In this market, finding stocks to buy hardly seems easy. Almost without exception, the best stories have valuation concerns. And the few names left out of the torrid rally from March’s lows generally have lagged for good reason.
But there are some stocks that thread the needle, offering solid growth prospects at a reasonable valuation. Some have been left out of sector rallies; others have faded despite broad market gains of late.
To be sure, all these names have their risks. And with the market at all-time highs, a broader correction wouldn’t be surprise.
But for investors still looking for stocks to buy for 2021, these stocks should be at or near the top of the list:
- Walmart (NYSE:WMT)
- Masco Corporation (NYSE:MAS)
- ExOne (NASDAQ:XONE)
- Hexcel (NYSE:HXL)
- Canada Goose (NYSE:GOOS)
- Visa (NYSE:V)
- AMCI Acquisition (NASDAQ:AMCI)
- Photronics (NASDAQ:PLAB)
Stocks to Buy for 2021: Walmart (WMT)
Admittedly, I personally haven’t always been the biggest fan of Walmart stock. Between competitive concerns and a potentially stretched valuation, the case for upside often seemed thin.
Both concerns still exist. Amazon.com (NASDAQ:AMZN) of course remains the premier force in online retail. And it’s clear that Target (NYSE:TGT) has re-established itself as a tough competitor in so-called ‘omnichannel’ retailing.
But Walmart’s execution has been just as strong. Its omnichannel strategy looks just as successful. Certainly, the novel coronavirus pandemic has boosted results in 2020, providing difficult comparisons in 2021. Even in that context, comparable store sales growth looks impressive at 6.6% in the third quarter. Profit margins have expanded nicely as well.
At 25x forward earnings, WMT stock certainly isn’t cheap. But a recent pullback, possibly driven by concerns around the on-again, off-again stimulus package, has brought valuation in. Those short-term concerns should fade at some point in early 2021, leaving investors to focus on a still-attractive long-term case.
Masco Corporation (MAS)
One of the bigger surprises of the post-pandemic economy has been the strength in the housing market. The cyclical industry was expected to suffer from the economic effects of the coronavirus. The iShares U.S. Home Construction ETF (BATS:ITB) lost more than half of its value during the February-March plunge.
The sector’s recovery, however, was just as steep, with ITB rallying over 130% in five months. Since then, however, the rally has stalled out, and so has MAS stock. $60 has held as a stiff resistance level since August.
That should change at some point. Masco is an excellent play on the housing boom, given its presence in both the plumbing and interior products markets. Brands like Delta, Behr and Peerless should benefit not only from new construction but higher remodeling spending as customers look to improve the homes in which they are spending far more time.
For similar reasons, the entire building products sector looks intriguing at this point in the rally. Masco’s size, diversification, and reasonable valuation (18x forward earnings) make MAS one of the better choices. And if the stock finally can break through resistance next year, there’s a solid chance of a breakout well past the current price around $56.
The risk to 3D-printing play ExOne is relatively simple: the company just hasn’t succeeded. 15 years after its founding, ExOne remains unprofitable. It’s not particularly close to breakeven, either: net loss this year, even on an adjusted basis, should be roughly one-quarter of revenue.
As a result, XONE stock has been dead money. Shares actually are underwater over the last five years, during which the time the NASDAQ Composite has generated total returns of around 160%.
But there is a case that the optimism toward XONE and other 3D printing plays was early, not incorrect. Companies like Tesla (NASDAQ:TSLA) are ramping up their 3D printing. The SPAC (special purpose acquisition company) merger of Desktop Metal (NYSE:DM) has led to sharp demand, with DM stock trading well above its $10 merger price.
3D Systems (NYSE:DDD) too has joined the rally, but XONE stock hasn’t seen quite the same bounce. And so the case for XONE is that it could be an interesting near-term trade, given the stock’s potential to follow the sector’s rally. From there, if ExOne can finally start delivering on its potential, it could be a solid long-term play as well.
Aerospace and defense supplier Hexcel hardly looks attractive at the moment. Even with a year-to-date decline of one-third, HXL stock trades at 65x 2021 analyst earnings estimates.
