Best Stocks To Own In 2021

WRITTEN BY THOMAS HUGHESWRITTEN BY THOMAS HUGHES

BROUGHT TO YOU BY MARKETBEAT.COMBROUGHT TO YOU BY MARKETBEAT.COM

When asked the question “what is a good stock to own in 2021” our response is to say “what makes a stock good to own any other time?” The times have changed, that is for sure, but the same fundamental qualities that made a stock good to own in 2019 hold true in 2021. Those include earnings, growth, dividends, and value just to name a few. Putting that in practice for 2021 investing is simple; look for stocks that offer value among the sectors which have performed well during and since the pandemic began.

The first group, probably the most obvious, is the stay-at-home consumer staples winners. Those stocks have seen a sustained uptick in demand that is going to linger on into the next year. Even if the comps in 2021 are weak, so long as the consumer staples giants post steady results on a YOY basis the dividends are safe and distribution growth is expected. The consumer staples may not be the “best sector” for 2021 regarding growth but there are some high-yield, deep-value plays that we consider must-have’s for income and dividend-growth investors.

The home-living and outdoor lifestyle stocks are two other groups that spring to mind. Sure, the economy is reopening and will continue to reopen but things will never return to “normal”. Not any time soon. Social distancing and life-at-home trends will persist. Besides, a fair portion of America has had time to slow down and realize what life can be like when living at home, out of the mainstream, in comfort. I don’t think they’re going to rush back to the rat race if they don’t have to. And companies from Home Depot to Target, Wayfair, and Tractor Supply Company have all experienced sustained increases in demand that have altered their long-term fundamental outlook.

No matter how you look at it, social distancing is going to keep people at home. That means continued health if not strength in Consumer Staples and Home Improvement stocks but those aren’t the only good stocks to own in 2021.

This Is Where To Find Good Stocks For 2021

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The Dawn Of Another “New Age” In TechnologyThe pandemic sparked and/or accelerated a number of trends in America that have had a profound impact on earnings. Among them is the shift to digital. World citizens had been adopting tech at a double-digit pace going into the pandemic and that trend only accelerated. The need to distance made us use a tool that was already at our fingertips and the tool performed better than expected. What this means for investors is a need for tech at all levels from infrastructure to connectivity to hardware and software.

And there’s another catalyst to drive tech growth already in the works. 5G. The 5G wave is here and going to drive the adoption of tech to new levels. Why? Because our phones and wireless devices are going to work faster. Not just faster but fast. Fast enough to handle the real-time activity and open a new era of applications.

The best place to see the proof is in retail sales data. Every business with an eCommerce presence saw high-double to high-triple-digit increases in digital revenues and the best part is those gains are expected to stick. The retail environment has been permanently altered and tech is the savior. Businesses without eCommerce are doomed. All it will take is one more shut down, the next pandemic, or some other catastrophe to wipe existing brick & mortar retailers out of business.

And the change isn’t limited to retail. All businesses need tech. They need technology to communicate and interact with employees; they need technology to communicate and interact with their clients and customers. It’s the dawn of a new age in digital, and the Cloud will power most of what we do.

If there was one thing apparent in the 2nd quarter 2020 earnings reporting and the economic data it’s that the slowdown wasn’t as bad as the analysts feared. Since then, the rebound has also been better than expected. There are areas of weakness, labor turnover remains high, but those are offset by high-levels of job creation, strong numbers out of the manufacturing sector, rising demand in the housing sector, and an elevated Leading Indicators Index. All of which point not just to growth but to robust growth in the second half of 2020 that will drive momentum going into 2021.

Something we noticed in all the 2Q earnings reports is that inventories are down. In some cases, inventories are down as much as 30% but 10% is a fair benchmark. That means shelves are empty, shelves that need to be refilled and that means manufacturing and production. Manufacturing on all levels means economic activity, jobs, wages, GDP, and corporate profits.

There really is nothing not to like about the investment prospects in 2021. We think all 11 S&P sectors are going to experience an historic boom. Well, maybe not the Energy Sector but even oil demand will rise if what we see building in the economy begins to bear fruit.

