This coronavirus has upended virtually every aspect of life, in turn triggering a bizarre domino effect across corporate America. Many businesses were shut down for good. The stock market experienced a record-setting crash (and rebound). In a few cases, however, some so-called coronavirus stocks weren’t just capable of withstanding the storm – they were arguably better off for it.
Changes in consumer habits – an accelerated embrace of e-commerce, video games and working from home – have had major ripple effects. These trends have sped up declines in a number of businesses, even causing a cascade of bankruptcy filings. But they’ve also acted as “kingmakers,” elevating a few niche tech plays into large-cap status, and strengthening the already dominant positions of a few mega-cap companies.
That advantage still matters, as COVID-19 hasn’t gone away. A “second wave” is emerging across much of the world, including here at home. U.S. daily coronavirus caseloads are regularly breaking records, and recently have jumped well above the 100,000 mark.
Here, we look at a dozen coronavirus stocks to buy. Each of these companies has at least doubled the market so far in 2020, and they could benefit still more from a “second wave.” But more importantly, they’re all positioned for additional growth longer-term thanks to many of the trends COVID-19 either put into place or got up to speed. Just note that some of these stocks could experience short-term volatility amid any serious bouts of market profit-taking just given their already handsome gains.
“Continued progress in the response to COVID-19, including further stimulus, will be the key to sustaining the recovery,” writes LPL Financial, a retail investment advisory firm, in its 2021 outlook. “An earnings rebound in 2020 and strong earnings growth in 2021 may allow stocks to grow into somewhat elevated valuations. Cost efficiencies achieved during the pandemic may persist.”
Exactly when during 2021 you can expect to see these gains is another story altogether. That hinges on issues such as when and if the government will produce a stimulus bill, and how long it will take vaccines to be distributed, among others. In some cases, it might be a wait. “COVID-19-impacted service industries may be the last to bounce back,” LPL Financial adds.
Here, then, are the 21 best stocks to buy for 2021. A few of these stocks have been bulldozers for a long time and simply look primed to continue their success for yet another year. Many more of these stocks are clear “recovery” plays that took it on the chin for much of 2020, but are largely expected to turn things around in 2021.
- ustry: Credit services
- Market value: $247.0 billion
- Dividend yield: N/A
In September, Will Danoff celebrated 30 years managing Fidelity Contrafund (FCNTX). His recent performance has not been spotless. The fund, with $125 billion in assets, has failed to beat its large-company benchmark in two of the past five years.
But James Glassman – contributing columnist for Kiplinger’s Personal Finance and a visiting fellow at the American Enterprise Institute – is not counting Danoff out. His long-term record is what counts, and it is brilliant. For example, Danoff bought PayPal Holdings (PYPL, $210.80), the digital payment company, in 2015, the year it was spun off from eBay (EBAY).
Since then, the stock price has more than quintupled, but Danoff hasn’t cashed out yet – he bought more in 2020.
Consider PayPal among the best stocks to buy for 2021 and beyond.
Castle Biosciences
- Industry: Diagnostics and research
- Market value: $1.2 billion
- Dividend yield: N/A
Glassman also has been looking closely at the portfolio of Wasatch Ultra Growth (WAMCX), a fund bucking the trend by returning an incredible annual average of 26.6% over the past five years.
Wasatch is making a big bet on health care, at more than a third of the fund’s assets right now. One of those bets is Castle Biosciences (CSTL, $58.05), a company headquartered outside Houston that has developed proprietary tests for skin and eye cancers.
Castle shares began trading only a year and a half ago and have since shot up 262% from their initial public offering (IPO) price of $16. But Wasatch continues to add to its holdings, and CSTL now ranks among the fund’s top 10 stocks to buy at 2.4% of AUM.
IEC Electronics
- Industry: Electronic components
- Market value: $121.9 million
- Dividend yield: N/A
Small-company stocks have been out of favor for at least six years, but there are still gems to mine.
Dan Abramowitz, whose Rockville, Maryland-based firm Hillson Financial Management specializes in such stocks, found a major winner in 2020 in Chemours (CC), a maker of refrigerants and other chemicals that has delivered a total return (price plus dividends) of 56.9% through early December.
