So we made it through 2020. I know I’m not the only one that would like to say goodbye to that year!
But now that we are in 2021 and looking at where the markets are today, it’s clear that it wasn’t so bad for investors after all. Not as bad as feared and also not so bad, period. Even if you were caught in the pandemic lows, there were so many opportunities to make good. And guess what? While we’ve switched to a new calendar, the economy hasn’t changed track. It remains surely and steadily on the road to recovery.
Sure, there are new strains of the virus and new infections to tackle, but there are also a number of vaccines out there, rolling out to the public as we speak. Plus the next stimulus, in whatever form, either sooner or later. Plus record-low interest rates that we’ve been promised will continue through 2023. And then, individual savings are at multi-year highs. So where do we go from here?
If the vaccine becomes widely available, public places will all open up, pent-up demand will push occupancy at hotels, traffic at restaurants will return to normal, public transportation will be used again, etc, all of which will drive employment. The bulk of the jobs lost to the pandemic were in these kinds of services.
The manufacturing sector has also bounced back if PMI numbers from ISM and IHS Markit are anything to go by. But factory reconfiguration can only do so much. While the need to quarantine when required and strict sanitization protocols have increased cost, it has become hard to produce at pre-pandemic capacity. The vaccine will also make factory operations much easier.
So with jobs coming back, there will be even more spending. It’s expected that the vaccine will be widely available by mid-year, so most expectations are set for a stronger recovery in the second half of the year.
But there will also be more money flowing into the markets, especially considering the level interest rates are at. And this can only be a great thing for investors.
So on the one hand, we have more money available for investing, which tends to push the bull market. And on the other, we have improving earnings outlooks across sectors, which is a natural trigger for positive estimate revisions, which again drives share prices.
So there’s every reason to believe that 2021 will be a banner year for the markets.
Now that being said, not everyone will make money. It’s only those that get into the best names at the best times that will. Also, while equities are risky assets, it’s a fact that there’s no growth without risk. Finding value gets increasingly difficult in a bull market, so growth is your best bet. But you can adjust these strategies to achieve a happy co-existence that maximizes your returns with the lowest possible risk.
That’s why, here at Zacks, we have a tried and tested method of picking stocks with significant growth potential. It’s based on numbers, and as we all know, those don’t lie. For instance, the average yearly gain for Zacks Rank #1 (Strong Buy) stocks is +24.77% per year since 1988. So stocks ranked #1 or even #2 (Buy) have better potential for upside than all the others.
Stocks are also classified according to the individual groups/industries to which they belong. And it has been seen historically that the top 50% of Zacks-classified industries outperform the bottom 50% by a factor of 2 to 1. So the higher the industry rank, the better the chances of upside. It has also been seen that around half the appreciation in a company’s shares is attributable to the industry that it’s in. So following this simple rule can lower the risk of underperformance.
There are also other pointers, such as the style score system that grades stocks according to their value, growth or momentum characteristics. So these can also help to choose a portfolio that balances out the risk and reward on investments.
So when searching for growth stocks, it makes sense to keep in mind that the darlings of 2020 (mainly the
technology
stocks) have to be traded with caution this year because of the way their prices were bid up. But that doesn’t mean that we should ignore this sector. Not at all. In fact tech is what I think will continue growing and remain expensive right through the year. It would pay to make the most of pullbacks in this sector.
Also, choose stocks offering exposure to long-term themes such as automated vehicles, which are the next big thing in auto, artificial intelligence (AI), which is just getting started and cloud computing, which has picked up a bit. Semiconductors and some other select stocks are a good way to play the sector. Stocks:
ARW
, FUJIY,
JBL
,
MEI
, SANM, WYY, SMTX, UCTT
Another sector that did particularly well last year is
construction
, mainly home construction. I continue to like this space because of secular drivers (many people are still searching for a home that they didn’t manage to buy last year). The 2020 boom was largely related to the pandemic. While the vaccine makes it possible to work from the office again, it seems extremely unlikely that the new normal of working from home will reverse in a jiffy.
In fact, there has been investment in not just new homes but also technology that will make this more of a lasting trend. Additionally, this year, more of the millennials who were anyway on the market for new homes will try to make the most of record low mortgage rates. So this year may not be as hot as 2020, but I still think there’s tons of growth waiting to be picked up. Stocks:
WGO
,
SKY
, FND,
LPX
, BCC, OSB,
BZH
,
TMHC
Auto
is a sector that started warming up relatively late last year, mainly driven by the used car segment. The effect of the vaccine should be a positive here. The demand last year was driven by social distancing, as everyone wanted to be able to travel alone. That sentiment is not likely to disappear entirely this year, and certainly not in the first half.
At the same time, the vaccine will get people to travel more, for both work and pleasure. That will mean more cars. Environmental regulations are a likely positive on the EV adoption side. Stocks:
F
,
TSLA
,
FCAU
,
HMC
, PUGOY, AXL, STRT, MPAA, GPI, TITN, ABG, AN, RUSHA, SAH
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
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