The 10 best stocks to buy for 2021
At the end of each year, U.S. News selects 10 stocks to buy for the year ahead. This year’s list spans blue-chip stocks, pandemic plays, hedges against a lousy economy and companies that were simply undervalued compared to peers. The goal, of course, is to beat the market. To that end, our picks have some work to do before the year is up: These 10 stocks as a portfolio are up 9.7%, compared to the S&P 500’s 18.1%. Fundamentally, however, none of what made these businesses attractive to begin with has disappeared. Here’s a look at the best stocks to buy list for 2021, how each pick has performed and what these names still have going for them as we enter the year’s latter innings.
Adobe Inc. (ticker: ADBE)
Adobe has been a solid performer, with the software giant surpassing a $300 billion valuation. Much of 2021’s gains came after Adobe reported impressive fiscal second-quarter earnings in June. Revenue and non-GAAP earnings per share both rose by about 23% year over year, exceeding analyst expectations. A practically required expense for professional and amateur creatives of all types, Adobe’s offerings are largely centered around its digital media segment, which generated $2.8 billion of the $3.8 billion in revenue last quarter. The Adobe Creative Cloud is in turn the driver of digital media, where recent subscription momentum in programs like Lightroom and Photoshop helped Adobe post an impressive quarter. The company remains an attractive, high-margin software business with a growing number of loyal returning customers.
Year-to-date returns (through Aug. 6): +26.2%
Spotify Technology SA (SPOT)
Spotify has been quite another story, the worst performer on the list of the best stocks to buy for 2021. The business is still healthy, but it has simply failed to meet market expectations in recent quarters. The company picked up 9 million monthly active users in the second quarter, finishing with 365 million, below the prior quarter’s guidance for 366 million to 373 million. Margins are improving, though, due in part to the company’s bets on podcasts, for which Spotify doesn’t have to shell out per-spin music licensing fees. A relatively new feature allowing artists to pay for promotion in Spotify’s nascent Discovery Mode is another potential catalyst in the quarters and years ahead, with artists in Discovery Mode garnering 40% more listeners than in their pre-Discovery Mode days. Patient investors should stick with SPOT.
YTD returns: -29.5%
BJ’s Wholesale Club Holdings Inc. (BJ)
The thesis for warehouse club retailer BJ’s being named one of the best stocks to buy for 2021 was simple: Cost-conscious consumers looked poised to seek out savings during an elongated pandemic, benefiting bulk retailers like BJ’s. Plus, among direct competitors, BJ’s was far cheaper than Costco Wholesale Corp. (COST) stock, which traded for roughly three times the price-earnings ratio of the smaller BJ’s. The second-best performer on this list to date, BJ’s still trades at a steep discount to Costco, with BJ stock trading for 18 times earnings versus Costco’s P/E of 41. BJ’s is slowly expanding, with plans to open six new warehouses this fiscal year.
YTD returns: +39.0%
The Walt Disney Co. (DIS)
Disney shares have put up a lackluster performance in 2021, but the Burbank, California-based entertainment giant is still one of the more solid blue-chip stocks on this buy list. Its trailing financials have taken a big hit as the pandemic forced Disney’s iconic parks to close or operate at limited capacity and its cruise line business to suspend operations entirely. Things have been starting to look better on those fronts, with cruises gradually starting to set sail again in August. The Delta variant is an obvious risk to its Parks, Experiences and Products division in the near term. At the same time, the relatively fresh Disney+ streaming service has been growing rapidly, more than tripling subscribers year over year in the second quarter, to 103.6 million. If COVID-19 variants force Disney to once again close down parts of its business, investors can at least rest assured that Disney’s streaming interests in Disney+ and Hulu will act as a hedge.
YTD returns: -2.2%
Facebook Inc. (FB)
There are an estimated 4.7 billion active internet users on the planet. Facebook alone counts 3.51 billion monthly active users of its dominant family of products, which include its eponymous app, Messenger, Instagram and WhatsApp. Facebook is beating the market thus far in 2021, and the second quarter was a good one, with revenue up 56% year over year. Although it’s a behemoth at a valuation of around $1 trillion, Facebook still places a high priority on innovation: The company is a leader in artificial intelligence research, has plans to integrate e-commerce features into Instagram and is working on a long-term vision to create what CEO Mark Zuckerberg calls the “metaverse,” a sprawling virtual world in which people digitally live, work and play together.