And Then There’s The Rebound...

Apple Inc., love it or hate, is the world’s largest and leading manufacturer of consumer tech. If there is a gadget, gizmo, or device that fits mass consumerism Apple is sure to make one. Which is why you need to own it in 2021. The company is among the best positioned in tech as a must-have item for its millions of loyal followers and billions in annual sales.

When it comes to the pandemic and its impact on revenue Apple is the poster-child for today’s market. The company was among the very first to issue a profit warning when China closed down its economy and now the outlook for growth is stronger than ever. Not only did Apple weather the storm it came out in better shape than it was before.

5G will be a major catalyst for this stock in 2021. Mass production of the 5G iPhone was delayed due to the pandemic but expected to ramp up in early fall and hit full speed by the end of the year. The lowest-priced 5G iPhone will have priority but that doesn’t matter. The low-end phone is expected to be 40% or more of total sales and this is a generational upgrade cycle we’re talking about. There are going to be a lot of sales of 5G equipment over the next couple of years.

Apple doesn’t have a robust outlook for growth but there is growth in the forecast. What investors need to remember is Apple’s annual sales topped $260 BILLION in 2019 and will grow mid to high-single digits over the next three to five years. Growth may have slowed but it’s not small, 5% of $260 billion is $13 billion extra revenue and there are other reasons to own this stock.

Apple pays a dividend, not a big one by yield but one of the safest on Wall Street. The yield tends to run below 1.0% but the distribution is growing and there is no fear it will be cut. Apple has increased the payout for the last ten years and there is plenty of room on the balance sheet and cash flow statement to keep raising it for many years into the future.

Regarding the cash, Apple is sitting on more than $93 billion in cash and the figure grows each quarter. That’s more than $5.40 per share and gives the company ample liquidity to do … well to do whatever it wants.

Apple (NASDAQ: AAPL) Of Course You Should Own The World’s Leading Manufacturer Of Consumer Tech

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Verizon is a surprisingly good value for its high-yield despite the outlook for 5G. 5G has been described as a $50 billion dollar growth opportunity and Verizon, the nation’s largest cell-phone service provider, is well-positioned to take a bite out of that pie. Trading at 13X times earnings it is a steal compared to the broader market and pays a much higher dividend.

The real value in Verizon is its 5G strategy. Instead of rushing to launch the first 5G network or covering the most cities fastest, Verizon has been investing in the millimeter wavebands required for the fastest services. T-Mobile and AT&T may have beaten Verizon but we’re only in the early stages of this game. The slower “light” versions of 5G peddled by the other two won’t keep their users satisfied forever. Verizon is looking toward the long-term and its ability to deliver the most attractive services for businesses and consumers.

AT&T pays a higher dividend yield then Verizon but there is a catch. AT&T is bogged down with its media and entertainment arms while Verizon is a pure-play on mobile. Regardless, the 4.15% yield is double the broad-market average and a significant return for income and dividend-growth investors.

Salesforce.com is one of those situations where its hard to overstate how well-positioned the company was for the pandemic. Salesforce.com, if you are not aware, is the world’s leading provider of customer-facing cloud-based software solutions for businesses. When it comes to web-based customer relationship management solutions Salesforce.com is the first name you go to.

Salesforce.com’s revenue was growing at a high double-digit pace before the pandemic set in and nothing has changed since. The peak of growth was in the 4th quarter of 2019 when revenue accelerated 35% on a YOY basis but has steadied near 30%. The consensus outlook is forecasting that trend to continue but we think the estimates are too low.

Salesforce.com doesn’t pay a dividend but this is a case that can be overlooked. Salesforce.com a well-capitalized company about to experience an acceleration of already vigorous organic growth. And don’t forget, Salesforce.com was recently added to the Dow 30. That makes it one of the 30 most closely watched and owned stocks on the planet. That’s a lot of buying power to support this stock as it dominates the CRM industry.

