New travel bans from the U.K. to try to prevent a highly infectious new strain of the coronavirus from spreading across more of Europe somewhat dampened the passage of the new $900 billion relief package. The second stimulus effort is less robust, but should help boost the economy heading into what will be a rough winter for many Americans and businesses amid fresh restrictions.
Nonetheless, the S&P 500 has climbed 13% since the end of October and the tech-heavy Nasdaq touched new records on Tuesday. The rise in coronavirus cases hasn’t outweighed broader optimism heading into 2021, as people in the U.S. and elsewhere begin to be vaccinated. In fact, federal officials project that around 100 million Americans will get vaccinated by February or March.
On top of the vaccine hope, the S&P 500 earnings outlook for 2021 is strong and fourth quarter estimates have improved. Meanwhile, the low interest rate environment likely means Wall Street will be hunting for returns, which should boost stocks.
Despite the positivity, it’s likely prudent to wait a bit longer before going all-in on travel and leisure stocks and harder-hit cyclicals, even though they made a comeback recently. With all of this in mind, investors might want to consider adding stocks to their 2021 portfolios that pay a solid dividend and provide exposure to growth areas…
Qualcomm
QCOM
Qualcomm is a smartphone chip making titan that’s been on an impressive run in 2020. That said, the stock fell earlier this month after reports broke that Apple
AAPL
has plans to work on its own modem chips. This is part of the iPhone giant’s larger in-house chip push that’s already impacted its long-standing relationship with Intel
INTC
.
Luckily for QCOM, these are ambitious plans and it won’t happen for years, if ever. In fact, Qualcomm and Apple resolved their legal battle last year, which saw QCOM land a six-year licensing deal and a “multiyear” chip-supply agreement with Apple.
The agreement highlighted Qualcomm’s impressive lead in 5G chips that are vital to the rollout of the next-generation of smartphones. The firm also announced over the summer that it resolved its battle with Huawei that saw it land a new long-term licensing agreement. QCOM is coming off a quarter (Q4 FY20) that saw its revenue surge 73%.
Qualcomm also broke down sales from different segments of the market for the first time to help highlight its growth opportunities in our digitally connected world. This list included handsets, automotive, IoT, and RF front-end, with its connected devices (IoT), coming in as the second-largest segment in FY20, well behind smartphones (handsets).
Zacks estimates call for QCOM’s revenue to climb 29% in FY21 to over $30 billion, with FY22 projected to come in another 7.3% higher. This would mark its best top-line expansion since 2013 and show a strong return to growth after its FY20 sales dipped slightly. Meanwhile, its adjusted earnings are expected to climb 69% and 10.3%, respectively over this stretch. Qualcomm, which is a Zacks Rank #3 (Hold) at the moment, has consistently topped our EPS estimates and its bottom-line outlook has improved.
Qualcomm shares have climbed 65% in the last year to crush the Wireless Equipment industry’s 36% average. Despite its run, QCOM trades at a discount to the broader tech industry at 22.3X forward 12-month earnings vs. 28X. Qualcomm’s 1.8% dividend yield tops the S&P 500’s 1.6% average, Microsoft’s
MSFT
1.0%, and the 30-year U.S. Treasury’s 1.7%. Meanwhile, 12 of the 20 brokerage ratings Zacks has for QCOM come in at a “Strong Buy,” and it trades 10% below its recent December highs.
AbbVie
ABBV
AbbVie completed its $63 billion acquisition of Allergan in May 2020. The deal added Botox and other popular drugs to its expanding roster of therapeutics that span a wide variety of illnesses and diseases. ABBV’s R&D pipeline is also strong. This should all help ABBV deal with the fact that its patent protections for Humira, one of the world’s top-selling drugs, are running out. Biosimilars are already available outside of the U.S., with competition set to start stateside in 2023.
Last quarter, global Humira sales climb 4%, driven by 8% growth in the U.S., with international sales down 9%. ABBV’s overall Q3 revenue surged 52%, driven by Allergan’s inclusion. Zacks estimates project that the pharmaceutical giant’s sales will jump 37% in FY20 to $46 billion and another 18% in FY21. The firm’s adjusted earnings are projected to climb 17% this year and another 16% in FY21.
ABBV shares have climbed 15% in the past 12 months to crush the Large-Cap Pharma industry’s 1% average. This includes a 20% surge since the end of October. And despite the recent positivity, AbbVie trades 11% below its 2018 highs. Furthermore, the stock trades at a solid discount to its industry at 8.6X forward 12-month earnings vs. 14.2X.
AbbVie also continually lifts its dividend. For instance, it raised its payout by 10% to $1.30 a share last quarter, with its next dividend payable on February 16 to shareholders of record as of January 15. This pushes its yield up to 5.0% to destroy its industry’s 2.3% average. ABBV’s valuation and its dividend helped it attract Warren Buffett and Berkshire Hathaway’s attention in the third quarter, as the firm bought up pharmaceutical stocks.
ABBV is a Zacks Rank #3 (Hold) right now that earns “A” grades for Value and Momentum and a “B” for Growth in our Style Scores system. The company has also seen more positive earnings revisions recently, and 12 of the 18 brokerage recommendations Zacks has for AbbVie come in at a “Strong Buy.”
Garmin
GRMN
Garmin’s in-car GPS devices, smartwatches, and fitness trackers that compete against the likes of Apple and Fitbit have helped it become a household name. That said, its in-car-focused devices have become less of a hit in the smartphone age. Luckily, GRMN is well diversified and its expansive portfolio also features fish finders, advanced radars for aviation and boating, and many other higher-end offerings and more commercial focused tech products.
Garmin topped our Q3 estimates at the end of October, with sales up 19% to $1.1 billion. Its top-line growth was driven by serious expansion in its marine (+54%), fitness (+34%), and outdoor (+30%) units. And it is poised to benefit from a growing digital fitness market that includes Peloton
PTON
, Lululemon’s
LULU
Mirror, and others. “Demand for active lifestyle products fueled strong revenue growth resulting in record revenue and profits for the quarter,” CEO Cliff Pemble said in prepared remarks.
Zacks estimates call for Garmin’s sales to climb 7% in FY20 to reach $4 billion, with FY21 projected to pop another 7%. These estimates would come on top of FY19’s 12% growth and match FY18’s sales growth. GRMN’s adjusted earnings outlook calls for similar expansion during this stretch. Garmin’s earnings revisions positivity helps the stock land a Zacks Rank #2 (Buy) right now, and it has consistently beat our EPS estimates, including huge beats in the last two quarters.
GRMN has soared 225% in the last five years to crush the broader tech sector’s 137%. More recently, Garmin stock is up 22% in 2020 and nearly 30% in the last three months. Garmin also trades at a discount against the tech sector and it closed Q3 with around $2.7 billion in cash and marketable securities. Plus, Garmin’s 2.1% dividend yield tops the 30-year U.S. Treasury and the S&P 500’s average and it’s part of an industry that rests in the top 25% of our over 250 Zacks industries.
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