Buy, Sell or Hold? What to Do With the 10 Most Popular Stocks and Funds

The strategy: Five years ago Microsoft was a has-been—a PC relic in a mobile world. But Dodge & Cox managers saw a cheap cash generator and started buying. Today Microsoft is cool again, having beaten the S&P 500 by 15 percentage points annually over the past three years. It’s also DODGX’s second-largest holding. “Their patience and contrarian value approach defines them,” says Morningstar analyst Laura Lallos. And pays off over time: The fund, which is in our Money 50 recommended list, has outpaced the S&P 500 by 2 percentage points annually over the past 15 years.

The risks: Going against the grain takes patience from shareholders. Though the fund has a terrific long-term record, you have to stomach stretches of underperformance, such as the past three years. And there could be more rockiness ahead: The fund is currently looking for attractive companies in the beleaguered energy and industrials sectors.

The verdict: If you’re near retirement and need to play it safe, this fund may not be for you. But if you’re investing for the next 20 years, you’d be hard-pressed to find a better value fund.

The strategy: Facebook shares have quadrupled in the past three years as the social media giant amassed 1.6 billion users. Yet the company has only begun to really profit from its growth. In the fourth quarter of 2015 Facebook pulled in $5.6 billion in ads, up 57% from a year ago, mostly from mobile. Its 19% share of U.S. mobile ads is expected to grow in the next two years as Facebook works ads into Instagram, the photosharing app it bought in 2012, and WhatsApp, the mobile-texting service acquired in 2014. Facebook is also making a big push into video.

The risks: Key rival Alphabet has deep pockets. Also, Facebook’s stock has a P/E above 30. At those prices the company has to deliver on profit expectations or investors will punish the stock. In the past year alone the stock sank 9% or more on three separate occasions.

The verdict: Conservative investors—especially those in or near retirement—should steer clear of this or any stock trading at a P/E above 30. But if you have decades to go, think about this: Facebook may be tech’s last ultrafast horseman. Its profits are rising at about twice the rate of Alphabet’s. And while Alphabet’s valuation has more than doubled in the past 2½ years, Facebook’s has fallen 20%.

The strategy: Advisory teams from several different firms actually pick the stocks for this Vanguard fund. And those managers take different approaches to value investing, from focusing on dividend-paying shares to looking for turnaround plays. Collectively they’ve built an impressive record.

The risks: Value investing has lagged in recent years, and Windsor II hasn’t been immune. It also experienced a recent management change at the firm that oversees about 60% of Windsor II’s assets.

The verdict: If you have the patience to wait for value’s comeback, buy this low-cost fund. Thanks to its unique structure, Windsor II is set up to succeed in a number of different markets. Windsor II has an advantage over other bargain-hunting funds in that its portfolio boasts a projected P/E of 13.9, two percentage points less than the market. And it charges lower fees than the average stock index fund. That combo is hard to beat.

The strategy: This bank does what most people think banks do: It takes in deposits, extends loans, and helps individuals manage money. Wall Street activities like investment banking play a minor role. That’s fine. By focusing on individuals, the nation’s biggest retail bank can cross-sell more products easily. That makes it cheap for Wells to attract capital, explaining why the firm’s return on equity—a key measure of profitability—is higher than those of Bank of America, Citigroup, and J.P. Morgan.

The risks: As the nation’s largest private mortgage lender, Wells will do well as the housing market keeps recovering. But what if a recession is on the horizon? Wells is also a big lender to oil companies, and lost almost $120 million on defaulted loans in the last three months of 2015 as oil prices tanked.

The verdict: Economic troubles usually spell trouble for financials. Not so with Wells. When the market dropped 37% in 2008 because of the housing collapse, Wells’ stock gained 2% on investor confidence in management. (Wells’ John Stumpf was just named CEO of the Year by Morningstar). There’s also a good reason so many value investors like the stock: The stock’s P/E is lower than that of the average large financial institution.

The strategy: Under Satya Nadella, who became CEO in 2014, Microsoft is finally shifting from slow-growth PCs to fast-growth cloud computing and mobile. Revenues at cloud service Azure rose 140% last quarter. Office 365 is another hit: Consumers pay $70 or more a year to access cloud-based Office applications across PCs, tablets, and phones. At the end of 2015, subscribers totaled 20.6 million, up from 15.2 million six months earlier.

The risks: The software giant still lacks buzz and remains vulnerable to declining PC sales. And licensing of Windows for new PCs and other products fell 5% last quarter. “The company is still in transition,” says Morgan Stanley's Dan Skelly.

The verdict: Microsoft may no longer be hot, but it’s durable. Despite the PC drag, the company exceeded expectations last quarter. Last year's successful rollout of Windows 10 should drive licensing sales for several years. The stock is cheaper than that of rivals such as Alphabet. And Microsoft also has $100 billion in cash, which lets it minimize debt, invest in new ventures, and keep its rare triple-A credit rating. Investors will covet these “quality” traits in shaky times.