Verizon (NYSE: VZ) A HIGH-YIELD VALUE FOR THE 5G REVOLUTION

Salesforce.com (NYSE: CRM) CONNECTS BUSINESSES WITH CLIENTS VIA THE CLOUD

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Kraft-Heinz (NASDAQ: KHC)AN UNDERVALUED, HIGH-YIELD, CONSUMER TURN-AROUND STORY

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Kraft-Heinz is the combination of two of American’s most iconic brands Kraft and Heinz. The bad news is the merged company has struggled to deliver the shareholder value promised by the merger. The good news is that is about to change. Kraft is on the cusp of realizing years of effort in the form of growing profits. After 18 months of cost-saving and debt reductions the company is leaner than ever and buoyed by pandemically driven trends.

One of Kraft-Heinz’s focus over the past year was to pay down debt related to the merger. This is important because it is freeing up capital, earnings, and cash flow that can be used for growth and dividends. Notably, it was a dividend cut that allowed management to pay down the debt so there is reason to believe an increase is in the cards for 2021.

Regarding the dividend, Kraft-Heinz is paying $1.60 annually which comes out to about 4.75% in yield with shares trading near $32.00. The 4.75% yield is enough on its own to make the stock interesting but the value makes it more so. Compared to sector leaders Hormel and Clorox, Kraft offers significant value and a much higher yield. Kraft is trading about 12X its forward earnings where Clorox and Hormel are both trading near 27X their earnings and only yield about 2.0%.

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Of the many trends unleashed by the pandemic, the trend in housing seems to be getting the least attention. Housing demand, long pent up due to rising prices and affordability issues, came to a head when the pandemic struck. Families both new and existing reached a point where they had to move out of the city or into larger quarters or both. And the trend is only getting started. It will be years before the supply of existing and new homes catches up with demand and until then there will be a high demand for fasteners.

Fasteners may not sound like an important part of the housing market but they are. Fasteners include everything from staples to nails, screws, tape, and adhesives and Simpson Manufacturing is a leader in high-quality and specialty items.

Regarding earnings, the company was able to deliver high-single-digit YOY growth in the first half of 2020 despite the pandemic. The consensus forecast is calling for revenue growth to continue at the same steady pace for the next few years but those figures are conservative. Not only is Simpson Manufacturing riding the post-pandemic wave, but there is also the stay-at-home/home-improvement boom to consider and the company is taking steps to increase its market share. One such move is stocking items at Home Depot competitor Lowes. The move may impact sales of Simpson products at Home Depot but the net effect will be very positive.

Simpson pays a dividend that can be called reliable if nothing else. The yield is running about 1.0% and is backed by one of the healthiest cash-flow statements and balance sheets on Wall Street. The payout ratio is a cool 25% of earnings which is not much for a company with virtually no debt to speak of. Long-term investors will like the dividend history. Although distribution increases were paused this year, Simpson Manufacturing has been increasing the distribution every year for 21 years. Once the uncertainty of COVID is behind us we can expect to see that trend resume.

Simpson Manufacturing (NYSE: SSD) STANDS IN FRONT OF A MARKET, UNLEASHED

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J.B. Hunt is not the largest fleet-operator of long-haul trucks in the U.S. but it is the largest integrated, diversified shipping business in North America. The company is a specialist in intermodal shipping but has a strong presence in long-haul, full and partial-load, specialty delivery, final-mile, and transportation services. Notably, its unique integrated business model provides competitive advantages and ensures clients stick around once acquired.

If the rising tide of demand wasn’t enough to underpin business for J.B. Hunt there is another catalyst to consider. Capacity within the overall trucking industry has been in decline even as the large operators consolidate the business. That situation is leading to increasing revenue-per-load as total load counts go up which is win-win for J.B. Hunt.

J.B. Hunt is another one of those dividend payers that lets you sleep easy at night. The company yields a little under 1.0% and there is a long 16-year history of distribution increases. The payout ratio is very low at 22% so there is no reason to fear and every reason to expect dividend increases will continue.

J.B. Hunt (NASDAQ: JBHT) COMPETITIVE ADVANTAGES WILL DRIVE GROWTH

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Williams-Sonoma is an iconic retailer whose time has come. Once a niche retailer of higher-end housewares and trendy home furnishings Williams-Sonoma is fast-becoming an entrenched leader in eCommerce and homewares.