For 2021, he likes IEC Electronics (IEC, $11.61), with a market capitalization (shares outstanding times price) of just $122 million. IEC specializes in devices for the medical and defense sectors, and business has been booming.
Abramowitz says he expects “some moderation in growth rates,” but earnings should rise by double digits, and the price is right.
Based on Abramowitz’s earnings forecast for the year ahead, shares trade at a price-to-earnings ratio of 15, and profits “could surprise to the upside.”
IEC also belongs among the best stocks to buy for 2021 because of its potential as a takeover target
Hilton Worldwide Holdings
- Industry: Lodging
- Market value: $29.6 billion
- Dividend yield: N/A
Hilton Worldwide Holdings (HLT, $106.70) is a bet on a post-COVID recovery.
“Demand will pick up as the pandemic fades,” says Matt Gershuny, comanager of Parnassus Mid Cap (PARMX), who recently bought shares in the hotelier.
There’s no denying the virus’s damage to Hilton, on track to report a 50% decline in sales and a 64% drop in earnings for 2020. Revenue per available room was $47 in late 2020, down from $102 in 2019.
But Wall Street analysts expect earnings to gain ground in 2021. And a cash pot of $3.5 billion will see Hilton through.
- Industry: Internet retail
- Market value: $713.7 billion
- Dividend yield: N/A
Alibaba Group
Glassman is interested in the big, new stake that Matthews China (MCHFX) took in global e-commerce giant Alibaba Group (BABA, $263.80).
At 11.1% of assets under management (AUM), Alibaba is now the fund’s second-largest holding, behind Chinese tech conglomerate Tencent Holdings (TCEHY, 11.3%).
Alibaba is booming: Revenues have more than tripled in three years. The stock is booming, too, but its continued upside potential makes it one of the best stocks to buy for 2021.
Glassman also notes that he still likes his 2020 pick, Trip.com (TCOM). The online travel agency’s outlook quickly sank early in the year as the COVID-19 pandemic emerged, and while it recovered to small gains, it trailed the broader Chinese markets by a wide margin. Its fortunes look much better, however, heading into 2021.
- Industry: Social media
- Market value: $42.3 billion
- Dividend yield: N/A
Pinterest (PINS, $68.47) is a social-networking app that allows users to share images grouped by keywords. Generally speaking, the user experience is about finding and providing inspiration.
Pinterest makes money from advertising. Its new ad technology platform, in partnership with Shopify (SHOP), allows advertisers to upload catalogs to Pinterest. Users can buy items with just a few clicks – a development Baron Opportunity (BIOPX) fund manager Michael Lippert says will transform Pinterest’s business. He thinks the shares could gain 25%, on average, over each of the next four years.
Pinterest still operates in the red, but it could be one of the best stocks to buy for 2021, when Wall Street analysts expect it will start generating profits.
Twilio
- Industry: Internet content and information
- Market value: $50.2 billion
- Dividend yield: N/A
Twilio (TWLO, $312.54) enables businesses to integrate text, chat, email, voice and video into products that boost customer engagement – automatic text notifications for appointments, say, or communication between Instacart shoppers and hungry families.
Twilio benefits from the accelerated digitization of business brought on by the pandemic, and it is diversifying its customer base.
Though profits are still scarce as Twilio invests in growth, the communications firm is “well positioned” to meet sales-growth targets of 30%-plus in each of the next four years, says Canaccord Genuity, which rates the stock a Buy.
- Industry: Application software
- Market value: $1.3 billion
- Dividend yield: N/A
Once again, Terry Tillman, an analyst with Truist Securities (formerly SunTrust Robinson Humphrey), came through big-time. Glassman’s annual selections from Tillman’s Buy recommendations have beaten the S&P 500 now for nine years in a row. His 2020 choice, Okta (OKTA), has more than doubled through early December.
For 2021, Glassman likes his choice of Upland Software (UPLD, $42.83), based in Austin, Texas, which offers digital tools for companies to manage their customer base.
This small cap might be one of the best stocks to buy for 2021, but it’s risky. Namely, profits are still elusive. However, Upland has more than 10,000 customers, and revenues rose in the most recent quarter by 35% over the same period last year.
