10 of the Best Stocks to Buy for 2021
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At the end of each year, U.S. News selects 10 stocks to buy for the year ahead. After a tumultuous 2020, there was ample uncertainty to go around when 2021 began, but the first quarter of the new year has been good to markets. The early part of the year has been eventful, defined by a presidential transition, an aggressive vaccine rollout that has surpassed expectations, rising interest rates that rattled markets and, somehow, the improbable rise of GameStop Corp. (ticker: GME). With further rounds of stimulus payments, a slide in the unemployment rate to 6% and record-high growth in the services sector in March, things are looking up for the economy. Here’s a look at how each of U.S. News’ 10 best stocks to buy for 2021 fared in the first quarter. As a portfolio, the picks outperformed the S&P 500, returning 7.5% versus a 5.8% gain for the S&P 500 index.
Adobe (ADBE)
Arguably one of the most promising and stable businesses on the list, shares of software giant Adobe nonetheless fell 4.9% in the first quarter. One culprit was rising rates, as the rate on the 10-year Treasury nearly doubled from 0.92% to 1.74%, driven by the improving economic outlook. Higher rates decrease the value of faraway future earnings, where tech stocks tend to disproportionately derive much of their value. When it comes to factors Adobe actually has control over, the company continues to excel, posting fiscal first-quarter earnings and sales numbers that beat expectations in the quarter ended March 5. Revenue rose 26% year over year, and earnings per share surged 38% as the company set record highs for Q1 revenue and raised full-year guidance on the strength of its Creative Cloud, Document Cloud and Experience Cloud businesses.
Spotify Technology (SPOT)
Another victim of the rising rate environment was Spotify, which finished as the worst first-quarter performer among the 10 stocks to buy, shedding 14.8%. As the only name on the list not yet consistently profitable, SPOT is naturally one of the riskier names in this bunch. Fourth-quarter results for the Swedish company, reported in February, were negatively impacted by foreign exchange fluctuations. But the underlying business is still going strong, with monthly active users rising 27% year over year to 345 million. Longer term, the company’s dominance in the low-margin music streaming industry is less promising than its growing presence in podcasts, where licensing costs are far less onerous. Spotify is also wisely entering the live audio business with the recent $50 million acquisition of Clubhouse rival Locker Room.
BJ’s Wholesale Club (BJ)
The thesis on BJ’s entering 2021 was simple: Consumers were primed to seek out savings in the aftermath of a pandemic that brought the global economy to the brink of collapse. That spelled good news for wholesale clubs and, all things being equal, BJ’s was priced dramatically cheaper than Costco Wholesale Corp. (COST) stock, trading at roughly one-third the price-earnings ratio of its larger peer, despite more robust same-store sales growth at BJ’s, which clocked in at 18.5% in the third quarter. BJ’s announced in March that its rapid growth continued in the fourth quarter, with same-store sales up 15.9% and digitally enabled sales up 168%. The perplexing valuation gap between BJ’s and larger rival Costco is finally narrowing, with BJ’s stock up more than 20% in the first quarter, while high-flying COST shares declined 6.3%.
The Walt Disney Co. (DIS)
In one of the fastest major corporate rebrandings in recent memory, Disney’s pivot – auspiciously timed just before the onset of the pandemic – into streaming content with Disney+ couldn’t have come at a more opportune time for shareholders. Although the stock rose just 1.8% in the first quarter, Disney remains a fantastic “buy and hold” stock for patient long-term investors. Not only did Disney+ go from zero to more than 100 million subscribers in a span of just 16 months, but its hard-hit Parks, Experiences and Products segment, which includes Disney’s cruise business, is poised for a comeback as the pace of vaccinations picks up and the economy begins to reopen in earnest.