The strategy: In this era of tougher banking regulations, some have argued that the nation’s biggest commercial bank should split up. The company stayed intact and posted record profits. It achieved this by trimming payroll, reducing legal fees, and cutting its asset base by 9%—making itself safer as a result.

The risks: JPM is a global bank exposed to Asia and Europe, where the economy isn’t rosy. The collapse in oil is also hurting: JPM set aside more than $550 million last year to cover bad loans made to now struggling energy firms.

The verdict: If you already own this stock, there’s no reason to panic. The stock trades at a P/E in the single digits, which means it may not be that vulnerable if the selloff continues. And while you’re waiting, investors are being paid a 3.2% yield. JPM’s earnings may not be growing as fast as some rivals’. But this is a well-managed bank.

On the other hand, you can’t assume that J.P. Morgan will sail through another global slowdown as well as it navigated 2008’s financial crisis, when it was in a position to scoop up other banks. Even after downsizing, the company is still larger and growing slower than it was back then. And it faces more government regulations.

The strategy: Based on longevity and popularity, the $100 billion Fidelity Contrafund is the Rolling Stones of funds. Manager Will Danoff has been at the helm since the first Bush administration, and less than 1% of his peers have bested him over the past 15 years. Danoff seeks out stocks “well positioned for growth at a reasonable price.” Lately this has led him to financials, and he was an early investor in Facebook. But his best skill may be navigating troubled markets: In down months, Danoff has lost 25% less than the broad market.

The risks: In rising markets, the fund has underperformed the S&P 500 by 6% annually over the past 15 years.

The verdict: If you already own the fund, hang on, especially if you’re worried about another stock pullback. But if you’re a new investor, you have to wonder if Danoff can still paint it black. The fund’s sheer size can hamstring even the best stock picker. And what if Danoff, 55, retires? “I’m not going anywhere,” he insists. Let’s pray he's true to his word.

The strategy: Shares of industry game changers can be lucrative to own, and that thinking guides T. Rowe Price Growth Stock; Amazon.com and Alphabet are among the top holdings. Manager Joe Fath also buys economically sensitive stocks “when the timing is right" and dabbles in stocks he thinks are poised for a rebound and up-and-comers that have yet to go public. With this catch-all approach, Fath hopes to capture the best growth opportunities, no matter what’s going on in the market. It worked in 2015, when the fund gained 10.9%, vs. 3.6% for the average large growth fund. In 2014, though, Fath trailed his peers.

The risks: The fund has beaten more than 80% of its peers over the past three, five, 10, and 15 years. But Fath has led the fund for just two. And his bets on risky innovators can backfire when investors get spooked. This year, it's retreated 13%, compared with a 7% drop for S&P 500 and an 8% fall for the Russell 1000 growth-stock index.

The verdict: Without a track record, it’s hard to say how Fath will perform in an extended selloff. So wait for him to prove his worth before committing new money.

The strategy: Growth Fund of America buys shares of large companies that are expanding rapidly. But rather than put one manager in charge, it employs 12, each independently overseeing a slice of the portfolio. “You get diversification of thought that way,” says Andy Betts, a financial adviser in Lexington, Mass.

The risks: Growth Fund is the largest actively managed U.S. stock fund, with $125.5 billion in assets. With so much money to deploy, the managers often have to limit their ideas to the largest or most widely held stocks. The result: Growth Fund has beaten only about half its peers over the past one, three, and five years. You’re paying for active management but getting something close to an index fund.

The verdict: If you own Growth Fund of America through a 401(k) plan—as many do—there’s no reason to sell. It favors dividend payers, which smooths your ride in a bumpy market and ensures that shares of expensive high fliers don’t dominate. As a result, its average P/E is slightly below that of its peers. But there’s no reason to start buying the fund, either: It charges a 5.75% load, while iShares Russell 1000 Growth ETF charges just 0.2% for tracking the very index Growth Fund resembles.

The strategy: Despite generating $107 billion in annual revenue, the e-commerce giant is still able to grow sales at a 20% annual clip. How? Amazon is the classic disrupter, upending retailing through low prices and hyperefficient delivery. The company is disrupting computing, too. Amazon Web Services is the leading cloud services provider to businesses; its sales rose 70% in 2015, with a profit margin of 23.6%, vs. 4.3% for Amazon.com.

The risks: Amazon knows how to make sales. Turning a profit? Not so much. Amazon is spending billions to grow. Meanwhile, Amazon earned just $596 million on $107 billion in sales over the past 12 months—a relatively paltry sum. The company says profits will come in the long run. Yet in this era of disruption, will that day ever come?

The verdict: It’s hard to argue against taking profits off the table. After soaring 118% last year, Amazon shares trade at 59 times estimated earnings. The risk, especially in a choppy market, is that investors will flee if disappointed. Last quarter, Amazon earned $1 a share, short of the $1.61 expected. The stock dropped nearly 8% in a day.