Microsoft
- Industry: Infrastructure software
- Market value: $1.6 trillion
- Dividend yield: 1.1%
Among the hundreds of stocks analyzed by Value Line Investment Survey, very few are awarded a top ranking in each of three categories: timeliness, safety and financial strength.
One is Microsoft (MSFT, $211.80), the world’s largest software maker.
Microsoft’s earnings were in a rut between 2011 and 2017, but since then, they have nearly doubled. A big reason is cloud computing, which has become the firm’s largest source of revenues.
Value Line forecasts Microsoft’s earnings to increase by an average of 15% for the next five years – nearly double the rate of the past five. The stock also throws off a modest amount of income via its 1.0%-yielding dividend. If you’re looking to pad your portfolio with blue chips, MSFT could be one of 2021’s best stocks to buy.
United Parcel Service
- Industry: Integrated freight and logistics
- Market value: $146.2 billion
- Dividend yield: 2.4%
UBS Securities recently raised its rating on package delivery giant United Parcel Service (UPS, $169.18) from Neutral to Buy. The brokerage sees the potential for price hikes in 2021, given capacity limitations in the industry generally. And cost-cutting efforts at UPS are boosting profit margins.
UPS can succeed in multiple pandemic scenarios. A vaccine-supported economic snapback is the best case, leading to a strong rebound in business-to-business deliveries. But even a more prolonged recovery would support strong e-commerce sales, a plus for UPS.
The brokerage has a 12-month price target for the shares of $210, giving UPS a chance to be one of the best stocks to buy for 2021 after a fruitful 2020.
Bank of America
- Industry: Diversified banks
- Market value: $249.1 billion
- Dividend yield: 2.5%
Banks have been something of a dirty word ever since the 2008 meltdown. The sector was largely responsible for all that transpired, and many Americans believe the banks were never truly held accountable for the mess they made. Investors have been reluctant to return to the sector, believing that banks may never again be as profitable as they were prior to the global financial crisis.
Then COVID-19 happened.
The prospect of a wave of bankruptcies stemming from the COVID recession caused already timid bank investors to run for the doors again.
But here’s the thing. Banks today are the healthiest they’ve been in a long time. The COVID recession wasn’t as damaging to the banks as initially feared, due in part to support from the Federal Reserve. They’ve also been deleveraging for over a decade, and derivatives trading is no longer the systematic threat it once was. Lousy investor sentiment toward the sector would seem to be overdone.
This brings us to Bank of America (BAC, $28.80). BAC’s shares have been rallying hard since March, yet they still remain at 2017 levels. It’s as if the great market boom of the past four years never happened.
In a market starved for value, financials could be among some of the best stocks to invest in during 2021. As one of the largest banks in the world, BAC stands to capitalize on that trend.
LyondellBasell
- Industry: Specialty chemicals
- Market value: $29.6 billion
- Dividend yield: 4.7%
LyondellBasell (LYB, $88.54) had a brutal 2020, never sniffing a positive return from day one. It’s primarily in the business of selling plastics and petrochemicals, but it also has a large refinery business that makes gasoline, diesel fuel and jet fuel.
In a normal world, this would have been considered a diversified business model. But in 2020, investors spent most of this year scared to death of anything resembling energy.
Chemical companies are cyclical in nature, as are refineries. They tend to do well when the economy is humming. So, it’s not too surprising that LyondellBasell got beaten up in March. But what is surprising is the sheer magnitude of the fall. Before the dust settled, the stock had fallen by about two thirds from its 52-week highs.
The shares bottomed out in late March and by early December had clawed back most of their losses for the year.
But here’s the thing. The shares were cheap before the March selloff, and they remain cheap today. The stock trades 1.1 times sales and 13 times expected 2021 earnings. To put that in perspective, the S&P 500 trades at an almost shocking 2.7 times sales and 22 times expected 2021 earnings.
As we finish up 2020, value stocks appear to be assuming leadership from growth stocks. We’ll see if this is a blip or if it represents a sustained shift in sentiment. But regardless, LYB is a cheap stock showing strong momentum, and that puts it on strong footing to be one of 2021’s top stocks.