Facebook (FB)
There are roughly 4.7 billion internet users on planet Earth. Of those, 3.3 billion actively use one of Facebook’s products on a monthly basis. FB stock, up 7.8% in the first quarter, remains reasonably valued at roughly 27 times forward earnings – a multiple that seems exceptionally favorable when stacked up against the forward P/E of 29 for the wider Nasdaq-100. In its late-January earnings report, Facebook announced an additional $25 billion share buyback program that should provide additional support for shares moving forward. There are certainly some speed bumps ahead for FB, including potential fallout from a data leak affecting 533 million users, and looming ad-targeting changes from iOS 14. But if past is prologue, Facebook will remain resilient – and FB stock will keep steadily trending higher.
Alibaba Group (BABA)
A well-rounded portfolio should have some geographical diversity among its holdings, and that’s no different for the list of the best stocks to buy for 2021. Chinese e-commerce behemoth Alibaba Group appeared to be a relatively safe way to gain exposure to the Asian economy’s blockbuster growth and burgeoning middle class when the year began, but risks facing BABA have grown in the first quarter. The stock, down 2.6% in the first quarter, suffered from a combination of overblown delisting fears and the more reasonable specter of antitrust crackdowns in China. In the fourth quarter, Alibaba revenue jumped 37% year over year, while EPS jumped 21%. At just 19 times forward earnings, the risks facing the company are already priced in.
Lowe’s Cos. (LOW)
Another pick centered on both the macroeconomic outlook and the stock’s relative affordability compared to rivals, Lowe’s made the cut as a top stock for 2021 due to the red-hot housing market and boom in home improvement spending. Its comparable value proposition next to much larger rival Home Depot (HD), even after LOW stock jumped 18.9% in the first quarter, still stands. Shares trade for 25 times earnings, and analysts expect roughly 14% EPS growth in the next five years, making it far more alluring than HD with its P/E of 26 and expected five-year EPS growth of 8.4%. Growth can’t go gangbusters forever, but LOW is firing on all cylinders now, with U.S. same-store sales growth of 28.6% in the fourth quarter. The company expects to continue gaining market share in 2021.
Nautilus (NLS)
Exercise equipment company Nautilus was one of the poorer performers among the best stocks list, losing 13.8% in the first quarter. After an incredible 2020 in which shares surged 937% on the heels of a pandemic-fueled boost in demand, NLS got off to another hot start in 2021, only to have its Cinderella story interrupted by fourth-quarter results in February. On their face, results were incredible, with net income up 730% year over year and net sales up 82%. While earnings beat expectations, the 82% top-line growth fell short of the consensus, and guidance for revenue growth between 55% and 75% in the first quarter confirmed a decelerating growth trend. To be fair, decelerating growth post-pandemic was always a given, and the $470 million Nautilus still looks like a steal at less than nine times earnings.
Sonos (SONO)
The sleek speaker company Sonos was far and away the best-performing stock on this list in the first quarter, soaring 60.2%. Like Lowe’s, Sonos was a bet on consumer spending trends that favored home improvement projects and personal entertainment in a time of widespread work-from-home policies and shutdowns. A strong brand known for sleek, wireless home audio solutions and a seamless software interface compatible with voice assistants from Amazon.com (AMZN) and Alphabet (GOOG, GOOGL), Sonos’ loyal customers have insulated it in a competitive consumer electronics market. Last quarter, net income rose 87%, and the company raised its fiscal 2021 guidance for growth in adjusted earnings before income, taxes, depreciation and amortization to a range of 80% to 107% from a previous range of 57% to 89%.
Newmont Corp. (NEM)
A valuable stock to own as a hedge, gold and copper miner Newmont Corp. was somewhat unremarkable in the first quarter, advancing 1.6% upon factoring in dividends. Despite the continuation of heavy stimulus spending, a dovish Federal Reserve and a planned $2 trillion infrastructure package, the dollar hasn’t weakened this year, and gold prices are off about 9% year to date. The price of copper is on the rise, however, up about 16% in the young year. Even if commodities go sideways, Newmont’s 94 million ounces in gold reserves and 41 billion copper pounds of reserves and resources make the company a world-class mining operation. To top it off, shares pay a 3.6% dividend yield.
