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During this bear market, investors may have to rebalance their portfolio to maximize their profits. This TradingSim article will help readers to show them how to rebalance their portfolios- and how much it can cost. This article will also help readers find the top five growth stocks to add to their portfolios- and five to drop to rebalance portfolios.

What does it mean to rebalance a portfolio?

After COVID-19 devastated the global economy, investors are scrambling to recover. One way they can gain control of their financial destinies is to rebalance their portfolios. Adjusting investments can help an investor keep track of their goals and minimize risk.

Rebalancing portfolios is buying or selling assets to balance out asset classes. For example, an investor can have a portfolio that’s composed of 50% stocks and 50% in Treasury bonds.

At the end of a quarter, the Treasury bonds could be outperforming stocks. If the Treasury bond of the portfolio is outweighing the stock portfolio, the portfolio could be 70/30. with more Treasury bonds than stocks. Some financial advisors call for rebalancing portfolios if an asset has increased or decreased by 5% from its original allocation.

With that imbalance, an investor may want to rebalance to change the target allocation back to 50/50. The investor may also want to add another asset to a portfolio, like emerging market ETF’s. They may also want to have asset classes that balance out their trading strategy.

When should investors rebalance portfolios?

While there is no set time to rebalance a portfolio, some financial advisors noted that rebalancing a portfolio at any time can be key. It can lead advisors to have more discipline when they rebalance portfolios.

Christy Gatien is a certified financial planner and first vice president and portfolio manager at D.A. Davidson & Co. She noted that rebalancing a portfolio can cause investors to be wiser with their investments.

“The beauty of an asset-allocation approach is that it forces us to be disciplined investors as long as we stick with it. As we rebalance, we’re trimming the areas that are doing well — selling high — and adding to the areas that are struggling — buying low,” said Gatien.

30-Year Treasury bond Yields vs. 30-day Fed Funds Rate

Gatien advises against rebalancing a portfolio during extremes in a bull market.

“When markets are going up, we tend to overestimate our tolerance for volatility,” said Gatien.

If investors are rebalancing portfolios during a crash, there could be a downside for nervous investors.

“When markets are going down, we tend to be overly fearful,” said Gatien.

Should investors have a specific time to rebalance their portfolios?

Some investors may want to recalibrate their portfolios every quarter or annually. Larry Miles, principal at AdvicePeriod advises against traders having a set schedule to rebalance their portfolios.

“Rebalancing based on a particular month of the year makes no sense — it’s purely arbitrary,” said Miles.

“It’s like saying, ‘I’m going to drive in a straight line for 11 miles and then, in the 12th mile, I’ll turn right,” added Miles.

Miles wants investors to rebalance their portfolios when the stock market makes dramatic turns.

“You need to rebalance as often as the market dictates, to stay on the road,” said Miles.

Should investors use a rebalance portfolio calculator?

Investors can figure out how to recalibrate their portfolios with rebalance portfolio calculators.

Jason Lowy is a certified financial planner and first vice president of wealth management at UBS Financial Services. He advocates investors using rebalance portfolio calculators to help their asset allocation.

“These calculators are great at creating a general road map for where you could allocate investments. They may not, however, take into consideration individual goals and needs based on the investor’s specific situation,” said Lowy.

Rebalancing calculators can be useful to investors if they want to know exactly how much to allocate to their portfolios.

How does an investor rebalance a portfolio?

There are three main ways an investor can rebalance their portfolios.

Review the current portfolio before they rebalance portfolios. If an investor’s portfolio is through their 401k plan at work, they can review their portfolio through a quarterly report. They can obtain information from the brokerage companies handling their portfolios. Traders can also link their investing accounts to online apps to monitor their accounts more closely. If an investor is more DIY and old-school, they can make a spreadsheet of their investments to determine their asset allocation.
Plan out your ideal portfolio before rebalancing portfolios. After investors look at the portfolios they have, they can plot out the portfolios they want. If an investor’s portfolio is composed mostly of stocks and they want to focus more on bonds, there are changes traders can make to rebalance their portfolios. Investors can research the bonds they want to purchase and plan out the exact rebalance of portfolios they want in a spreadsheet. With an explicit plan, an investor can plan out the asset allocation they want to rebalance their portfolios.
Buy and sell shares to improve rebalance of portfolios. Investors can rebalance their portfolios by buying and selling shares of stocks, bonds, or other assets. Buying and selling the shares can help an investor balance out their portfolios.

What are the costs of rebalancing a portfolio?

Rebalancing portfolios can be beneficial, but also costly. When investors buy and sell shares on their own, there can be high fees. Selling a lot of assets, especially in a short period of time, may result in high trading fees, as Lowy noted.

“Rebalancing too often could result in a lot of transactions” and transaction fees, said Lowy. Investors can reduce the fees by investing with commission-free brokers. They can also choose online brokers that rebalance portfolios automatically for clients free of charge.

Investors should also learn about the capital gains taxes that can be levied on sold assets. Capital gains taxes come from profits from asset sales.

Short-term capital gains can be taxed as income. Long-term capital gains can be in the brackets of 0%, 15%, and 20%. Investors should consult with their tax professionals to determine the total costs of rebalancing portfolios.

Investors should thoroughly research stocks before they buy or sell shares of stocks. However, these following five stocks have seen the most growth so far this year. Investors can add these five stocks to their portfolios to rebalance their portfolios. For investors rebalancing portfolios during a crash, these stocks can be beneficial additions.

Top 5 stocks to add to rebalance portfolios

1.Beyond Meat

Beyond Meat (NASDAQ:BYND) is a company that is booming right now. For investors looking to add a growth stock to rebalance portfolios, this stock is a strong option. The meat alternative producer’s year-to-date performance is already an impressive 72.9% growth. With the COVID-19 crisis affecting meat warehouse workers, there are meat shortages in many grocery stores.

Beyond Meat’s rising stock can help investors rebalance portfolios

Because of the shortage, Beyond Meat has benefitted from the meat shortage. Many grocery stores have requested more orders from meat substitute producers like Beyond Meat to stock their shelves. The corporation’s stock surged a whopping 134% since the coronavirus crisis started.

Beyond Meat stock can help rebalance portfolios

Peter Saleh is an analyst at BTIG and watches corporations like Beyond Meat. He believes that customer loyalty is key to Beyond Meat’s success in grocery stores.

“What we really like about this story is you’re seeing the repeat rates of about 46% at least in the grocery store, which tells us that there’s really strong demand for this product, and I think you’re going to see more of it coming to menus at restaurants near you,” said Saleh.

Saleh also predicts more opportunities for Beyond Meat products to be offered in restaurants once they re-open.

“They’re at about 34,000 locations in the U.S. in terms of restaurants. Now, that’s only about 5% of the U.S. restaurant doors that they can get into, so I think there’s a lot more opportunity not only on the sausage or beef side but also on the poultry side. I think they’re working aggressively to expand that as well,” said Saleh.

Beyond Meat has excellent Q1 2020 earnings to help rebalance portfolios

In addition to its current success, Beyond Meat had a winning Q1 2020 earnings report. The company’s revenue skyrocketed 141% to $40.2 million from Q1 2019. Ethan Brown, Beyond Meat’s CEO, spoke about the results in a statement.

“I am proud of our first- quarter financial results which exceeded our expectations despite an increasingly challenging operating environment due to the COVID-19 health crisis,” said Brown.

Brown also stressed the importance of keeping the company’s workers safe during this current pandemic.

“The health and safety of our employees and their families is our top priority and we have implemented a series of measures to minimize risks while supporting business continuity,” said Brown.

With more consuming less meat or going vegan altogether, Beyond Meat is a growth stock to add to rebalance portfolios.

2. Netflix

In addition to Beyond Meat, Netflix stock (NASDAQ:NFLX) is also a growth stock performing well during this time of quarantine. Investors looking to add an entertainment company stock can rebalance portfolios with Netflix shares.

Netflix thrives during shutdown

With many people stuck at home, Netflix became a go-to source of entertainment. The streaming service added 15 million subscribers that watched hit shows like Tiger King and Love is Blind. Netflix also met Wall Street expectations with a reported Q1 2020 revenue of $5.77 billion.

Netflix touted its rising viewership in a statement.

“During the first two months of Q1, our membership growth was similar to the prior two years, including in UCAN[United States and Canada]. Then, with lockdown orders in many countries starting in March, many more households joined Netflix to enjoy entertainment,” said Netflix.

Analysts bullish on Netflix stock to rebalance portfolio

Because of Netflix’s increased viewership, Jefferies analyst Alex Giaimo rated Netflix stock as a buy in a note to clients. While the stock has been volatile over the last month, Giamo says Netflix is a long-term buy for investors who want to rebalance their portfolios. He notes that since more viewers are abandoning cable for streaming services, Netflix’s stock should rise in the long run.

Netflix stock an excellent pick to rebalance portfolios

“Stock sentiment leans more positive, with bulls highlighting the accelerated shift from linear to OTT (over-the-top TV) while bears push back on valuation and technicals,” wrote Giamo.

“Near-term choppiness is expected, but we advise buying dips and owning shares long term,” added Giamo.

For investors looking for a long-term investment, Netflix can be a smart choice to rebalance a portfolio.

3. Citrix

For investors looking for a well-performing tech stock, one choice may be an overlooked company-Citrix (NYSE:CTXS). Citrix isn’t as high-profile as Zoom (NASDAQ: ZM), but is a tech company that helps many people that have to work from home. The cloud company provides remote access software to workers, which is essential now during the quarantine.

Citrix stock rose 37% this year and grew exponentially during this quarantine. The company’s chief marketing officer, Tim Monaghan, recently spoke about how Citrix has helped remote workers for decades.