But there’s a solid “return to normalcy” thesis here. Hexcel has been hit by weakness in the aerospace business, particularly given its role as a key supplier to Boeing (NYSE:BA). That weakness will hit 2020 and 2021 results, but should reverse at some point. Indeed, RBC Bearings (NYSE:ROLL), which has a somewhat similar end market profile, has gained 50% since late October and now has rallied 13% year-to-date.
The fundamentals do look concerning — but only in the near term. From a long-term perspective, valuation is reasonable. And as the business bounces back, Hexcel could again become a target.
A planned merger with Woodward (NASDAQ:WWD) was canceled in April amid the pandemic, but another suitor could arrive once Hexcel’s outlook becomes more clear.
Canada Goose (GOOS)
GOOS is an interesting — and still-risky — play at the moment. The stock has been more than halved from late 2018 highs, yet at nearly 20x forward earnings hardly looks cheap. The pandemic has hurt sales this year, due both to consumers saving more money and the reduced need for new coats by consumers still spending most of their time at home. Particularly after a recent rally, there’s still a reasonable chance that optimism could reverse, leading to a short-term pullback.
But over the long haul, the story here still looks intriguing. Canada Goose has proven its value as a brand. Business in China rebounded nicely in the third quarter, providing a preview of potential 2021 strength in the U.S. and Europe. The high price-to-earnings multiple is created in at least some part by still-depressed estimates for next year.
This always has been an attractive growth story. But since the company’s initial public offering, there have usually been external questions, whether a high valuation or the impact of the pandemic. 2021 should see GOOS finally get a clean slate, which on its own might be enough to keep the recent rally going.
Investors are bullish on everything payment related. PayPal (NASDAQ:PYPL) has gained 120% this year and Square (NYSE:SQ) 265%. Niche operators too have soared.
V stock, however, has been left out of the rally. With an 14% YTD gain, V actually has underperformed the S&P 500, largely due to a modest fade from early September highs.
The bet here is that the underperformance won’t last. Investors may be worried that the new crop of payment providers present a challenge to Visa. Bitcoin and other cryptocurrencies might suggest further pressure.
Those worries appear overblown, however. Visa remains one of the world’s best companies, and an irreplaceable part of the global economy. With the fade, valuation is more reasonable as well.
Simply put, over its history Visa stock hasn’t lagged the market often, or for very long. As a result, it’s likely that the recent weakness reverses in 2021.
AMCI Acquisition (AMCI)
SPACs have been among the hottest stocks of 2020. “Clean energy” names have been hot too. By that logic, a clean energy SPAC should be soaring at the moment.
AMCI is one of those clean energy plays — and it has soared. The company is merging with Advent Technologies, a manufacturer of hydrogen fuel cells. Since the October merger was announced, AMCI stock has gained more than 50%.
In context, however, the move actually isn’t all that steep. Fuel Cell Energy (NASDAQ:FCEL) rose 67% in a week this month. Plug Power (NASDAQ:PLUG) has more than doubled since late October.
To be sure, there’s a case that the rally in hydrogen stocks is headed for a reversal. Advent has a long ways to go to catch Plug Power in particular, which is establishing itself as a potential winner across the entire industry. But if the rally continues — or even if peers simply hold up — AMCI stock should have some catching up to do, even after the sharp gains of the last few weeks.
I’ve recommended Photronics a few times in the past, and owned PLAB stock until early this year. With the stock pulling back of late, there’s a case to jump back in.
On its face, the weakness in PLAB seems surprising. The manufacturer of photomasks used in semiconductor manufacturing serves an industry that has performed exceedingly well in 2020. An aggressive move into China so far has gone to plan, positioning Photronics to supply a fast-growing market for years to come. The change in the White House should minimize potential “trade war” fears as well.
Yet in the long-term context, the lack of movement perhaps should have been expected. Save for a late 2019 rally, PLAB stock has mostly struggled. Part of the problem is the business itself. Photomask manufacturing requires large amounts of capital to keep pace with customer demand. Many customers, including Intel (NASDAQ:INTC), have developed in-house capabilities (known as captive manufacturing).
But after a pullback from January highs, the stock looks interesting, particularly in the context of gains across the chip sector. Valuation is attractive, and the bull case still holds. It might be time for PLAB to catch up with its sector — again.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.