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Portfolio Manager Insights
Consumer stocks flashing opportunity amid volatility
Periodic market volatility has presented opportunity for Fidelity’s Zach Turner to purchase attractive consumer-oriented growth companies at reasonable valuations.
- When volatility in U.S. equities rose in early 2025, Fidelity Portfolio Manager Zach Turner looked to capitalize by seeking companies with an attractive growth rate and a more reasonable valuation.
- “I keep a list of stocks I’d like to own if their valuation ever gets appealing enough,” says Turner, who manages Fidelity Advisor® Dividend Growth Fund. “This tends to happen during a broad-market sell-off, as we had in March and early April, when I purchased some great consumer-driven franchises I thought were underearning on a normalized basis.”
- In helming the diversified domestic equity strategy, Turner invests in a mix of large- and mid-cap stocks he believes have favorable prospects to sustainably pay and grow dividends over time. His investment philosophy centers on comparing price and value, believing price will converge with value over time.
- In March 2025, the S&P 500® index fell 5.63%, led by an 8.91% drop in consumer discretionary stocks. By the end of April, the sector was down nearly 18% over the prior three months – creating potential opportunities for active managers like Turner.
- One consumer stock he considerably increased exposure to was Kentucky-based mattress maker Somnigroup International, given the stock’s notable share-price decline. The company is the result of the February acquisition of Mattress Firm by Tempur Sealy International.
- According to Turner, the merger united the manufacturing might of Tempur Sealy with the country’s largest mattress retailer. He believes the now vertically integrated Somnigroup will be able to capture a larger share of the U.S. mattress market and potentially realize cost savings.
- Mattress sales have declined since 2021 but could rebound in the next economic upturn, Turner suggests, with Somnigroup well-positioned in the new tariff environment, given that the company’s products are made in the United States.
- Millrose Properties also caught Turner’s eye earlier this year, as he believed the real estate investment trust was benefiting from the trend of publicly traded homebuilders taking market share from smaller players and shifting toward a capital-light business model. In February, Millrose was spun off from homebuilder Lennar, creating a REIT that provides specialized financing to homebuilders.
- “Instead of buying land to build on, homebuilders are increasingly buying an option to purchase it, which is more capital efficient,” says Turner in describing why he likes Millrose. “The homebuilder then exercises the option (completes the purchase) when it is ready to commence building.”
- Millrose purchases undeveloped land and keeps the option premium, whether the homebuilder eventually builds on it or not, Turner explains. Additionally, he notes that the company derives revenue from homebuilder payments for finished homesites that are ready for building to commence.
- Turner believes that Millrose’s stock was undervalued mainly because investors misunderstood the company’s business model. “I think the stock is intriguing, given homebuilders’ preference for minimizing their capital outlays, along with the need for new housing due to the relatively advanced age of the U.S. housing stock.”
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Fidelity Advisor Dividend Growth Fund (FGDHX)
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Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
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