Citrix stock rising can help rebalance portfolios

“Remote work is top of mind for companies around the world. And while some see it as a short-term fix to the COVID-19 problem, smart companies recognize it may be a long-term solution as they plan for what promises to be a radically different future,” said Monaghan.

Analysts say Citrix can help rebalance portfolios

Because of Citrix’s strong performance, Raymond James analyst Robert Majek upgraded the stock to a buy in a note to clients. He believes that the increase in flexible work-from-home schedules will help Citrix stock grow.

“We believe the surge in business continuity planning, including facilitation of remote work, could be a structural change that drives virtual desktop and application demand not only this quarter but in the next 1-2 years, giving us[Raymond James] increased confidence Citrix can meet or exceed 2020 and 2021 street growth estimates.”

William Blair analyst Jason Ader also believes Citrix stock will outperform Wall Street expectations. He wrote in a note to clients that he believes investors should add Citrix to rebalance portfolios.

“Our rating change is driven by the view that the wake-up-call nature of the current crisis will drive many organizations to expand their usage of (Citrix) technologies, which should result in a higher long-term growth rate for Citrix and a re-rating of Citrix stock,” wrote Ader.

If investors want to rebalance their portfolios by adding a fast-growing tech stock, Citrix could be a good option.

4. Humana

Humana (NYSE:HUM) was a top stock before the COVID-19 crisis. The stock rose because of two reasons. First, the healthcare corporation had a higher enrollment in its Medicare Advantage health care plans in the beginning of the year.

Second, the Democratic presidential primaries helped boost Humana stock 49% over the past year. When democratic socialist candidate Bernie Sanders was winning early primaries, many healthcare companies like Humana worried and shares dropped. Investors were concerned that his Medicare for All plan would eliminate private health insurance if he won a general election.

Humana stock could be addition to rebalance portfolios

However, when moderate rival joe Biden won more primaries later on, Humana stock rose as healthcare companies knew Biden wouldn’t implement non-profit insurance if he won the general election.

Humana can be strong stock to rebalance portfolios with telehealth services

While more customers and moderate politics helped Humana pre-COVID-19, telehealth services helped improve Humana’s bottom line after the pandemic spread to the United States. CEO Bruce Broussard noted that telehealth services helped them reach more customers.

“Telehealth, together with increased use of our mail-order pharmacy and early fills allows our members with chronic conditions to continue to receive care to prevent long-term negative health implications. Since the declaration of the national emergency in mid-March, we have closed approximately 630,000 gaps in care,” said Broussard.

“Further the providers in our value-based arrangements saw the benefit of predictable cash flow streams and we’re the fastest to innovate and create thoughtful digital telehealth strategies in response to the crisis,” added Broussard.

With telehealth being a new way to deliver care to more patients, Humana stock can be a good option for investors who want to rebalance their portfolios with healthcare stocks.

5. Target

For investors that want a strong retail stock to rebalance their portfolios, Target (NYSE: TGT) could be a good choice. Target had its stock rise 42% over the past year. The big-box retailer had a double-digit rise because stores remained open during the coronavirus crisis.

Because Target was deemed an essential service, the store had many customers-just not necessarily in physical locations. The store’s online sales grew exponentially with many people home under quarantine. Digital sales skyrocketed 275% since April. The company’s Q1 2020 revenue also beat expectations and reached $19.62 billion.

Target stock could be added to rebalance portfolios

Target CEO Brian Cornell spoke about the jump in digital sales.

“Unprecedented volatility within the quarter presented the most extreme test of our business and operations that I could have imagined. And in that environment, we drove industry-leading growth with a total comp sales increase of 10.8% and digital comp growth of more than 140%,” said Cornell.

Financial analysts rate Target stock a buy

Wall Street experts also think Target shares can be bought to rebalance portfolios. Raymond James analyst Matthew McClintock wrote in a note to clients that Target stock is a buy because of its strong e-commerce division.

“In a world of retail ‘winners and losers,’ those who have aggressively invested in omni-channel and supply chain capabilities, and those who have differentiated merchandising with highly relevant brands, have an immense market share opportunity over the next several years,” wrote McClintock.

Target sales can make stock a top pick to rebalance portfolios

While other retailers are struggling, Target can be a robust stock for investors who want to rebalance their portfolios. The recent passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act gave much needed financial help to struggling Americans. The government stimulus checks also helped the store’s profits.

Cornell spoke about Target sales rising as Americans received government stimulus checks.

“When April 15 hit and those stimulus checks arrived, we saw a very different shopping pattern. America was back in our stores shopping all of our categories, still taking advantage of the convenience of our contact-free online services,” said Cornell.

With growth in e-commerce sales and perseverance through the COVID-19 pandemic, Target could a strong retail stock to help rebalance portfolios.

Top 5 stocks to sell to rebalance portfolios

1. J.C. Penney sell necessary to rebalance portfolios

While Target’s stock is a buy, this retailer’s stock is a sell. J.C. Penney’s(NYSE:JCP) stock is now just a penny stock. J.C. Penney filed for bankruptcy earlier this month after years of plummeting sales and crushing debt. The troubled retailer will close 242 of its 830 stores as a result. Investors that are still holding this stock should sell the shares to rebalance their portfolios.

J.C. Penney a stock to drop to rebalance portfolio

J.C. Penney hoped to recover with more curbside pickup of orders for customers. The retailer also hoped to increase sales by remodeling their stores. However, with the coronavirus pandemic, J.C. Penney couldn’t compete with other retailers and filed bankruptcy. CEO Jill Soltau spoke about the bankruptcy in a statement.

“Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy – and our efforts had already begun to pay off,” said Soltau in a statement.

JC Penney stock must be sold to rebalance portfolio

“While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt,” added Soltau.

Even Amazon can’t help J.C. Penney stock benefit rebalance of portfolios

There are reports that Amazon ( NYSE:AMZN) could step in and buy J.C. Penney. J.C. Penney stock could be sold to rebalance portfolios- even if Amazon steps in to rescue the company.

A source that works with Amazon noted that there are representatives from the e-commerce giant in J.C. Penney’s headquarters in Plano, Texas. The representatives are reportedly in talks with JC Penney to form a partnership.

”There is an Amazon team in Plano [Tex.] as we speak,” said the source who conducts business with Amazon. “There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure.”

While Amazon could help J.C. Penney in the short term, there is still a long way to go before J.C. Penney can return to its former glory days. Neil Saunders is the managing director of GlobalData Retail and monitors big-box stores like J.C. Penney. He believes that J.C. Penney faces a steep challenge in rebranding itself in this economic downturn.

“A wholesale makeover is required to restore the company’s fortunes. In normal times, that process of reinvention would be challenging — accomplishing it in the midst and aftermath of a pandemic is more than a tall order,” said Saunders.

For investors that want to abandon old-fashioned retail stocks, selling J.C. Penney stock can help rebalance portfolios.

2. Carnival

In this COVID-19 era, the cruise industry has probably suffered the most. Carnival (NYSE:CCL) stock dropped a whopping 77% since the coronavirus crisis struck cruise ships earlier this year. Even though there is a brief rebound in its stock as the economy re-opens, the cruise industry may take longer to fully recover.

Carnival stock sale may be needed to rebalance portfolios

Some financial experts are skeptical that Carnival stock can recover from its current troubles. Danielle Shay is director of options at Simpler Trading and monitors cruise stocks. She thinks that the cruise industry will bear the brunt of the economic downturn.

“I think that the cruise liners are the ones that are going to get hurt the absolute worst out of this,” said Shay.

Carnival stock could be sold to rebalance portfolios

Shay is also unsure if the cruise industry can recover even if they raise more capital.

“Even if they do have somewhat of a capital raise, eventually, they’re most likely going to head towards bankruptcy and their stock price could head down to 5, even to 0,” said Shay.

Carnival Q1 earnings devastated by COVID-19

Carnival’s economic troubles were evident in its last earnings report. The corporation recorded a loss of $781 million, twice the amount in Q1 2019. Carnival also noted that coronavirus caused a large financial loss.

“The impact of COVID-19 on the first quarter 2020 net loss is approximately $0.23 per share, which includes canceled voyages and other voyage disruptions, and excludes the impairment charges described above,” said Carnival.

“Other previously disclosed voyage disruptions, noted during the Corporation’s December earnings conference call, also impacted first-quarter 2020 results by approximately $0.12 per share,” added Carnival.

Economic slowdown and uncertainty about Carnival could cause rebalance of portfolios

In addition to Carnival’s financial loss, other factors could lead investors to rebalance portfolios by selling Carnival stock. Customers may be hesitant to return to cruise ships because of their reputation for quickly spreading diseases.

Shay is bearish on Carnival stock because she considers the company’s cruise ships a “floating Petri dish.” She also thinks that despite the current rise in cruise bookings, “I really don’t think they’re going to come back anytime soon.”

Even when Carnival resumes cruises in August, many potential customers may not be able to afford cruises. With 30 million people filing for unemployment over the past two months, this is hardly the best time for a luxury cruise on Carnival.

If investors want to rebalance their portfolios, they can sell their Carnival stock. The volatile cruise industry may not be the best option for traders until it has a full recovery.

3. United Airlines

United stock sale may be crucial to rebalance portfolio

In addition to the cruise industry, the airline industry is cratering as well. If investors want to rebalance their portfolios during a crash, United Airlines (NYSE:UAL) stock may have to be sold. United Airlines stock has tumbled 70% this year as travel ground to a halt during the quarantine.

United stock could be sold to rebalance investors’ portfolios

The corporation noted in its Q1 2020 earnings report that it reported a $1.7 billion loss as a result of the COVID-19 pandemic. The airline also expected to have a large cash burn for Q2 2020.

“The company currently expects daily cash burn to average between $40 million and $45 million during the second quarter of 2020,” added United.

