What stocks should you buy in 2021?
Despite the pandemic, the U.S. stock market defied expectations in 2020, rebounding from its fastest-ever bear market to deliver a 15% gain for investors through Dec. 16. And with Covid-19 vaccines rolling out, the Federal Reserve pledging 0% interest rates for three more years, and Congress passing another pandemic-related stimulus bill, the so-called “recovery” and “return-to-normal” trades are likely to drive stock prices in 2021.
To find out which stocks might benefit most as Covid-19 fears fade, new trends emerge, and Americans begin to return to a semblance of their normal lives, USA TODAY checked in with fund managers to get their tops picks for the new year.
Here are 21 stocks (with closing prices through Dec. 16) that you should consider putting on your shopping list in 2021.
1.CROWDSTRIKE (CRWD, $179.79)
The December cyberattack on cybersecurity firm FireEye, and a hack of U.S. government agencies by suspected Russian hackers, highlights the importance of data security. That’s why CrowdStrike, a cybersecurity firm with a security product that detects cloud workload threats and stops data breaches on equipment ranging from servers to laptops, is well-positioned in a growing market, says Victoria Greene, founding partner and portfolio manager at G Squared Private Wealth. “CrowdStrike is stealing business from established providers,” Greene said. In its quarter ending Oct. 31, CrowdStrike added 1,186 new subscription customers and reported an 86% rise in sales. Greene says its recurring revenue growth, which jumped 81% in the quarter, could grow 50%-plus for the next few years. That growth trajectory is key, as the stock was up 260% in 2020 thru Dec. 16.
2.BOOKING HLDS (BKNG, $2098.71)
Vacations were put on hold during the pandemic, as stay-at-home orders, health-safety concerns, and travel bans kept people from taking trips. Those factors hurt travel-related businesses, including Booking Holdings, the online travel company with brands including Booking.com, KAYAK, and Priceline. In the third quarter, Booking saw a 47% drop in gross travel bookings. But with a Covid-19 vaccine now circulating, business will bounce back in 2021, says Janet Johnston, a portfolio manager at Trim Tabs Asset Management. “They’re well positioned to capitalize as the economy turns around,” Johnston said. “There’s a lot of pent-up demand for travel.”
3. SOUTHWEST AIRLINES (LUV, $45.73)
In 2019, this domestic airline posted its 47th straight year of profitability. Then the pandemic hit. Despite the stock rebounding from its sell-off low in February, shares are still down more than 20% from their pre-pandemic peak. Johnston thinks the shares can recover even more when leisure travel picks up as we move through 2021 and the virus vaccine rollout spreads. The airline, which was also hurt by the grounding of the Boeing MAX, will get a boost with the return of the MAX to the skies. With $15.6 billion in available cash at the end of September despite a third-quarter loss of $1.2 billion, it is in good financial shape, she says.
4. WALT DISNEY (DIS, $173.12)
Best known for its theme parks, its animation movies like “Frozen,” and an extensive film content library, Walt Disney is now getting a boost from its year-old Disney+ streaming service. “Disney’s got fresh momentum,” says Mitch Rubin, co-founder of RiverPark Funds. The company recently said it already has 86.8 million paid Disney+ subscribers worldwide, exceeding Wall Street expectations by a lot. Disney, which is boosting its monthly fee by $1 to $7.99 starting in March 2021, expects as many as 260 million paid Disney+ subscribers by the end of fiscal 2024. Revenues will also get a boost when the coronavirus dissipates and people return to Disney theme parks and go back to movie theaters to watch Disney movies, Rubin adds.
5. FIDELITY NATIONAL (FNF, $38.81)
The title insurance company still hasn’t recovered from the spring sell-off, but should get a second wind as a strong home-sale market and refinancing business boosts the demand for title insurance, says Gertjan Van Der Geer, manager of the John Hancock Global Thematic Opportunities Fund. And with the insurer trading at less than 10 times its estimated earnings in 2021, versus a price-to-earnings ratio above 20 for the broader market, it offers value and upside potential, says Van Der Geer. Another bonus: “It offers a 3.75% dividend yield,” which is richer than the 0.94% yield on a 10-year Treasury note, he said.
6. RAYTHEON TECH (RTX, $70.57)
The defense contractor and aerospace giant, which sells everything from Tomahawk missiles to radar systems to engines that power passenger jets, hasn’t recovered all its losses from the 2020 bear market. But it’s “well-poised” for a rebound when global travel recovers and coronavirus fears and travel bans ease, says Mike Clarfeld of ClearBridge Investments. A recovery in global travel will provide an earnings boost and complement its already strong defense business, which has benefited from increased government spending. An economic recovery means “more planes flying, more engines getting serviced, more planes in production,” Clarfeld said. “In short, more Raytheon technology being bought, used and serviced.”
