2021 Investing Trends
This week, I thought it would be good to write about some emerging investment trends moving into the new year and some stocks I have been following that should benefit from these trends. While the stock market looks like it will have more bumps ahead and maybe a pull back or two along the way, the consensus seems to be that we will see a strong showing in 2021, especially as the economy is expected to recover, some economists say quite strongly, in the second half of the year. The approval and distribution of two vaccines and the US federal stimulus ($900B to start with and likely more to come in the new year) will help to keep the recovery on track, even if it has faltered recently with rising unemployment and lower consumer spending due to ongoing COVID lockdowns. While almost every sector seems poised to do well, some will do better than others. Â
My favorite 2021 trends and a few of the stocks that I like in these areas are the following:
Housing - The confluence of Millenials coming of homebuying age and needing more space along with the flight from cities to suburbs due to COVID plus all time low interest rates have served to turbo-charge the housing market. Lennar as one of the nation's largest homebuilders has been a big beneficiary of this and in addition to great earnings, has made several announcements recently that bode well for the company, including raising the dividend and paying down debt. Home Depot and Lowe's will continue to be beneficiaries of homebuying and also people who aren't moving but want to make their homes more comfortable since they are working from home and many people are likely to continue to do so at least a couple of days a week in the future. Stimulus checks won't hurt their results, either.
Autos - Fear of public transit has driven the need for people to own a car and especially with the move to the suburbs discussed above, a car is essential. The pivot to clean energy clearly benefits Tesla, who has a great product line and a lot of momentum, even if the stock is a little expensive. Admission to the S&P 500 will only drive the stock higher as long as they can keep up their execution. Ford and General Motors are more value themes, but they also have big plans for moving into the electric vehicle space and already have products in this category, which should drive their growth. I believe there is a lot of pent up demand for EV trucks and SUV's, since there is very little appealing product on the market today. Ford and GM have a great opportunity to deliver here.
Travel and Leisure - as soon as a vaccine is widely available there's likely to be tremendous pent up demand for leisure travel, which will benefit hotels, airlines, restaurants and credit card companies among others. Business travel is another story and could take years to recover since so much can be done now via video conference and companies can (and have) saved a lot of money from less business travel. Although many people recommend the traditional hotel chains like Hilton or Marriott, I prefer the "asset light" model of Airbnb and I think they will have a lot more operating leverage and profitability than traditional hotel chains going forward and are more directly connected to leisure travel, even if the valuation is a bit steep. Visa will stand to gain a great deal from increased credit card use for travel and Boeing will start to get new plane orders as airline activity picks up. Better trade relations with China (expected with the new White House) will also bode well for Boeing, plus it is still 37% below its 52 week high.
Artificial Intelligence - Applications within the business environment in almost every industry are accelerating and AI coupled with big data has tremendous promise to vastly improve efficiency and save money. "Data is the new oil." While the valuations are high, Snowflake and C3.ai seem to be on the cutting edge of this trend. Google is an interesting play since it is considered a bit undervalued relative to the rest of the FAANG stocks and also stands to benefit from increased advertising driven by resurgence of leisure travel, plus it has a strong presence in AI and autonomous vehicles, which is mainly why I put it in this category.
Bitcoin - Bitcoin continues to prove itself as a great alternative to precious metals and will benefit from large amount of fiat money printing resulting from massive fiscal and monetary stimulus due to COVID-19 as well as broader adoption, as I wrote about recently. Microstrategy has committed to invest a portion of it's cash into Bitcoin as a better hedge against potential devaluation of the dollar. Square has also committed a portion of its cash to Bitcoin, in addition to facilitating the purchase of Bitcoin for it's customers on its platform like Paypal has. Corporate Treasury diversification, institutional investor interest and expanding platforms to facilitate investing in Bitcoin will further drive adoption, providing price support and driving this scarce asset (there will only ever be 21 million bitcoins) higher.
Value and Yield - Value stocks that have not participated as much in the rally will attract more attention as investors look to more cyclical names and especially those with dividend yields over 5%. Cash is earning hardly anything currently and this is expected to be the case for at least the next couple of years so the quest for yield will only grow stronger.
Cyber Security - The recent Solar Wind cyberattacks underscore the importance of cyber security for both businesses and government agencies; this will be a huge focus in the coming year and many companies that provide these services, especially the "best in class" will stand to benefit from what's to come.
Alternative Energy - The Biden Administration will likely lean heavily toward alternative energy, starting with the US rejoining the Paris Climate Accord and this will be supported by consumer and corporate demand for more clean energy including electric vehicles, solar power, hydrogen fuel cell technology for trucks and commercial vehicles, etc. Companies that enable this technology will continue to see strong growth, especially with more government support. Ironically, this focus on alternative energy will also drive down oil exploration and production, which should have the effect of driving up the price of oil as supply moderates and demand increases as the economy recovers. Chevron, recommended above, will benefit from both trends as it also has a strong position in renewables.
There are many other companies to invest in that will likely do well in the coming year and certainly other trends, but these are the ones I like best from the research I have done. Full disclosure, I currently have positions myself or that I manage in many of the companies mentioned above.Â
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.Â
Stay safe, healthy and positive. Â