Warren Buffett rebalances portfolio by dumping airline stocks

Even famed investor Warren Buffett saw a need to rebalance his portfolio during this latest economic downturn. Buffett’s Berkshire Hathaway sold 100% of its airline holdings as a result of the coronavirus’ effect on the industry.

Buffett explained that he has completely abandoned his 21.9 million United shares. He rebalanced his portfolio recently.

“When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%,” said Buffett.

During Berkshire’s latest virtual shareholder meeting, Buffett noticed how the airline industry suffered this year and why he needed to rebalance Berkshire Hathaway’s portfolio.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” said Buffett.

Warren also expressed pessimism that the airline industry can recover from the nationwide shutdown.

“I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” added Buffett.

Financial analysts say United Airlines should be sold to rebalance portfolios

Even though United Airlines is slated to receive a $5 billion government bailout to keep it afloat, the airline is still drowning in debt. The company’s crippling debt and fewer passengers could cause investors to rebalance portfolios with sales of United stock. Argus Research analyst John Staszak wrote in a note to clients that he was downgrading United Airlines stock.

“United Airlines faces multiple headwinds in 2020. Even prior to the coronavirus outbreak, flight demand had weakened due to the U.S.-China trade war and slower economic growth in China,” wrote Staszak.

Even if United rebounds, the corporation still faces an uphill battle. Because of social distancing, their planes can’t be at full capacity, so that could hurt the airline’s sales. If United raises prices to offset losses, customers could stay home if they can’t afford price hikes. If investors want to rebalance their portfolios, they can sell United shares.

4. Tyson Foods

In addition, Tyson Foods(NYSE:TSN) stock could be sold to rebalance investors’ portfolios. The frozen food company has been rocked by COVID-19 as meat warehouse workers are falling ill with the virus. Some meatpacking workers have even died from COVID-19. These tragic occurrences have weighed on the corporation.

Tyson Foods pledged to protect workers’ safety in a statement. The corporation also acknowledged that the reduced workforce and increased production costs will impact the company.

“Operationally, we have and expect to continue to face slowdowns and temporary idling of production facilities from team member shortages or choices we make to ensure operational safety,” said Tyson in a statement.

“The lower levels of productivity and higher costs of production we have experienced will likely continue in the short term until the effects of COVID-19 diminish,” added Tyson.

Tyson has disappointing Q2 2020 earnings report

Tyson Foods had a disappointing Q2 2020 earnings report. The company’s net income fell 15% from $426 million to $364 million. The stock dropped 9% after the lackluster report.

Tyson stock can be sold to rebalance portfolios

Restaurant closures can lead investors to rebalance portfolios

In addition to Tyson’s workers contracting COVID-19, Tyson’s sales have been impacted by the virus as well. Restaurant closures have caused a decrease in demand for Tyson’s chicken. Food service sales to restaurants fell by as much as 30% in its last quarter.

The corporation noted that even if the economy re-opens soon, consumer demand may not offset the current slumping food service demand.

“For the remainder of fiscal 2020, we do not believe pricing will improve, and we do not expect increased demand in consumer products to completely offset the expected decrease in food service,” said Tyson.

Meat alternatives could cause investors to rebalance portfolios

Tyson is also facing competition from the aforementioned Beyond Meat. With meat alternative products gaining in popularity, Tyson’s meat products are in shorter supply because of plant closures after workers contract COVID-19. Investors may rebalance their portfolios and sell Tyson shares.

In contrast, Beyond Meat reported that it has enough inventory to supply grocery stores and restaurants once they re-open. If customer tastes continue to change and meat supply is inconsistent, investors may drop Tyson stock to rebalance their portfolios.

Tyson Foods stock sale could benefit rebalance of portfolio

After a worse-than-expected earnings report, an interrupted meat supply chain, and diminished demand for meat, traders may want to sell Tyson Foods stock to rebalance their portfolios.

5. Marathon Oil

Marathon Oil may be dropped to rebalance portfolio after oil crisis

Oil stocks like Marathon(NYSE:MRO) can be sold to rebalance portfolios. Oil shares had a terrible run because of the impasse between Saudi Arabia and Russia. In March, the countries disagreed on an oil production cut to drive up prices. As a result, Saudi Arabia flooded the market with oil and drove down crude prices.

Vivek Dhar of the Commonwealth Bank of Australia noted that the US oil supply would be negatively impacted by the oil overproduction. The overproduction can lead investors to rebalance their portfolios and sell Marathon stock.

“We think oil supply from the US, Canada and China are the most likely to be curtailed at low oil prices. US oil production cuts are expected to be the most significant,” wrote Dhar.

Marathon Oil has worse-than-expected earnings if investors want to rebalance portfolios

As a result of the oil overproduction, Marathon Oil tumbled 57% year-to-date. In addition to a surplus of crude, there was a diminished demand for oil during the quarantine. Because fewer people drove, there was less demand for oil, and Marathon’s stock fell.

Marathon Oil can be sold to rebalance portfolio

In its Q1 2020 earnings report, Marathon CEO Lee Tillman noted that Marathon was reeling from the international events affecting the oil industry.

“The impact to global oil demand, in particular, is unprecedented with a global health crisis essentially shutting down U.S. and global economic activity,” said Tillman.

Marathon also noted that the company will reduce its capital expenditures, halt dividends, and reduce its workforce by 16%.

“The revised capital budget of $1.3 billion or less represents a cumulative budget reduction of $1.1 billion from initial 2020 capital spending guidance. 2020 capital spending is now expected to be approximately 50% below actual capital spending in 2019,” noted Marathon.

Financial advisors say sell Marathon to rebalance portfolios

Morgan Stanley analysts note that if investors want to rebalance their portfolios, they should sell Marathon stock. Lead analyst Devin McDermott wrote that Morgan Stanley was downgrading the stock to an underweight rating. The bearish rating means that they believe Marathon’s stock returns will be lower than their peers for the next year. That’s a strong indication that investors should rebalance their portfolios.

“While the company is taking the right steps to preserve liquidity in response to low oil prices, [Marathon Oil] screens challenged versus peers with a 2021 [West Texas Intermediate] break-even of $37 a barrel (in the upper half of our coverage), and year-end 2021 leverage that rises to 4.5X at strip, above the peer median of approximately 2X,” wrote McDermott.

Moody’s says investors should rebalance portfolios and dump Marathon stock

Moody’s also thinks investors should rebalance portfolios by selling Marathon stock. The firm downgraded its rating of Marathon stock as a result of its recent troubles.

“Marathon Oil’s decision to reduce capital spending and suspend its dividend will help protect its 2020 cash flow in a low oil price environment. While the company’s very good liquidity is supportive, the negative rating outlook reflects the company’s limited resilience to a prolonged industry downturn due to an anticipated decline in production,”said Moody’s.

Rebalancing portfolios may happen if investors sell poorly performing and badly rated stocks like Marathon Oil.

Rebalancing portfolios in a crash can lead to better results

If investors rebalance portfolios during a recession, they can have more successful returns. TradingSim charts and blogs can help investors make the best choices to rebalance portfolios to maximize profits.

There are many ratios to measure a stock’s performance. That is especially true with mutual funds. The COVID-19 crisis caused the current bear market. With that uncertainty, traders want to use the most precise formulas to determine the best mutual funds for investment. The Treynor Ratio is one formula that can measure a mutual fund’s performance.

This TradingSim article will provide an overview of the ratio and then explain how investors can use the ratio to measure the top 10 mutual funds.

What is the Treynor Ratio?

The Treynor Ratio is a reward-to-volatility formula. The ratio measures an investment’s performance per unit of risk.

In the Treynor formula, beta is measured in risk. Beta is the measure of a stock’s volatility in relation to a benchmark like the S&P 500. The ratio calculates beta and the returns on risk-free returns.

With the Treynor formula, The S&P 500 usually has a beta of one. Stable stocks have a beta below one. Volatile stocks have a beta over one.

In the Treynor Ratio, the formula is: (Ri-Rf)/B, where:

Ri=return of investment

Rf= risk-free rate. That’s typically the yield on short-term Treasury bills.

B-= the beta of the portfolio.

Beta is considered to be measured against a key benchmark. It’s measured with the return that could be earned on a risk-free asset like the Treasury bill in the reward-to-volatility ratio. The risk-free rate is subtracted from the portfolio’s return of investment. The result of that equation is divided by the portfolio’s beta. A higher Traynor ratio means that there is a better return.

The S&P500 and the Dow Jones 30, since 1970’s — The S&P 500 and the Dow Jones 30, since 1970s

What do the numbers in a Treynor ratio mean?

A high Treynor Ratio means an investment has added value related to its risk. In addition to that result, a negative Treynor Ratio means the mutual fund performed worse than a risk-free asset.

Who created the Treynor Ratio?

Jack Treynor was the economist who created the method. He was one of the first economists to discover the capital asset pricing model (CAPM). That CAPM model codified investment return risks that became the basis for the Treynor Ratio.

How can investors use the Treynor formula?

Matt Ahren is a financial advisor with Integrity Advisory in Overland Park, Kansas. He notes how the Treynor Ratio is used to justify risks in investments.

“I manage the portfolios for our firm, so if I am reviewing an individual fund then I first look at the fund’s beta to see how much market risk that manager is taking,” said Ahrens.

Aherns inspects a mutual fund’s Treynor formula to see if a portfolio’s performance justifies its risk.

“Then I look at the Treynor ratio to see how much return am I getting per unit of risk. Basically, am I getting bang for my buck?” said Aherns.

What is the Treynor Ratio’s legacy?

Robert Merton knew Treynor well. He is a Nobel Prize-winning economist at the Massachusetts Institute of Technology. Merton credits Treynor with bringing more mathematical analysis to finance.

“It wasn’t that he just did a particular theory,” he said. “He was very creative and also was a leader in bringing the quantitative finance science to finance practice. That was his bridge.”

