On September 28, we told you the retail apocalypse was over.

We said that there’s no way all brick-and-mortar retailers were going bankrupt. And that the selling was overdone.

Less than a week later, some of the world’s richest investors started following our advice.

How do we know that?

Well, hedge funds just had to unveil their holdings. At the end of every quarter, all hedge funds with over $100 million in assets need to file what’s called a 13F report with the Securities and Exchange Commission (SEC). And the SEC makes these reports public each quarter.

I always make sure to pay close attention when these reports come out. They tell you what the world’s most successful investors are actually doing with their money. And we’ve taken full advantage of this strategy here at the Daily

Last March, we saw that hedge funds were moving money into financials.

Anyone who followed them into financials and bought the Financial Select Sector SPDR ETF (XLF) is up over 20% right now.

And again, in August, we found out one of our favorite big-money managers, David Tepper, was moving into tech stocks—specifically, Google, Alibaba, and Facebook. Those stocks are up an average of 15% in just six months.

Following these reports can make us a lot of money. And right now, the big money is flowing into retail…

The Big Money Is Moving Into Retail

Over the past quarter, more money went into the consumer discretionary sector than any other sector. The consumer discretionary sector holds companies that sell things people want, but don’t need—things like electronics, vacations, and jewelry.

Some companies in the sector are major retailers Amazon, Home Depot, and Nike.

In total, these funds allocated an extra 0.3% into these kinds of companies. Now, 0.3% doesn’t sound like much, but these funds control over $2.7 trillion. So 0.3% means over $8 billion shifted into the sector.

That’s huge.

And it’s why it was among the best-performing sectors at the end of 2017. As you can see in the chart below, from October 1 to December 31, consumer discretionary stocks rose 11%… almost double the S&P 500’s 6% return during the same period.

But these guys aren’t moving around large sums of money for just an 11% gain. They’re looking for more…

Who’s Buying What

Legendary investor David Einhorn (who’s earned 16% annual returns over the past 30 years) just bought a bunch of retailers. This includes JCPenney, Nordstrom, and Kohl’s.

Bill Ackman, a similar investor to David Einhorn, bought Nike.

Billionaire investor Julian Robertson, the “Wizard of Wall Street,” likes pizza stocks. He bought Papa John’s and Domino’s Pizza. Both of those fit within the sector.

And billionaire investor George Soros bought Overstock.com and Target.

Like we said, the “retail apocalypse” was getting overblown. We knew that not all brick-and-mortar retailers would go out of business. Over 90% of retail purchases are still made in stores.

It was only a matter of time until the market realized this. Not only was the selling in retailers overdone, the economy is strong.

We’ve been pounding the table over the past year about how strong the economy is. We saw this firsthand in our road trip through the Midwest. Unemployment is down, incomes are up, and consumers are feeling confident.

All that is going to lead to more spending. According to a survey done by ChangeWave Alliance, 29% of consumers are planning to spend more this upcoming quarter than they did last year. This shows that people are feeling good about the economy.

Big-money investors agree with us. That’s why they’re buying retailers and other consumer discretionary stocks hand over fist.

How to Take Advantage

It’s not too late to get into these companies. The one-click way to ride this trend higher is to buy the Consumer Discretionary Select Sector SPDR ETF (XLY).

If you want to buy a few individual companies, you can look into the Elite 25 portfolio for some quality consumer discretionary stocks that are trading cheaply.

They include:

  • American Outdoor Brands (AOBC)

  • AutoZone (AZO)

  • Brinker International (EAT)

  • Brunswick Corp (BC)

  • Foot Locker (FL)

  • L Brands (LB)

  • Michael Kors (KORS)

  • Nautilus (NLS)

  • Ruth’s Hospitality (RUTH)

These nine stocks should perform well over the next few years.


Nick Rokke, CFA
Analyst, The Palm Beach Daily


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