As the dust settles on a year filled with unprecedented developments medical, economic and political, it’s time to look ahead to 2021 and the equity investing opportunities it offers.
What Are the Best Stocks to Invest in 2021?
Given the strong possibility of economic recovery in 2021, it might be tempting to fill up your portfolio with every laggard stock that got crushed during the pandemic in 2020. But the new year doesn’t promise any less uncertainty than its predecessor, so investors should remain cautious, as always.
“The unknown question is how people will react to taking the vaccine, and how quickly people will feel comfortable returning to some semblance of normality,” says Judith Lu, founder of Blue Zone Wealth Advisors.
This suggests caution when picking the stocks that will be poised for a big rebound in 2021. Major brokerages, such as Wells Fargo, UBS and J.P. Morgan, and the experts we’ve interviewed for this piece, offered a nuanced look at the 2021 outlook.
Just remember, the 2021 stocks listed below are merely suggestions based on expected macroeconomic trends. Think of them as thoughtful advice about the year to come as they are not in any ways recommendations to buy a particular stock.
Use these lists to spark ideas and help you identify opportunities in different sectors. Always research and thoroughly understand a company before you buy its stock.
Why? Consumer discretionary stocks suffered under economic shutdowns in 2020, and they stand to gain after the Covid-19 vaccine makes social events safer and more accessible.
Entertainment and Parks
By and large, entertainment businesses that own venues and theme parks suffered badly in 2021. With an economic reopening on the horizon, foot traffic may return when a vaccine makes it safer for people to enjoy social activities in public.
If any industry’s suffered this year, it’s restaurants. In 2020, this sector has bounced between closed, to open for deliveries only, to outdoor dining, to closed again. That meant rituals like the daily chai latte were relegated to the drive-thru. Businesses regrouped and replicated an in-restaurant experience via delivery and outdoor dining, which incurred costs.
Stocks for major restaurant and coffee chains, then, can be bought at a discount now, with the prospect of customers returning as the economy opens back up.
Retail—especially brands that were less well-equipped to pivot to e-commerce—got hit hard by the pandemic. Not only were people not visiting malls or buying work clothes, but fashion as a whole was reduced to sweatpants and leisurewear, sending many fashion retailers into a prolonged dip.
With retail, investors should be on the lookout for brands that continue to support trends that began in the pandemic, like home improvement names as folks continue to work from home—some permanently—as well as retailers that offer discounted or flexible retail experiences.
Why? Because the world runs on power, and green power in particular is primed to be rewarded.
The world is changing the way energy is produced, and pandemic-related shifts in consumption patterns have only accelerated the changes. Lower carbon and carbon-free production is on the rise, so look to companies that could stand to gain from their contributions to California’s new electric vehicle mandate. In addition, check out energy stocks that offer above-average dividends to help bolster other sectors in your portfolio that might be good buys at today’s discounts, yet need a longer runway to show returns at more normal levels.
Why? If 2020 has made anything clear, it’s the value of rapid healthcare innovation. Experts and analysts think leaders in this sector are currently undervalued.
While the frontrunners in this sector might be companies set to roll out vaccines, beyond pharma other names may be primed for a bounce higher in 2021. Look for companies that will benefit from elective surgeries coming back onto the schedule at surgery centers nationwide and other major medical device suppliers who have had use for their products stalled because of the necessary shift to Covid-centric care.
Why? Experts expect habits formed during the pandemic, like delivery services and online shopping, to persist during the recovery. That’s why they favor tech names that provide e-commerce infrastructure and the information technology companies that support these changed behaviors.
Large-scale retail marketplaces and e-commerce tech companies that empower small businesses will likely only continue to grow. Any retail business that has not managed the major shift towards online sales is set to lag the industry as consumer demand for savvy online shopping experiences only grows stronger.
Industrial Stocks for 2021
Why? Because folks might finally be, in the words of Southwest Airlines, “free to move about the country,” and that means more travel (note that airlines are considered part of the industrial sector). If e-commerce continues to remain strong, as many anticipate, shipping-related industrials may also benefit.
In this sector, investors might keep an eye out for companies that move goods from point A to point B and those that manufacture shipping-related products—like dry ice for vaccine shipments and bulk shipping supplies. Airline stocks were especially hard-hit and an acquisition now when flights are still limited could set you up for gains as people feel safe and comfortable sitting in too-close coach-class seats once again.
A wide-scale economic reopening in 2021 means some sectors might see a slowdown.
“There will be a dial-back from stocks that have benefited from Covid-19 because they may be viewed as overvalued, such as work-from-home companies and home gym companies,” says Daniel J. Laginess, investment advisor, certified public accountant and managing partner at Creative Financial Solutions.
Yet that dial-back doesn’t mean all Covid boom stocks will slide back to their pre-pandemic valuations. “We will most likely see continued use of [some of these] technologies as we are now accustomed to our new way of working from home,” he says.
As you review your portfolio and assess where you might be under- or over-weighted, think about stocks you own that might have benefited from Covid-related demand. Then consider what “normal-use levels” of those stocks might be. For example, did grocery stores benefit from panic purchasing? Or were subscription-based meal services over-subscribed because of pandemic restrictions?
Also keep in mind that even in sectors that may succeed long term, we could be in store for some turbulence as America and the world sifts through any implications of vaccine rollout and a new presidential administration.
However, Patrick Healey, certified financial planner (CFP) and president of Caliber Financial Partners, takes any potential shake-ups with a grain of salt. “There will be some short-term volatility for stay at home companies, but I would suspect some will continue to do well after that initial volatility based on the reset of how we do business and how we live our lives going forward,” he says.
What’s Your Strategy for 2021
No matter how anxious you might be to leave 2020 in the rear view, your portfolio likely benefited this year from the Covid bump: As of mid-December 2020, the S&P 500 is up more than 13% for the year and almost 64% from its March lows. That’s a good reminder to carry into the new year: Even when the market looks dreary, you never know what’s to come.
As you consider your investment opportunities for 2021, also think about your investment horizon, goals and risk tolerance when evaluating new holdings for your portfolio. While individual stocks and sectors may be positioned for a particularly good year, broad-based, low-cost index funds provide you with exposure to many of the same sectors and stocks that may make it big in 2021. They also take the burden off of you picking individual winners.
If you do opt for individual stocks, “overall, look for companies with strong profits, continued growth as well as strong dividends and dividend appreciation,” says Laginess—which is sound advice for stock selection, pandemic or no. When in doubt, you can always reach out to a financial advisor for advice tailored to your needs.