Bruce I. Jacobs is a principal of Jacob Levy Equity Management. He also credits Treynor for bringing mathematical formulas to better analyze stocks and mutual funds.

“Jack had incredible insights about the markets and models and helped bring quantitative finance into practical application,” said Jacobs.

How Treynor Ratio is vital to analyzing risk

MIT finance professor Andrew Lo also praised the Treynor Ratio and CAPM. He also credits the Treynor Ratio with acknowledging the importance of beta when analyzing a stock.

“In part, it acknowledges that there’s a trade-off between risk and return and CAPM quantified what the trade-off is. That relationship is what gave rise to the notion of beta,” said Lo.

In addition, Lo also noted that the beta of a mutual fund can be crucial to measuring a mutual fund’s risk.

“So, when we talk about the beta of a stock, that comes out of that framework. When we do discounted cash flow analysis, we’re using some kind of cost of capital. CAPM is the tool we use to calculate that cost of capital,” added Lo.

Treynor Ratio builds on work of Sharpe Ratio

The Treynor formula builds on the work of fellow economist William Sharpe. Lo noted that the capital asset pricing model championed by economists is vital to the mutual fund industry.

“CAPM is also the basis of the mutual-fund industry, particularly for passive investing. You ought to just buy and hold the market, and you’ll do just fine,” said Lo.

“Vanguard[ a large mutual fund corporation] and all of the index funds out there came about because of the contributions of Sharpe, Treynor, and others made in finding the capital asset price model. The multi-trillion-dollar passive-index business — we can thank Sharpe and Treynor for that wonderful gift,” added Lo.

Michael B. Miller, CEO of Northstar Risk, also noted the importance of the Treynor Ratio in evaluating the performance of mutual fund portfolios. While he’s critical of the method, he still praises the Treynor ratio as effective.

“The ratio is motivated by two important concepts First, you should care about risk-adjusted returns, not absolute returns,” said Miller.

“Second, in a well-diversified portfolio, you should worry more about the macroeconomic factors that could impact your portfolio and less about the risk from individual securities,” added Miller.

What is the difference between the Sharpe ratio and Treynor Ratio?

The Treynor formula builds on a previous measurement of the Sharpe Ratio. Both formulas can be beneficial to an investor to assess mutual fund investments. William Sharpe created the formula to help investors understand the risk of an investment in relation to its return.

The Sharpe Ratio is similar to the Traynor Ratio because they both assess risks of portfolios. While both formulas have similarities, there are differences between the two ratios.

The Treynor Ratio assesses a systemic risk of a portfolio against a benchmark like the S&P 500. However, the Sharpe Ratio measures the performance of a portfolio based on the overall total risk of a portfolio.

William Sharpe creator of Sharpe ratio, a counter to Treynor Ratio

What is the Sharpe Ratio formula?

The Sharpe Ratio equation is:

(Rp – Rf)/σ , where:

Rp= return on portfolio

Rf= risk-free rate

σ =standard deviation on the return of the portfolio

The Sharpe Ratio subtracts the risk-free rate of return from a portfolio’s return. The result is divided by the investment’s return’s standard deviation. A standard deviation measures the investment risk in a mutual fund. It’s applied to an investment’s annual rate of return to calculate risk.

The higher the Sharpe ratio, the better for a mutual fund. A Sharpe Ratio of 1 and over is considered good for a mutual fund. A negative Sharpe Ratio means the expected return may be negative. The negative quotient could also mean that the portfolio’s return is worse than the risk-free rate.

Which is better to measure mutual funds, the Sharpe Ratio or Treynor Ratio?

Both formulas can effectively measure the performance of a mutual fund. However, there are two differences between the measurements. The Sharpe Ratio can be applied to all portfolios that are in specific sectors.

In specific sectors, specific mutual funds may have unsystematic risk as to the best measure of risk. In that case, the Sharpe Ratio may be the better formula because it measures overall risk.

However, with the Treynor Ratio, there is a difference. The Treynor Ratio measures systematic risk. Unsystematic risk is not a factor with diversified mutual funds.

Because of that, the Treynor Ratio can measure systematic risk. The Treynor Ratio can be a better metric to evaluate the performance of a well-diversified mutual fund portfolio.

What are the downsides to the Treynor ratio?

While the Treynor Ratio can be an effective measure of a portfolio’s performance, it’s not perfect. Some financial experts say that the metric has a downside.

S. Michael Sury is a lecturer in finance at the University of Texas at Austin and studies the Treynor index. He noted that the Treynor formula isn’t perfect. Sury because it only looks at past performance.

“Treynor ratio does have some drawbacks. Importantly, by definition, it is a backward-looking ratio. Thus, it tends to be more useful for its evaluative – rather than its predictive – power,” said Sury.

Some financial experts like Aherns believe that a mathematical analysis may not be the best way to analyze stocks for beginning traders.

“The trap do-it-yourselfers fall into is being unable to decipher where outperformance is coming from,” said Ahrens.

In addition, Aherns also noted that taking on more risk may benefit them more than using the Treynor formula to calculate risk.

“A manager may be performing well versus their peers just because they are taking on more market risk,” said Ahern.

Is the Treynor Ratio helpful to investors?

While many financial advisors use the Treynor Ratio, there are financial managers that aren’t fans of the formula.

Paul Ruedi of Ruedi Wealth Management doesn’t believe that the Treynor formula is best for the average investor. He believes that two factors are more crucial to evaluate mutual funds.

“At the end of the day, over 90 percent of an investor’s lifetime return is a result of two things. The first is their allocation to equities versus fixed-income,” said Ruedi.

“And second to that, but probably just as important – or maybe even more important – how they behave when the portion of their portfolio that is invested in the great companies of the U.S. and the world is temporarily down 30 percent or 50 percent,” added Ruedi.

In addition to that, Ruedi also believes that the Treynor ratio return is not an accurate measurement of a mutual fund’s return.

“Nobody goes into the grocery store with their Treynor ratio return, they go into the grocery store with their actual return,” said Ruedi.

While the Treynor Ratio may not be for every investor, the Treynor formula could be a good option for measuring risk. In the rest of the article, I will analyze comparisons of 10 mutual funds. I will look at their financial statistics to compare the Treynor Ratios of the assets.

Comparison: Fidelity Advisor Series Growth Opportunities Fund vs. Morgan Stanley Insight Fund Class A

Fidelity Advisor Series Growth Opportunities Fund ( FAOFX) is a mutual fund that tracks growth stocks. The mutual fund has tech holdings like Tesla (NASDAQ:TSLA) and Uber (NASDAQ:UBER). Because of those stocks, Fidelity Advisor Series Growth Opportunity Fund had a high 1-year annual return of 12.55%.

Tesla stock rises after reopening factory

Tesla stock helps Fidelity Advisor Series Growth Opportunities Fund increase its annual return. The corporation’s controversial founder, Elon Musk is famous for his comments. Musk gets as much attention for his tweets as much as his company’s electric cars.

Musk defied California’s shelter-in-place orders to increase production at Uber’s Fremont factory. He recently tweeted about resisting the order on Twitter.

“Tesla is restarting production today against Alameda County rules. I will be on the line with everyone else. If anyone is arrested, I ask that it only be me,” tweeted Musk.

Tesla stock jumped 4% after the factory recently reopened after gaining county approval.

With that boost to its production and bottom line, Tesla’s HR head, Laurie Shelby, touted the re-opening of the factory.

“We have local support to get back to full production at the factory starting this upcoming week. We’re excited to continue to get back to work,” said Shelby.

The growth of Tesla stock helped Fidelity Growth Opportunities Fund have a strong annual return.

What’s the Treynor Ratio of Fidelity Growth Opportunities Fund?

I will explain the Treynor Ratio of the fund with a risk-free rate of 0.16%. This risk-free rate I chose is based on the yield of the one-year Treasury rate as of May 6.

The average annual return on the Fidelity Growth Opportunities Fund is 12.55%. Once that is calculated, the risk-free rate of 0.16% is subtracted from the return. After that, the result is divided by the beta. The beta, in this case, will be 1.1, the current benchmark of the S&P 500.

With those statistics, the Treynor formula would be:

12.55%-0.16%/1.1=0.01.

With that equation, The Treynor index would be 0.01. The quotient is below 1, which could potentially be a low number for potential investors. However, in comparison to other similar figures in the 0-1 range, the Treynor formula can vary in its risk-to-reward quotient.

As a result, the risk is increased with this portfolio if compared with other mutual funds. However, I will now examine the Treynor Ratio comparison to the Morgan Stanley Insight Fund Class A.

Morgan Stanley Insight Fund Class A

As a potential investment, Morgan Stanley Insight Fund Class A(NYSE: CPOAX) is a mutual fund that has a high annual return of 19.37%. Along with the high annual return, the risk-free rate is 0.16%. The beta will be 1 in this example.

With that risk-free rate, the Treynor formula would be:

Ri-Rf/B

19.37%-0.16%/1=0.19.

Spotify stock helps Morgan Stanley fund

With well-performing holdings, the Morgan Stanley fund has less risk. Spotify(NASDAQ: SPOT) is a holding that has helped Morgan Stanley’s Insight Fund Class A grow. The streaming company’s Q1 revenue increased to $1.90 billion because of many people being quarantined.

With many people sheltering in place, Spotify noted that the number of paid subscribers climbed to 130 million.

Because may people are at home, Spotify has been a background soundtrack.

In the quarantine era, Spotify listeners are more devoted to the service. “Listening time around activities like cooking, doing chores, family time, and relaxing at home have each been up double digits over the past few weeks,” noted Spotify in a statement.

Joe Rogan signing sends Spotify stock soaring

In addition to a positive earnings report, Spotify’s stock surged by 8% . That jump came after popular and controversial podcaster Joe Rogan moved his program to the streaming service.