YTD returns: +33.1%
Alibaba Group Holding Ltd. (BABA)
Alibaba’s prospects have been deeply hurt this year by something outside its locus of control: the Chinese government. The e-commerce giant is one of a handful of large tech companies Chinese regulators are taking antitrust action against, along with Tencent and JD.com (JD). The initial public offering of its fintech affiliate, Ant Group, was scrapped late last year — still no word on when that might be on the table again — and then, in April, China issued Alibaba a record $2.8 billion fine for alleged anticompetitive behavior. That said, it’s not all bad news: Considering its gargantuan size, BABA is still growing by leaps and bounds, with revenue rising 34% year over year last quarter. Shares trade for less than 24 times earnings, so long-term investors who believe China’s regulatory push will subside in time have a great opportunity to buy while negative sentiment has put pressure on the stock price.
YTD returns: -15.6%
Lowe’s Cos. Inc. (LOW)
Home improvement retailer Lowe’s is simply a well-run, rock-solid business with good future prospects. Even after advancing more than 19% year to date, shares trade at a modest 16 times forward earnings, a nearly 30% discount to larger rival Home Depot’s (HD) forward P/E of 22.5. Home improvement stores are in boom times, with the combination of a hot housing market and a surge in do-it-yourselfers fixing up their all-too-familiar habitats during the pandemic. This is showing up in the company’s financials, with comparable-store sales in the April quarter jumping 25.9%. Always keeping an eye on returning capital to shareholders, Lowe’s bought back $3.1 billion of its own stock in the fiscal first quarter and paid $440 million in dividends. A dividend aristocrat that has been raising its dividend payout annually for more than 25 years, Lowe’s has ample financial flexibility to raise its dividend, which now sits at a 1.7% annual yield, for years to come.
YTD returns: +19.7% (including dividends)
Nautilus Inc. (NLS)
The poor man’s Peloton (PTON), Nautilus is a home exercise equipment company with a handful of brands under its umbrella, including Bowflex, Schwinn and the Nautilus line of products. Heading into August’s earnings release, Nautilus has already reported two consecutive record-breaking quarters to start the year, with revenue soaring 81.7% and 119.9% year over year, respectively. This pace of growth is unsustainable moving forward, as demand for home workout and connected fitness equipment should normalize as the pandemic wanes and gyms become a more acceptable option. The stock’s slide this year is due to inflated expectations that Nautilus didn’t meet earlier this year, but now the bar seems exceptionally low. Nautilus trades for eight times forward earnings, but backing out $3.58 per share in cash, its forward P/E is closer to six. Nautilus’ market capitalization of roughly $450 million makes it the smallest company on this list and the most potentially volatile. At these levels, it still looks attractive.
YTD returns: -21.8%
Sonos Inc. (SONO)
The best year-to-date performer among the best stocks to buy for 2021 is Sonos, the sleek speaker company dedicated to the growing market of the “connected home,” a subset of the much larger Internet of Things phenomenon. The thesis with Sonos going into this year, similar to the logic behind the Lowe’s pick, was that consumers would willingly spend money on sprucing up and improving their homes during a time of work-from-home policies and shutdowns. Heading into its next earnings report, Sonos has already strung together two straight record-setting quarters, with year-over-year revenue growth of 15% and 90%, respectively. The company recently raised fiscal 2021 guidance, which assumes that Sonos will account for only 9% of the $18 billion premium home audio market, giving it plenty of runway for expansion in the years ahead.
YTD returns: +46.5%
Newmont Corp. (NEM)
As a gold and copper miner, Newmont tends to be a good hedge against uncertainty, something that has been prevalent since the pandemic began. Newmont’s year-to-date returns are lackluster, but mainly because gold itself is down about 8% in 2021. If the Delta variant continues to wreak havoc in the U.S., it’s possible that the precious metal — considered a safe harbor in times of market turmoil — begins to outperform again, but if it’s smooth sailing for the remainder of the year, expect NEM to underperform. Income investors will applaud Newmont’s 3.7% dividend yield, the highest on this list.
YTD returns: +1.6% (including dividends)
10 of the best stocks to buy for 2021:
— Adobe Inc. (ADBE)
— Spotify Technology SA (SPOT)
— BJ’s Wholesale Club Holdings Inc. (BJ)
— The Walt Disney Co. (DIS)
— Facebook Inc. (FB)
— Alibaba Group Holding Ltd. (BABA)
— Lowe’s Cos. Inc. (LOW)
— Nautilus Inc. (NLS)
— Sonos Inc. (SONO)
— Newmont Corp. (NEM)
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Update 08/09/21: This story was published at an earlier date and has been updated with new information.