7. TRAVELERS (TRV, $137.44)
This insurance company offers an “attractive valuation” in a market where it’s hard to find stocks selling at cheap prices relative to their earnings. The property and casualty insurer “trades at roughly 13 times earnings,” Clarfeld said. In comparison, the broad market’s P-E is north of 20. The company’s earnings will also benefit from an ability to raise premiums and an expected increase in the number of policies it writes, he adds. “Travelers will see volumes increase as the economy picks up,” Clarfeld said. Travelers, which offers a dividend yield of 2.5%, also can act as a defensive holding in a portfolio
8. LIVE NATION (LYV, $72.98)
The concert promoter and owner of Ticketmaster has been hit by pandemic-induced cancellations of live concerts like Lady Gaga’s Summer 2020 Chromatica Ball tour, theater experiences like the Christmas Spectacular Starring the Radio City Rockettes and sporting events held without fans such as the NHL’s 2020 Stanley Cup playoffs. But a coming Covid-19 vaccine should enable fans to see their favorite pop stars and sports stars live again later in 2021 and into 2022, says Jim Golan, manager of William Blair Large Cap Growth Fund. “We expect a normalization of concert activity,” Golan said. “Artists want to tour again.” Cost cuts made during the pandemic should allow more of Live Nation’s revenue to fall to the bottom line, he adds. The stock, which fell more than 60% during the bear market, turned positive for the year in December.
9. TEXAS INSTRUMENTS (TXN, $162.12)
The computer chip maker will be a beneficiary of a post-pandemic economic rebound, says Golan, “Over 50% of its business is tied to the industrial and automotive end markets,” Golan said. That plays into the trend of more chips going into autos and industrial applications, he adds. “As these markets recover next year, Texas Instruments is well-positioned to benefit,” Golan said. The stock has already rallied more than 70% from its mid-March low and recently hit a fresh 52-week high.
10. FIVE9 (FIVN, $168.91)
The pandemic has accelerated the business push to allow workers to work from anywhere, a trend that’s expected to continue. Five9’s cloud-based contact center call software is a beneficiary of that trend, says Jim Callinan, manager of Osterweis Emerging Opportunity Fund. Five9’s technology is a “remote solution” that could displace existing on-premise systems, which is a $24 billion market, says Callinan. The company’s third-quarter revenue grew 34% year-over-year, “its highest growth rate ever,” Callinan said. A key to its contact center software is it “provides extensive monitoring and reporting capabilities,” which reduces the importance of having the worker at the same location as the boss.
11. GUARDANT HEALTH (GH, $123.62)
While Covid-19 tests got all the attention in 2020, sophisticated cancer-related tests are morphing into a big investment opportunity too amid the precision oncology trend, says Callinan. Guardant Health’s “next-generation” diagnostic test enables doctors to analyze genetic mutations of a patient’s cancer, which helps them prescribe a treatment. What’s exciting is the test involves a “simple blood draw rather than a tissue biopsy,” Callinan said. The company, which increased revenues 23% in the latest quarter, is well-positioned for long-term growth.
12. PAYPAL (PYPL, $230.20)
Investors looking for a disruptor that can take advantage of the trend towards touchless payments accelerated by the pandemic should consider PayPal, which owns Venmo, says Daniel Milan, managing partner at Cornerstone Financial Services. While this year’s stock run-up has stretched the stock’s valuation, “there’s plenty of room to go.” There are still growth opportunities in non-cash payment options as “widespread adoption” occurs. PayPal’s launch of its cryptocurrency business, which allows customers to trade digital currencies in their PayPal accounts and eventually to use cryptocurrencies as a funding source for purchases at 26 million merchants worldwide, is another revenue driver.
13. HILTON (HLT, $104.41)
If there’s one hotel or travel stock to pick that will perform better than the market as a “reopening” trade, it's Hilton, says Milan. Demand for hotel rooms “will pick up as the pandemic fades.” There’s no denying that empty rooms and shuttered hotels during the pandemic “damaged Hilton’s business,” Milan says. But the well-known brand with a strong balance sheet “should come out of the other end of the pandemic as a best-in-class option” for travelers, Milan said. Even though Hilton has rallied 80% from its March lows, it’s still in negative territory for 2020.
14. AMERICAN EXPRESS (AXP, $119.00)
American Express’s credit card business was hurt by less spending and travel during the pandemic. And business remains tough, with revenues falling 20% to $8.75 billion and net income diving 39% to $1.07 billion in the third quarter. But Milan says American Express will benefit from the “reopening” of the global economy and an increase in spending from consumers and businesspeople in the U.S. and abroad. American Express CEO Stephen Squeri said the financial company has taken steps to boost business. Changes include moves to drive spending and customer loyalty, launching a “Shop Small” campaign to support small merchants in 18 countries, and opening its network in China.