After Joe Rogan joined the streaming service, Spotify spoke about the acquisition in a statement.

“The Joe Rogan Experience, one of the most popular podcasts in the world, is coming to Spotify via a multi-year exclusive licensing deal. The talk series has long been the most-searched-for podcast on Spotify and is the leading show on practically every other podcasting platform,” said Spotify.

With this new addition to its podcast stable, Spotify has become a holding that helped lessen the risk of the Morgan Stanley Insight Fund Class A.

Which Treynor Ratio is higher: Fidelity or Morgan Stanley?

In comparison between the Fidelity mutual fund’s 0.01 and Morgan Stanley’s 0.19, the Morgan Stanley Insight Fund Class A has a higher Treynor Ratio.

In that equation, the Treynor Index would be 0.19. Even though they’re both below one, the Morgan Stanley Ratio has a higher Treynor index than the Fidelity mutual fund. Because Morgan Stanley Insight Class Fund A has a higher Treynor ratio, it has less risk than the Fidelity Growth Opportunities Fund.

T. Rowe Price Global Technology Fund vs. Janus Henderson Global Technology

With tech stocks, the T. Rowe Price Global Technolgy Fund ( NASDAQ:PRGTX) and the Janus Henderson Global Technology mutual funds have performed well this year. Though they’re in the same sector, the T. Rowe Price fund has been singularly praised as of the best mutual funds of the decade.

T. Rowe mutual fund a top investment

The T. Rowe Price Global Technology Fund “invests primarily in companies we expect to generate a majority of revenue from development, advancement, and user of technology.” With that mission statement, the fund has an annual return of 12% with its tech holdings like Facebook and Netflix.

Facebook stock part of successful T. Rowe mutual fund

Facebook is a holding that helps the T. Rowe Price fund become a top mutual fund. As part of the fund, Facebook earned $17. 74 billion in its Q1 2020 earnings.

With online shopping growing, Facebook is pushing for more profits with Shops, an upcoming marketplace on the social networking site.

Despite economic volatility, Zuckerberg wants to expand into online shopping to reach more customers.

“I’ve always believed that in times of economic downturn the right thing to do is to keep investing and building the future,” said Zuckerberg.

With Facebook’s Q1 2020 success, “This is really the first very major push that we’re going to be making into that next step around commerce,” said Zuckerberg.

“All these tools are open for business even when your physical storefront can’t be,” added Zuckerberg.

Netflix part of T. Rowe mutual fund growth

In addition to Facebook, Netflix is a strong tech holding in the T. Rowe Price Global Technology Fund. The streaming service has seen a whopping 35% growth in its stock in 2020.

With that success, Netfiix has been a stock that’s helped the T. Rowe mutual fund. Michael Bapis is the managing director of Vios Advisors at Rockefeller Capital Management. He spoke about Netflix’s subscriber growth.

“Demand is off the charts right now, and it’s the integral driver for Netflix. You’re going to have subscriber growth continue to grow. It’s a massive market and people aren’t going to go to the movies. I think they are starting to capitalize on a massive market,” said Bapis.

As Netflix grows, “They’re[ Netflix] going to keep market share at this point because they offer the best product,” added Bapis.

What is the Treynor ratio of T. Rowe Price Global Technology Fund?

With that success, the Treynor ratio of the fund can be calculated, where:

Ri-Rf/B: 12%-0.16%/1=0.12.

In that equation, the Treynor Ratio will be 0.12.

Janus Henderson Global Technology Fund

In contrast to the T. Rowe fund, the Janus Henderson Global Technology Fund(NYSE:JANIX) has a lower annual return. As of May, the Janus mutual fund’s annual year-to-date return is 6.23%. Despite the lower return, the fund has many strong holdings in its portfolio.

Microsoft a strong buy in Janus Henderson Global Technology Fund

As Goldman Sachs analyzes stocks, Microsoft is a strong holding in the Janus mutual fund. Goldman Sachs rated the software giant’s stock as a buy.

“Our partner checks continue to reflect the relative strength in the AWS platform, as incremental demand from customers to accelerate their migration into the cloud,” said Goldman Sachs in a statement.

In its analysis, Goldman Sachs noted that Microsoft can ” provide full virtual-desktop coverage (AWS WorkSpaces), and other work-from-home and business continuity needs.

As a tech stock, Microsoft’s stock rose because of its cloud services. After a positive Q1 2020 earnings report, the software company touted its $35 billion Q1 revenue.

In its earnings report, Microsoft noted that “cloud usage increased, particularly in Microsoft 365, including Teams, Azure, Windows Virtual Desktop, advanced security solutions, and Power Platform, as customers shifted to work and learn from home.”

What is the Treynor Ratio of the Janus Technology Mutual Fund?

As a result of Microsoft’s strong performance, the Janus mutual fund has performed relatively well. With the current statistics, the Treynor formula for the Janus Technology Mutual Fund would be:

Ri-Rf/B, where: 6.23%-0.16%/1.1=0.06.

Which Treynor Ratio is higher: T. Rowe or Janus?

With the comparison between the two tech mutual funds, 0.12 is greater than 0.06. The T. Rowe Technology Fund has a higher Treynor Ratio than the Janus Technology Mutual Fund.

Vanguard Healthcare Fund

In this COVID-19 era, the Vanguard Healthcare Fund(NYSE:VGHCX)has outperformed other mutual funds. The mutual fund’s annual return was an impressive 17.35% in 2020 so far. Vanguard Healthcare Fund’s returns are doing well because of its healthcare holdings. One holding that is helping the Vanguard Healthcare Fund is Pfizer.

Pfizer COVID-19 vaccine trial gives stock a boost

Pfizer(NYSE:PFE) stock grew 35% despite a declining stock market. The pharmaceutical company is working on a promising vaccine for COVID-19. As Pfizer CEO Albert Boula noted, the company is gathering information for its trials.

“We are collecting data as we speak in real time so we know, we are monitoring the safety of the doses,” said Bourla.

BNT162 is the potential vaccine that is being tested later this year. The corporation hopes to have 360 people in a clinical trial. If this vaccine is successful, Bourla hopes that the treatment will be available by the end of the year.

“If things go well, and we feel that the product is safe and efficacious, and the FDA [Food and Drug Administration] and EMA [European Medicines Agency] and other regulatory agencies feel the same, we will be able to deliver millions of doses in the October time frame,” said Bourla.

Pfizer plans to produce hundreds of millions of the potential COVID-19 vaccine by next year. With Pfizer’s promising vaccine, the Vanguard Healthcare Fund has been a reliable mutual fund for investors.

What is the Treynor Ratio of the Vanguard Health Care Fund?

With a high annual return of 17.35%, the equation would be:

Ri-rf/B, where: 17.35-0.16%/1.1=0.16

In that equation, the Treynor ratio of the Vanguard Health Care Fund is 0.16.

Invesco Health Care Fund Class A

The Invesco Health Care Fund Class A (NYSE:GGHCX) had a well-performing one-year return of 15.61%. The portfolio has outperformed because of Abbott Labs, one of its successful holdings.

Abbott Lab stock rises on COVID-19 antibody tests

Abbott Laboratories (NYSE:ABT) is an Invesco Health Care Fund holding that’s rising in the COVID-19 era. The stock rose 8.6% year-to-date with its antibody tests to detect the virus.

As the coronavirus crisis continues, Abbott is developing antibody tests for the virus. The corporation received Food and Drug Administration approval for more antibody tests for COVID-19.

With this second authorization, Abbott hopes to ship 30 million antibody tests to hospitals and potential patients.

“We wanted to provide hospitals and labs with as many broad and reliable testing options as possible during this pandemic,” said an Abbott spokesperson.

What is the Treynor Ratio of Invesco Health Care Fund Class A?

As Abbott Labs raises the Invesco Health Care Fund’s annual return, the Treynor ratio can be calculated. The formula is:

Ri-rf/B, where:

15.61-0.16/1.1=0.14

In this quotient, the Treynor Ratio is 0.14.

Which Treynor ratio is higher: Vanguard or Invesco?

In this comparison of the healthcare mutual funds, Vanguard’s 0.16 is greater than Invesco’s 0.14. The Vanguard Health Care Fund has a higher Treynor Ratio than Invesco’s Health Care Fund Class A.

JP Morgan Large Cap Growth Fund

The JP Morgan Large Cap Growth Fund( NYSE:OLGAX) is a large-cap mutual fund with a healthy 12% annual yield. The mutual fund has some of the fastest-growing companies in its portfolio.

AMD recession-proof stock in JP Morgan portfolio

AMD(American Micro Devices)(NYSE:AMD) is a holding in the JP Morgan Large Cap Growth Fund that is performing well during the recession. The semiconductor company is performing well as its computing revenue grew.

In AMD’s Q1 2020 earnings report, revenue surged 40% to $1.79 billion. The corporation touted its positive results. Dr. Lisa Su, AMD’s CEO, noted the results in a press release.

“While we expect some uncertainty in the near-term demand environment, our financial foundation is solid and our strong product portfolio positions us well across a diverse set of resilient end markets,” said SU in a statement.

“We remain focused on strong business execution while ensuring the safety of our employees and supporting our customers, partners and communities. Our strategy and long-term growth plans are unchanged,” added Su.

What is the Treynor Ratio of the JP Morgan Large Cap Growth Fund?

When finding the Treynor index of the JP Morgan Large Cap Growth Fund, this is the equation:

Ri-Rf/B, where:

12-0.16%/1.1=0.11

In this case, the Treynor Ratio is 0.11.

Glenmede Quantitative U.S. Large Cap Growth Equity Portfolio

Fidelity’s Glenmede Quantitative U.S. Large Cap Growth Equity Portfolio(NYSE:GTLLX) is another large-cap mutual fund. The fund has large-cap holdings, but has a small one-year return of 1.86%.