The store operates in three segments that all saw revenue grow YOY despite the pandemic; Williams-Sonoma, Pottery Barn, and West Elm. Sales across the entire group grew 10% in the 2Q 2020 period, the worst hit by the pandemic by far, with noticeable strength in the core Williams-Sonoma brand and eCommerce channels.

Williams-Sonoma already had a strong eCommerce presence before the pandemic. It is heavily reliant on mail-order and direct-to-consumer channels so the web was a natural fit. The pandemic spurred acceleration of growth along those channels to 46% YOY but that is not the most important metric in the report. The most important figure is eCommerce penetration which is up to 76% of sales. That’s a sure sign this company and its brands are not only surviving but thriving in the new age.

Williams-Sonoma is a dividend payer and a good one to boot. The stock tends to yield about 2.2% and there is an expectation for long-term distribution growth. The payout ratio is very low at 30% of earnings and the distribution has been increased consistently for 14 years.

Williams-Sonoma (NYSE: WSM) A RETAILER WHOSE TIME HAS COME

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Footlocker (NYSE: FL) A LONG-TERM WINNER READY TO SHINE

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Foot Locker wasn’t one of the fortunate retailers to ride the pandemic to a treasure trove of profits but it was one well-positioned to weather the storm and come out shining. And that’s a good thing because share prices are still trading at distressed levels and offering a significant value compared to others in the industry. Trading at only 9X its consensus estimate for calendar 2021 we think this stock is in position for a massive earnings-driven multiple expansion over the next 12 to 18 months.

Foot Locker benefits from one of the most enduring tailwinds of the pandemic; brand recognition. That and its strategic importance to manufacturers give it the edge to gain market share in the post-pandemic environment. The second-quarter 2020 earnings were strong. Total revenue grew by more than 18% despite the widespread store closures with strength in the eCommerce channels. The company didn’t break out its eCommerce figures but did say digital led its growth.

Foot Locker declined to give guidance but may have done something better; reinstate the dividend. The company cut the dividend earlier in the pandemic in order to preserve capital and that decision proved unnecessary. Even so, the reinstated dividend is well below the previous level but that is an opportunity in itself. The opportunity for investors is the possibility of aggressive distribution increases as the company’s earnings grow.

Nikola was little more than an interesting start-up until it set its sights on not just Ford but Ford and Tesla. The company is the would-be manufacturer of electric trucks the likes of which rival the Ford F-Series and put Tesla to shame. The problem is or was rather, the company’s limited ability to produce said trucks but now that hurdle is gone. A strategic partnership with GM has this company in a position to begin mass-producing its trucks very soon.

Nikola is not a dividend-paying stock but 2020 offers more opportunities than one. Growth is going to be a driver for many parts of the market and Nikola is gearing up to be the next Tesla. It may take time for the GM deal to bear fruit but, once it does, these shares are going to go ballistic.

Nikola (NASDAQ: NKLA) A GAME-CHANGER FOR THE ELECTRIC VEHICLE MARKET

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Chewy, Inc is another growth story for 2021 and beyond. It is a pure-play riding not one but two consumer trends that promise to deliver sustained growth for the next five to ten years. The first is eCommerce. Where eCommerce sales were growing at a high double-digit rate in 2019 they are now accelerated triple digits in 2020 and the experts agree those gains are likely to stick.

The second tailwind is pet care. The pet care industry is worth $75 to $250 billion depending on who you ask and what you include and Chewy.com sells it all. In terms of growth, the U.S. pet care industry is expected to grow by mid to low-single digits over the next five to ten years which equates to billions in potential revenue gains for this company.

To put Chewy.com into perspective, it is the Amazon of pets. You can buy anything pet-related and many times there is a private-label brand among the choices. Like Amazon, Chewy is building a sizeable recurring revenue stream in the form of monthly delivery services for foods and medicines. With recurring revenue accounting for more than 70% of sales the company’s long-term sustainability is all but assured.

Chewy, Inc (NYSE: CHWY) IS RIDING TWO WAVES TO PROFITS

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