compromise margins — so it presents a huge a profit growth opportunity, too.
Investors celebrated those takeaways, and pushed SHAK stock to new highs.
In the big picture, SHAK stock is now very richly valued. This valuation is somewhat supported by big growth — positive comps on top of big unit expansion. But, as is the case with some of the other stocks on this list, part of the support from today’s big valuation comes from low rates. After all, SHAK stock trades at a triple-digit forward earnings multiple, yet profits grew by less than 20% year-over-year last quarter. That discrepancy only makes sense given that real rates are next to zero.
If rates do rise from here, SHAK stock will get hit hard. Until that happens, momentum should continue to carry this stock higher for the foreseeable future.
REITs (SCHH, WELL, CUBE)
YTD Change: 19% (for SCHH)
Much like gold, REITs have been big winners amid recent market volatility as investors turned down their risk appetites, upped their defensive strategies, and turned to traditional safe-haven plays. The Schwab U.S. REIT ETF (NYSEARCA:SCHH) is presently just south of 2019 highs, and up 19% year-to-date. Names like Public Storage (NYSE:PSA), Welltower (NYSE:WELL), and CubeSmart (NYSE:CUBE) are all trading at 52-week highs.
For the same reasons that gold and gold-related stocks will stay in rally mode, U.S. REITs will stay in rally mode, too. Geopolitical, economic, and financial market risks are rising, and they don’t project to disappear anytime soon. So long as those risks stick around, investors will continue to play defense. One mainstream way to play defense is by piling into U.S. REITs.
Also helping things will be current and future rate cuts. The lower rates go, the better the environment gets for REITs, and the more investors will smile upon the industry as a high-quality defensive play.
Net-net, names like PSA, WELL, and CUBE should continue to grind higher into the end of the year.
As of this writing, Luke Lango was long FB and TAN.