Accenture a vital part of Glenmede portfolio

In the Glenmede portfolio, Companies like Accenture (NYSE:ACN) is a valuable holding. Accenture is a technology consulting services company. The corporation has an expected 10% growth rate over the next three years.

Financial analyst Ben Castillo-Bernaus rates Accenture as a buy for investors.

“Accenture remains ‘best in class’ and the recent weakness is an opportunity to gain a position in this IT Services global leader delivering 40% returns on capital,” stated Castillo-Bernaus.

“Accenture has been a pioneer in developing ‘the New’ with 65% of revenues now coming from high growth Digital, Cloud and Security services,” added Castillo-Bernaus.

What is the Treynor Ratio of the Glenmede mutual fund?

In the equation Ri-Rf/B, where:

1.86%-0.16%/1.1=0.02.

The Treynor formula shows the Glenmede mutual fund’s ratio is 0.02.

Which Treynor Ratio is higher: JP Morgan Chase or Glenmede?

When contrasting the JP Morgan Chase and Glenmede’s Treynor indexes, the JP Morgan Chase Large Cap Growth Fund has a higher Treynor Ratio. The Glenmede Quantitative U.S. Large Cap Growth Equity Portfolio has a lower Treynor Ratio, so it may have a lower reward.

State Street Institutional Premier Growth Equity Fund Service Class

The State Street Institutional Premier Growth Equity Fund Service Class mutual fund (NYSE:SSPSX) that features small and medium cap companies. Its annual rate of return is high at 12.80%. United Health is a holding in the portfolio.

United Health a strong holding for State Street

Since healthcare stocks are outperforming, United Health(NYSE:UNH) is a robust part of State Street’s portfolio.

Financial analyst Michael Wiederhorn touted United Health as a buy.

“Overall, UNH produced strong results and seems well-positioned to navigate the COVID pandemic due to a relatively stable top-line, a diversified business mix and a dominant position across its businesses, ” wrote Widerhorn.

What is the Treynor Ratio of the State Street Institutional Premier Growth Equity Fund Service Class?

In the State Street mutual fund equation, where:

Ri-rf/B: 12.80%-0.16/1.1=0.11.

Baron Fifth Avenue Growth Retail Fund

The Baron Fifth Avenue Growth Retail Fund (NYSE:BFTHX) is a mutual fund that invests in large-cap companies. The mutual fund has a hefty 12.70% annual return. One of the Baron Fifth Avenue holdings is the legendary credit card corporation Visa (NYSE:V).

Visa a reliable Baron Fifth Avenue holding as it expands into data

Visa is a strong holding as the credit card company invests in Good Data, a global analytics company.

“With insights from data, we can help sellers, financial institutions and Visa’s extended global business network better understand and meet consumer needs, especially when those needs are changing fast,” said Melissa McSherry, head of Visa’s Data, Security, and Identity products.

Oppenheimer’s Glenn Greene rated Visa a buy because of its recent stabilization in April.

“While the depth/duration of COVID-19 headwinds are hard to handicap we remain confident in V’s intermediate/long-term potential, wrote Greene.

What is the Traynor formula for Baron Fifth Avenue Growth Retail Fund?

In this equation, where Ri-Rf/B, where:

12.70%-0.16%/1.1= 0.11.

Which Treynor Ratio is higher: State Street or Baron Fifth Avenue?

Since both funds have very similar annual returns, the Treynor Ratios of both funds are the same at 0.11. The State Street Institutional Premier Growth Equity Fund Service Class and Baron Fifth Avenue Growth Retail Fund have equal risk-to-reward ratios.

Treynor formulas can be determined by small differences

The Treynor Ratios of mutual funds can be determined by small factors like decimal points. However, the decimal points in a Treynor formula make a big difference in figuring out a mutual fund’s risk-to-reward ratio. TradingSim charts and analysis can help investors find the best mutual funds with the least risk.

Zoom Video Communications (NASDAQ: ZM) took off like a rocket since it went public in 2019. The videoconferencing site Zoom has become essential for workers during the coronavirus (COVID-19) crisis. With the rise of videoconferencing to keep up with friends, families, and co-workers, Zoom shares climbed 20% over the past few weeks. Along with Zoom, there are four other strong growth stocks in this article that are still solid investments in the midst of a volatile stock market. During this bear market, these stocks can potentially be a savvy investor’s source for low-risk investments.

Growth stocks are stocks that are growing much faster than other equities on Wall Street. Many of them have higher-than-average valuations. Investors can look closely at these five stocks on Trading Sim that could pump up their portfolios. This article will also tell investors what traits to look for to find stocks that have great growth potential like Zoom. The conclusion of the article will also warn about a stock that doesn’t have the same growth potential as stocks like Zoom and is cratering- retailer J.C. Penney( NYSE:JCP). The article will also note how Trading Sim can help investors find the next growth stock.

How did Zoom get its start?

The latest prominent growth stock, Zoom, got its start in 2011. Eric S. Yuan started the company in his native China. He saw Zoom as a way for companies to communicate with each other. He worked on the idea when he was a corporate vice-president of engineering at Cisco once he immigrated to the U.S. During an interview in 2017, Yuan presciently said that Zoom would help make it easier for workers to telecommute.

“Zoom gives organizations and individuals a faster way to communicate relative to audio-only, chat, and email meetings, and it’s not restricted by geography, so employees have more flexibility to work from home. Because it lets people meet face-to-face, and provides support for screen sharing, it’s truly a collaboration catalyst, and helps build teams across geographies,” said Yuan.

The company grew in a cluttered field of videoconferencing apps like Skype and GoToMeeting. Zoom grew because Yuan would personally call dissatisfied customers. In addition to Zoom’s dedicated customer service, Zoom grew because it offered a free version of the app on smartphones. into a company with a $9 billion valuation. The valuation was 48 times its sales when Zoom went public in April 2019.

How has Zoom stock performed since it went public?

After the debut of Zoom’s IPO (initial public offering), Zoom shared climbed 72% above its listed $36 IPO price. Though the stock experienced volatility in the year after going public, its last earnings report showed strength. Even before the coronavirus global outbreak, Zoom’s Q4 2020 revenue soared year-over-year to $188.3 million. The stock currently sells for 58 times revenue.

Yuan noted that the company performed well because of a “unique combination of high total revenue growth of 78% at a scale of $188 million, GAAP( generally accepted accounting principles) income from operations of $11 million, non-GAAP income from operations of $38 million, and operating cash flow of $37 million.”

Why is Zoom stock “quarantine-friendly?”

Zoom stock jumped 200% since the stock went public. The Renaissance IPO ETF noted that work-from -home apps like Zoom have survived the coronavirus-caused massive sell-off.

“Quarantine-friendly companies like remote work-enablers Slack (NYSE:WORK; +23% in February) and Zoom Video (ZM; +20%) and telemedicine provider Teladoc (TDOC; +23%) have also outperformed the broader market,” noted Renaissance.

Zoom’s popularity is because of its reliability. In contrast to other videoconferencing apps that have glitches and buffering problems, Zoom mostly manages to avoid prolonged outages. So, while there may be awkward moments of kids interrupting meetings, the livestream will always come through very clearly.

Zoom is growth stock because of accessibility

Zoom stock is also surging because of the app’s accessibility in many areas. Apple’s FaceTime is exclusively on iOS and Apple devices. However, Zoom is widely available on Android and any Apple or PC. Zoom also is not just being used by workers, but by schools to help with digital learning. The corporation has eliminated the 40-minute limit on free calls so students and teachers can remain in contact with each other. The company’s CFO, Kelly Steckleberg, noted that reliability and easy access for students makes Zoom an attractive option for customers.

“The usability and the reliability of Zoom is what has led to this incredible adoption, combined with, honestly, the generosity of Eric and his willingness to open it up especially to the schools,” said Steckelberg.

Why is Zoom stock a growth stock?

Zoom stock is also a high-growth stock because of its potential revenue growth. Bernstein’s Zane Chrane and Michelle Issacs note that if Zoom’s free users convert to paid users, there could be an explosion in revenue for the company.

“If we … assume that 75% of the active users added YTD are incremental purely due to CV [coronavirus], the massive spike in usage YTD would suggest that Zoom could get as much as $140M in incremental revenue if customers that convert to a paid plan are retained for at least a year,” said Chrane and Isaacs.

Even after the coronavirus crisis abates, Zoom stock could still a long-term option for investors. More workers are working from home, so Zoom is becoming an option for many investors. This TradingSim chart shows that Zoom stock has steadily risen and should continue to remain a buy for investors.

Why Teledoc stock is a growth stock possibility for investors

In addition to Zoom, another tech stock booming in the wake of coronavirus is Teledoc (NYSE: TDOC). The computer software company’s stock has steadily risen in the past few days. Similar to Zoom, Teledoc has been a necessary health resource for many people who want to check their health through a mobile device. The subscription-based telemedicine company was founded in 2002. The company offers virtual consultations with doctors and the stock has exploded during the recent coronavirus outbreak.

The corporation’s stock grew 30% over the past month and 400% since Teledoc went public in 2015. During the company’s Q4 2019 earning call Teledoc’s CEO, Jason Gorevic, said that Teledoc’s physicians would work with clients to weather the current pandemic. With many people under quarantine, Teledoc has been the perfect way for people to safely interact with doctors to monitor their health.

“Our clinical teams, thousands of physicians around the world, are actively working along with our commercial teams and clients to ensure that members have the most timely and relevant access to the latest information during this unfolding situation, and access to care if and when they need it,” said Gorevic. This Trading Sim chart shows mostly steady growth for Teledoc stock.