15. AUTOZONE (AZO, $1,190.50)
When the economy and peoples’ lives return to a more normal routine once pandemic fears ebb, people will start driving again to work, to visit friends, and to vacation getaways. “Miles driven should increase,” says John Mantia, co-founder and director of finance at PARCO. And more driving means auto parts supplier AutoZone will sell more stuff in their retail stores and online. “The uptick in miles driven will equate to more wear-and-tear on vehicles,” Mantia said. The company’s recent announcement that it will buy back 5% of its outstanding shares signals it is “focused on driving shareholder return,” Mantia said.
16. NIELSEN (NLSN, $19.49)
Nielsen TV ratings have long been the way to measure how big an audience watched TV shows. But in a digital world where viewers are also streaming shows on smartphones and computers, more accurate measurement is needed to capture the true size of a viewing audience. Nielsen’s recent announcement that it will be launching Nielsen ONE, which will measure audiences watching on both TV or digitally, should breathe life into this value stock trading at about nine times its annual earnings, a valuation that’s more than 50% cheaper than the broader market. “They will have a new ratings system that will count linear TV as well as streaming,” says Charlie Bobrinskoy, vice chairman and head of investment group at Ariel Investments. The stock could rise from around $20 to $30 next year, he says.
17. LAZARD (LAZ, $41.26)
This investment bank, which does M&A deals and also manages money, is “going to do very well coming out of the economic recovery,” Bobrinskoy said. More deal flow is expected as the battered economy ramps up as Covid-19 fades. And more money is expected to move into international and emerging market stocks that Lazard’s money-management business invests in, says Bobrinskoy. Lazard, which trades at a cheaper P-E than the broad market, could see additional upside if it changes its ownership structure and is added to the S&P 500 stock index, which it isn’t eligible for now because of its partnership structure. “It’s very cheap,” Bobrinskoy said, adding that stocks added to the S&P 500 tend to move higher as index funds are forced to buy shares.
18. AMERESCO (AMRC, $46.70)
This small $2.2 billion renewable energy company is an environmental and infrastructure play favored by Domini Impact Investments. “We really look for companies whose products and services offer great solutions to society’s problems,” said Carole Laible, CEO and a portfolio manager at the firm. Ameresco works with federal and local governments and other customers to improve energy efficiency by installing green-friendly equipment, such as solar panels. What’s different about Ameresco’s business model is that it is “cost neutral” for its customers, as Ameresco pays for the improvements upfront and gets paid later from energy savings accrued by the customer. With talk in Washington, D.C. of plans for more infrastructure spending and growing environmental awareness, Ameresco is in “the right place at the right time,” Laible said.
19. ENPHASE ENERGY (ENPH, $163.31)
This renewable energy company is all about tech-driven energy conservation and savings through solar panels. Its unique microinverter technology sits beneath the solar panel and converts the power generated from the sun to a form of electricity that you can use. The company also has a technology that “provides an off-grid” solution, said Laible. Homeowners can start motor-driven appliances, such as air conditioners and pumps, in an off-grid mode with a smartphone app. What Laible dubs a “solar-in-a-box” concept will fast emerge as a “great solution to extreme weather events” for homeowners who need access to power during power outages and rolling blackouts.
20. WORLD WRESTLING (WWE, $45.53)
Fans of “SmackDown” haven’t been able to get into a live WWE wrestling event in person since March. But the iconic media franchise with strong cash flow and balance sheet has fought a good fight. Its ability to generate revenue with TV and pay-per-view events is key, says Miles Lewis, a portfolio manager at Royce Investment Partners. WWE makes money from content deals with broadcasters, so revenue comes in even if arena events aren’t held due to Covid-19 restrictions. “Networks pay a lot of money” to air WWE content, Lewis said. The stock, which is still down 30% for the year, is a “phenomenal Covid-19 recovery play,” Lewis said. “People will get back to live sporting events and jam arenas.”
21. HEALTH CARE SRVS (HCSG, $26.78)
This company, which provides janitorial and dining services to nursing facilities, remains a good business despite the pandemic, says Lewis. It has a strong national presence, but still serves less than 20% of the nursing homes in America. “They have a long runway,” Lewis said. During the pandemic, its customers have been hurt financially due to fewer patients in facilities and higher costs due to the need for temporary nurses and protective care equipment. The good news: the company is seeing demand from new customers, says Lewis. Once the Covid-19 vaccine gets distributed to nursing staff at these facilities, Health Care Services Group’s customers will be able to shore up their finances and the company will start to convert new, financially stable customers into contracts with recurring revenue streams, Lewis says.