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Kiplinger's Investing Outlook
Kiplinger's Investing Outlook
The 21 Best Stocks to Buy for 2021
Call it a comeback. Many of the best stocks to buy for 2021 are heavily tied to economic recovery prospects as the world fights back against COVID-19.
by: Anne Kates Smith, Charles Lewis Sizemore, CFA, James K. Glassman
December 31, 2020
A man pushing the "0" off a cliff to reveal the year 2021.
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The stock market always has a few surprises in store, as any investor in 2020 would attest. But by and large, the biggest factor experts are considering as they identify the best stocks to buy for 2021 is the same factor that dominated 2020:
COVID-19.
2020's top stocks typically were tied to companies that benefited from new and accelerated trends resulting from COVID-related lockdowns. However, many of the best stocks for 2021 are largely expected to benefit from a "return to normalcy" and a healing economy.
"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.
2021's Best Mutual Funds in 401(k) Retirement Plans
Data is as of Dec. 9. Stocks listed in reverse order of yield. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
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1 of 21
PayPal Holdings
The PayPal app on a smartphone
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Industry: 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.
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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.
The 21 Best ETFs to Buy for a Prosperous 2021
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2 of 21
Castle Biosciences
biotechnology lab
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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.
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3 of 21
IEC Electronics
electronics
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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.
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