Teledoc hopes to increase customers to increase stock growth

Even before the COVID-19 crisis, Teledoc stock looked attractive because of the corporation’s partnerships with (NYSE: CVS) and hundreds of hospital systems. This growth shows that Teledoc will have a wide reach to a larger number of customers. During a recent conference call, Teledoc noted the potential to expand its customer base.

“Our existing health plan clients and self-insured clients associated with these health plans currently purchase our solution for only a small percentage of their beneficiaries in the aggregate, and we estimate this provides us the opportunity to grow our membership base by more than 75 million individuals in the United States by expanding our penetration within our existing clients alone,” noted Teledoc.

Teledoc’s profile rises with coronavirus pandemic

Lew Levy, MD, Teladoc’s chief medical officer, noted that telemedicine companies like Teledoc are vital during this current health crisis.

“We are seeing more patients, and more of those patients are experiencing upper respiratory issues. As we saw during the flu epidemic of 2018, a community’s healthcare system can become overwhelmed and virtual care can help provide needed relief,” said Levy.

During the coronavirus crisis, Teledoc is working closely with the Center for Disease Control to provide information to clients.

Levy noted that Teledoc has a “unique ability to immediately connect with the CDC and other government agencies to add the right screening tools and clinical quality protocols to our system, and most importantly, to keep patients — particularly those most at risk with underlying health conditions — out of care settings where they can face exposure.”

Netflix stock benefits from quarantine life

Teledoc benefitted from patients increasing as a result of coronavirus. Similarly to Teledoc, Netflix (NASDAQ: NFLX) stock has jumped as a result of ” stay at home” orders. The streaming service’s stock surged 8.2% over the past week. Baird Equity Research said Netflix would outperform because of two strengths. Netflix is the go-to home entertainment for quarantined Americans. The corporation is also part of a growing trend of customers abandoning cable.

Netflix has always been able to set trends since launching in 1998. The company evolved from DVD rentals to streaming entertainment in 2007. Since producing original content in 2013, the hundreds of original shows currently offered have helped Netflix 167 million subscribers worldwide. So, watching Love is Blind may actually be a smart move to boost Netflix stock.

Since going public in 2002, Netflix stock has grown 3,000%. Even with competition from Disney + (NYSE:DIS) and Hulu, Netflix subscribers grew in Q4 2019 by 20%. Netflix was a pioneer in streaming entertainment. By being first and have more options for viewers, Netflix remains a strong growth stock for investors.

Analysts see Netflix stock as growth stock

Many analysts are bullish on the stock, like Credit Suisse analyst Douglas Mitchelson. Data from Credit Suisse found that quarantined people in countries hard hit by COVID-19 are becoming devoted subscribers.

“The data in both Hong Kong and Korea present a strong case Netflix is seeing increased demand, as first-time app downloads inflected positively starting in January and continued into March,” said Mitchelson. This Trading Sim chart shows Netflix stock rising on March 11.

Rob Drury, vice-president of client partnerships for media and TV at CSM Sports and Entertainment, also believes that the global quarantine and growing customer base makes Netflix stock a growth stock.

“I‘m bullish on the impact this will have for Netflix. Their business is driven primarily by renewal rates, and on a global scale people are experiencing first-hand the benefit of Netflix’s content library. Social distancing is adding an entirely new dimension to content bingeing.”

Social distancing has been difficult for many during the coronavirus pandemic. The economic downturn has also led people to cut cable packages to only have streaming services for entertainment. However, the social distancing and cord-cutting have been beneficial for Netflix stock.

Lowe’s stock solid because of quarantine orders

Lowe’s (NYSE:LOW) stock is a safe option for beginning traders. The home improvement store has been Like Netflix, the concern about COVID-19 has helped this company’s stock rise. As more people stay at home, many are taking up home improvement projects. That desire to do DIY projects has benefitted Lowe’s shares. Wall Street experts predict that Lowe’s will have a growth stock. High earnings per share usually is a hallmark of a growth stock. Earnings per share rose to $0.94 a share in Q4 2019. Sales also jumped 2.4% to $16.03 billion. Financial analysts predict that Lowe’s earnings per share will skyrocket 15.8% over the next five years.

If investors want short-term returns, Lowe’s stock has a lot to offer investors. Lowe’s shares have grown 20% since its recent earnings report. Lowe’s stock is not only growing, but its dividend is a steady 2% payout to investors. This Trading Sim chart shows the growth of Lowe’s stock during the week of March 12.

In addition to stock growth, Lowe’s store sales performed well over the last month. CEO Marvin Ellison touted the store sales growth in the company’s last earnings report.

“I’m very pleased with the strength and productivity of our brick and mortar stores. There are very few large retailers in America delivering a 2.6% comp growth almost exclusively from the brick and mortar stores. This underscores the sales productivity improvement of our physical stores and our opportunity to unlock additional growth when Lowe’s.com sales accelerate,” said Ellison.

The stores’ sales grew as customers purchased large appliances like refrigerators to store large quantities of food. Lowe’s sales also increased as Ellison started “seeing people start to work down that to-do list and get those things done in their homes.”

Lowe’s CEO buys company shares to show confidence in stock

Ellison also said that he bought Lowe’s shares to show his confidence in the company. “I’m a believer in my company. “I’m here for the long term.”

“We think that we will create a great value and we’ll create a great opportunity for shareholder value over the long term. As CEO, if I don’t have confidence in the company, then I don’t know who will,” said Ellison.

Lowe’s stock could be a growth stock because of the current need the corporation serves during this coronavirus crisis. Big purchases like freezers and even small purchases like toilet paper have made Lowe’s a shopping destination. Lowe’s stock is also a potential growth stock because of its impending expansion into online sales.

Amazon stock a growth stock during coronavirus

Even though Lowe’s is just making a dent in online sales, Amazon( NASDAQ: AMZN) has been an online giant for years. The company has been able to adapt to change since its founding in 1996. Since Jeff Bezos founded the company as an online bookstore, Amazon has grown into an e-commerce and cloud computing behemoth. From Amazon Prime Video to its Amazon Web Services, the corporation is a tech powerhouse.

Just as Lowe’s has seen growth through sales of necessities, Amazon stock has increased through coronavirus checklist item sales. Amazon was already a powerhouse stock because of its dominance in e-commerce. Now with COVID-19 spreading worldwide, shoppers are buying supplies on the site. Popular items like cleaning supplies and even toilet paper are selling out on Amazon.com in the wake of the coronavirus pandemic.

Amazon stock is also increasing because of its grocery delivery service. Amazon owns Whole Foods, which offers free delivery to Amazon Prime subscribers. Many customers are buying groceries from Amazon Fresh, the company’s food delivery service.

Jim Kelleher, an analyst at Argus, noted that Amazon will benefit from the worldwide quarantine.

“As more and more businesses shutter or move to online operations, and more and more consumers shelter in their homes, we expect traffic on the Amazon site to increase. Certain counties with COVID-19 clusters are implementing stay-at-home policies with varying degrees of stringency. Even in communities with low or no cases, consumers are prudently minimizing interactions, including trips to retail stores,” said Kelleher.

Amazon adjusts to help workers amid COVID-19 pandemic

Amazon’s business has grown so much that it is hiring thousands of temporary workers to keep up with demand. The corporation will hire part-time and full-time warehouse workers to fulfill the high demand for shoppers’ needs.

“Because of high demand, Amazon is hiring 100,000 new workers. In addition to the 100,000 new roles we’re creating, we want to recognize our employees who are playing an essential role for people at a time when many of the services that might normally be there to support them are closed,” noted Amazon.

Bezos noted that Amazon is getting its warehouses ready to combat coronavirus.

“We’ve changed our logistics, transportation, supply chain, purchasing, and third party seller processes to prioritize stocking and delivering essential items like household staples, sanitizers, baby formula, and medical supplies. We’re providing a vital service to people everywhere, especially to those, like the elderly, who are most vulnerable. People are depending on us, ” noted Bezos.

Amazon stock still strong despite Wall Street volatility

Amazon stock recently dropped 11%, which is disappointing. However, it’s less than the overall 28% decline in the S &P. The Trading Sim chart below shows the volatility of Amazon stock.

Amazon is also a growth stock because of its dominance in varied industries. The world’s largest retailer controls most of e-commerce. The corporation is also making inroads into cloud computing with Amazon Web Services. More workers are telecommuting, so Amazon Web Services (AWS) benefits. Work-from-home apps like Zoom depend on AWS cloud computing to run, so Amazon is well-positioned as a growth stock.

Analysts say Amazon is safe haven stock

Economic analyst Jim Cramer also believes that Amazon’s stock could rise over 30% to the $3,000 range in this current climate because “Amazon Web Services must be just crushing it.”

Stock analyst Jason Helfstein noted that Amazon is a stock that will outperform other equities. He noted that Amazon’s grocery and e-commerce delivery sector will help quarantined customers.

“COVID-19 is driving widespread demand for essentials, combined with increased e-commerce usage from ‘social distancing’ and ‘shelter-in-place’ programs. While some items are taking longer to be delivered, and grocery delivery capacity is strained, we think Amazon is seeing record consumer demand, with share gains likely to remain post virus,” noted Helfstein.

Amazon is a growth stock because of the company’s versatility. Amazon is able to adapt to any online shopper’s needs and to provide cloud computing to stay-at-home workers.

How to spot growth stocks like Zoom

Growth stocks aren’t just trendy pump-and-dump stocks that are here today and gone tomorrow. Many growth stocks that trade as much as 10 times their IPO price can follow current trends, like Zoom. However, Zoom stock is likely to be a growth stock even after the stay-at-home orders come to a close. Zoom is part of a technology that is a staple in work life, so that corporation’s stock is likely to increase. Growth stocks often start as trends, but grow into blue-chip stocks to add to portfolios.

Growth stocks fulfill new needs as game changers

Stocks with high growth potential can outperform more established stocks by fulfilling needs or creating innovative products. Corporations like Teledoc are meeting a need for telemedicine in this time of people being socially distant from each other. Just as Amazon created a new world of e-commerce, many growth stocks evolve from unfamiliar new technology to a pivotal need for consumers. Even established brands like Lowe’s can have shares become growth stocks by rising during seasonal events.

While many investors may see tech stocks as the main growth stocks, online retail can see growth as well. With many people abandoning physical stores, many shoppers are turning to tailored subscription services like Stitch Fix (NASDAQ:SFIX). Any company in an industry that has any innovation or generates interests from consumers is sure to earn a look from investors.

Growth stocks have high earnings- and higher P/E’s

In addition to filling needs for consumers, companies with growth stocks have good earnings reports to please investors. Many growth stocks have high price-to-earnings ratios above 16. Netflix’s price-to- earnings(P/E) ratio is well above that. The streaming service’s stock is valued at 87 times its past year earnings. Amazon’s Q4 2019 sales surged 21% year-over-year to $87,4 billion. On the strength of diversified services the retailer offers customers, Amazon stock is the epitome of a growth stock with its explosive expansion over the past 20 years. Growth stocks usually have two or more consecutive positive earnings reports that show that a corporation has the potential for expansion.

If investors can’t afford Amazon stock, they still shouldn’t invest in risky cheap stocks like penny stocks unless they can withstand the volatility. Investors shouldn’t see penny stocks as growth stocks unless they want to start with low-cost stocks to add to their portfolios.

Many growth stocks have positive cash flow

Growth stocks like Zoom also have a lot of available cash on hand. Zoom has $855 million in cash and investments in reserve. Many growth stocks may have debt, but have a large cash reserve. In its Q4 2019 earnings report, Zoom’s operating income increased 292% from Q4 2018 to $38.4 million. Many growth stocks have to have available cash to weather any storms in the volatile stock market.

Even though Netflix is in millions of dollars in debt to pay for original content, the corporation still has billions on hand. As of Q4 2019, Netflix had $5 billion in available cash. That’s a 32% year-over-year increase.

While growth stocks usually don’t pay a dividend to investors to increase growth, some do both. Lowe’s pays dividends to investors unlike many other growth stocks. However, like many other growth stocks, Lowe’s participates in stock buybacks to reinvest in their companies.

Tom Plumb, money manager at Wisconsin Capital Management, says that tech companies with a lot of cash on hand will have profitable stocks.

“The companies taking in a lot of cash because of their disruptive business models and technologies and their focus on how money is spent and where it is spent, are showing no signs of abating,” he said.

Growth stocks start in U.S., but expand globally

While many growth stocks started in California’s Silicon Valley, but expand around the world. Netflix has 167 million subscribers, but only about 60 million of them are in the U.S. Out of the hundreds of shows offered, many are from India and Nigeria. Those two countries have billions of potential new customers. Netflix is expanding its global outreach to increase the value of its stock.

Amazon is moving to expansion in Brazil and Canada to increase profits. Many growth stocks expand globally after first starting in the U.S. to reach new consumers. By reaching out to international customers, growth stocks have increased potential.

Even before the coronavirus pandemic, Teledoc purchased a French telehealth company to help reach more patients. Now the global expansion is helping Teledoc stock soar. Carlos Nueno, president of Teledoc Health International, touted the acquisition of MedicinDirect.

“With a continued focus on our global expansion, we will now become the market leader in France with the ability to have an immediate impact on healthcare delivery in the country. On the successful foundation built by MédecinDirect, we will bring our full suite of virtual care services to multinational clients who have been eager to expand,” said Nueno.

Growth stocks test an investor’s patience

Growth stocks tend to be focused on the future potential of stocks. While value stocks can capture a company’s current value, investors that focus on growth stocks tend to focus on potential growth. While value stocks are profitable today, many investors think growth stocks will continue to be profitable in the future.

As opposed to value stocks that are undervalued, growth stocks can be overvalued. Investors will likely have to wait out the volatility of growth stocks, some of which are often new to the Dow Jones.

If investors need the money in the stock market within five years, then growth stocks are not for them. Growth stocks tend to require more patience, so investors need to let the money from growth stocks stay in their portfolio in the long run.

Exercise caution when investing in growth stocks

While growth stocks may want investors to rush in, they should be cautious. They shouldn’t invest only in growth stocks. By diversifying, investors don’t have to depend on growth stocks to increase an investor’s profits. A mixture of growth and value stocks can make a more well-rounded portfolio.

Investors also shouldn’t pour too much money into growth stocks because of their volatility. Investors should start small and only invest up t0 3% of their portfolios on growth stocks. Economic expert Tom Engle noted, “If this company is the next great growth stock, then a little is all I need. If it’s not, then a little is all I want.”

While investors may want to go full- speed ahead on a growth stock, it’s best to slowly wade into investing in the stock. If there is volatility in the stock’s industry or on Wall Street, investors can withstand it with their portfolios intact

Why J.C. Penney is the opposite of a growth stock- it stayed behind trends

While Zoom is a cutting-edge stock with huge growth potential, J.C. Penney is on the exact opposite end of the spectrum. Zoom is a relative newcomer to Wall Street, while J.C. Penney has been offering stock for almost a hundred years. The retailer has been struggling for years because of its inability to adapt to change.

The store took too long to offer e-commerce to consumers. As a result, other brick-and-mortar competitors like Target ( NYSE: TGT) scooped up shoppers looking for sales online. Growth stocks often are looking for what’s new, now, next- but J.C. Penney was still stuck in the past. Instead of investing in online sales, J.C. Penney spent millions on stores in malls. But who shops in malls anymore? Everyone gets their favorite pants (or dress) from online retailers like Amazon now. J.C Penney is the exact opposite of a growth stock because the company didn’t have any innovation in its sales strategy or business model. Amazon evolved to cater to shoppers’ needs, unlike the brick-and-mortar retailer.

Companies with growth stocks listen to consumers- J.C. Penney didn’t

Unlike tech stocks that conduct focus groups that listen to consumers, J.C. Penney made many changes without consulting consumers. By abandoning loyal bargain shoppers and not offering coupons anymore, J.C. Penney lost a lot of customers. Zoom often listens to its customers and asks customers for feedback.

As Zoom noted when it reached 10 million participants in 2014, customer service is key to create a growth stock.

“We have a relentless focus on making the best product with the best user experience. This is ultimately what every customer wants. Toward this end, we spend much of our time listening to customers and fine-tuning our software to fit their needs,” said Zoom.

Companies with growth stocks often reach out to customers and stay loyal to their main customer base. J.C. Penney didn’t listen to its customers- and the stock suffered as a result.

Growth stocks have a clear niche unlike J.C.Penney

Growth stocks like Amazon have a clear identity of being the world’s online retailer. With competition from Amazon, J.C .Penney lost its niche as a retailer.

Neil Saunders, an analyst at GlobalData Retail said that the rise of Amazon led J.C. Penney to have a “lack of understanding about what it is, what it stands for, and who it wants to serve”.

Bob Phibbs from the Retail Doctor, also said J.C. Penney lost its identity by neglecting its core shoppers- moms ( or dads) on a budget.

“These companies are so busy trying to figure out who their shoppers are — Is it moms? Is it millennials? — that they’ve lost their most loyal shoppers. Plus the customer experience is forgettable. Nobody is going into a J.C. Penney and saying, ‘You’ve got to see this place. It’s great.’ ”

This Trading Sim chart shows how far J.C. Penney stock has fallen since its last earnings report.

While bargain-hunting shoppers knew to turn to Amazon or Target, J.C.Penney was forgotten and its stock had plummeted to only about $1 a share. Companies with growth stocks often fill a specific niche and know how to stand out among competitors. J.C. Penney doesn’t have that advantage. J.C Penney’s stock is down so low, it might be delisted from the New York Stock Exchange. Not having a clear identity confuses consumers and investors.

J.C. Penney has no cash available to grow stock

As J.C. Penney tried to get customers back, it burned through a lot of cash- a warning sign that a stock is bound to fail. Many growth stocks have a lot of cash on hand to reinvest back into the corporations. However, stocks that are tanking often are in too much debt with no chance at profitability. J.C. Penney is about $4 billion in debt and has had to close hundreds of stores nationwide. J.C. Penney only has $386 million of available cash. In contrast, growth stocks have a lot of cash on hand to weather Wall Street volatility.

Growth stocks like Netflix has debt, but also has a positive net income of $1.9 billion in 2019. While there is no one magic way to predict a growth stock, the contrast between J.C. Penney shares and other stocks show a clear contrast. Investments in innovation, growth in profits, and of course, a rising stock.

J.C Penney is a cautionary tale about stocks and corporations. Companies have to innovate or serve a niche need in order to increase their influence with investors. Corporations like Zoom are shaping the present and are building a strong future. On the other hand, dinosaur retailers like J.C. Penney are falling because it fell behind the times and couldn’t turn a profit.

Research is key to picking growth stocks

If investors want to learn more about how to pick the best growth stocks, thorough research is best. Investors can investigate earnings reports, stock price movements, and more through Trading Sim. With Trading Sim’s expert analysis and platforms to analyze stocks, investors can make wiser stock picks. Investors may even be able to spot the next growth stock with Trading Sim’s guidance and analysis.

Zoom and other growth stocks show that by being innovative leaders or filling niche needs, investors can see an increase in their portfolios.

Tracking growth stocks can be complicated, but studying Trading Sim’s charts can help investors keep track of which stocks are rising like Zoom and which ones are plummeting like J.C. Penney. By simulating trades first, investors can test out Trading Sim’s theories about what creates a growth stock. Trading Sim’s trading platforms can help investors possibly find the next potential growth stock.

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