10 of the Best Stocks to Buy for 2021

Best stocks to buy for 2021: The wrap-up.

At the end of each year, U.S. News selects 10 of the best stocks to buy for the year ahead. Typically, these selections perform well — the goal is always to outperform the S&P 500 over the calendar year. To that end, the 2021 picks have failed to live up to expectations, with an equally weighted portfolio of the 10 returning 8.5% to the S&P’s 23.9% year-to-date return through Nov. 29. Although replicating these picks still would’ve been profitable, two stocks in particular helped sour the whole portfolio. That said, lessons from those missteps — which included a misplaced trust in foreign governments and a gamble on a small-cap name — will be incorporated into U.S. News’ next round of annual picks for 2022, and four of the 10 picks added 37% or more in less than a year. Caveats aside, here’s a recap of the 10 best stocks to buy for 2021 selections.

Adobe Inc. (ticker: ADBE)

Adobe’s software is virtually a must-have expense for modern-day creatives. The portfolio includes Adobe Photoshop, Illustrator, Acrobat and Premiere, to name just a few of its prominent programs. Whether you’re creating a PDF, editing videos, touching up photos of the house you’re selling, or organizing the layout of a magazine or webpage, Adobe sells top-of-the-line software in each category and does so on a subscription basis, which means not only high margins but also recurring revenue. After another great year of execution — Adobe posted record quarterly revenue in two of its first three fiscal quarters — the stock rallied and, as of this writing, is the second-most-valuable publicly traded software company on U.S. exchanges, next to Microsoft Corp. (MSFT). Adobe earned its spot among the best stocks to buy for 2021.

Year-to-date returns (through Nov. 29): +37.5%

Spotify Technology SA (SPOT)

This pick wasn’t necessarily wrong … it was just early. Spotify is arguably the premier brand in digital music, with its amalgam of social media and unlimited, on-demand streaming combining to form a unique service. Spotify’s sprawling presence gives it a competitive advantage called a network effect, which makes the service more valuable as more users join. Having more users attracts more artists, which attracts more users, and so on. But it’s also a brilliant platform for music discovery due to its large user base of approximately 381 million monthly active users, collection of indie artists, personalized recommendations and easy sharing of playlists among friends. So why is this pick early? Spotify is just dipping its toe into the much-higher-margin podcast game. The company beat expectations in the third quarter and saw advertising revenue jump 75% and podcast revenue more than double.

YTD returns: -21.6%

BJ’s Wholesale Club Holdings Inc. (BJ)

Easily the top performer among U.S. News’ best stocks to buy this year is BJ’s Wholesale Club, which has risen more than 75% in 2021. The thesis for the pick was simple, and it played out beautifully: Not only should bulk retailers fare well as consumers avoid frequent outings and seek everyday savings in a prolonged pandemic, but BJ’s stock was also dirt cheap compared to its more prominent peer, Costco Wholesale Corp. (COST). To start the year, BJ’s traded at 14.5 times earnings, compared with Costco’s 41 price-earnings ratio, despite comparable-store sales growth being higher for BJ’s at the time. The valuation gap is actually still ridiculous, but both stocks’ multiples have expanded: BJ’s now trades for 22 times earnings, compared with Costco’s multiple of 49.

YTD returns: +76.8%

The Walt Disney Co. (DIS)

Disney has underperformed in 2021, with its year-to-date loss incurred almost entirely as a result of its most recent quarter. In the fiscal fourth quarter, the entertainment giant disappointed on revenue and earnings, although both were up sharply from the year prior. Overall revenue rose 26%, driven largely by the reopening of its parks and resorts. The Disney Parks, Experiences and Products division saw revenue soar 99% last quarter, and Disney+ paid subscribers grew 60% to 118.1 million, although that division is still unprofitable. As Disney+ continues to scale, subscriber revenue will be able to cover production costs, turning Disney+ into a truly self-sustaining streaming business like Netflix Inc. (NFLX). But subscriber growth has slowed markedly from the 102% growth in the previous quarter, and shareholders are getting impatient. This pick would’ve performed far better if performance was measured from the date the 2021 stock picks were made — Dec. 7, 2020 — but shares still would have declined 3.8% through Nov. 29.

YTD returns: -18.4%

Meta Platforms Inc. (FB)

A longtime returning member of U.S. News’ best-stocks-to-buy list, the former Facebook had an eventful year. A whistleblower revealed worrisome documents showing that the company knew Instagram had negative mental health effects on a large chunk of its user base. Facebook nonetheless reached a $1 trillion valuation for the first time as impressive growth continued, with revenue up 35% last quarter. This year is also the last under the Facebook name; the company was renamed Meta Platforms Inc. and will trade under the MVRS ticker starting Dec. 1, as CEO Mark Zuckerberg repositions the company for its next phase of growth in the metaverse. Shareholders should applaud the shift away from advertising, which is still in its early days; “other” revenue from virtual reality headsets and the like nearly tripled year over year, accounting for 2.5% of revenue. FB performed decently in 2021, but shareholders should be patient going forward; the company plans to invest $10 billion in its metaverse business over the next year.

YTD returns: +23.7%

Alibaba Group Holding Ltd. (BABA)

It’s been a difficult year for Alibaba investors, who have seen share value cut nearly in half. Despite being the dominant e-commerce company in the hottest, large non-U.S. market on earth, a handful of obstacles combined to send shares lower in 2021. The biggest obstacle: Chinese regulators, who have aggressively cracked down on large tech companies in an attempt to check corporate power, imposed a record $2.8 billion fine on the company for allegedly monopolistic behavior and continue to impose restrictions in the name of competition and security. Chinese companies are facing more hurdles to listing in the U.S., sparking delisting fears. Increased competition from JD.com Inc. (JD) and Pinduoduo Inc. (PDD) has also chipped away at growth. Alibaba lowered its fiscal 2022 revenue growth guidance from 30% to 23%. Trading for less than 19 times earnings, the stock seems priced to appreciate, but a sharp rebound seems unlikely before year-end.

YTD returns: -43.4%

Lowe’s Cos. Inc. (LOW)

Another pick based on the simple but powerful premise of convergence in valuation, Lowe’s is a great company, but when compared to the larger and modestly more recognized brand Home Depot Inc. (HD), Lowe’s stock wasn’t getting the shine it deserved to begin the year. Also a bet on the booming home improvement sector and red-hot housing market, LOW stock has done marvelously in 2021, appreciating by more than 50%. Its most recent quarter saw U.S. same-store sales growth of 33.7% on a two-year basis. A dividend aristocrat, Lowe’s is prioritizing returning cash to shareholders by buying back $2.9 billion in stock and paying $563 million in dividends last quarter. Shares trade for less than 20 times forward earnings, a more than 20% discount to Home Depot’s forward P-E of 25.

YTD returns: +54.9%

Nautilus Inc. (NLS)

The last of the best stocks to buy that falls into the “buy the less sexy, undervalued competitor” bucket, Nautilus didn’t see the market-beating returns that BJ’s and Lowe’s did. A home fitness company, Nautilus makes eponymous workout equipment, with brands like Bowflex, Schwinn and JRNY also under its umbrella. The sexier, overvalued peer of Nautilus was Peloton Interactive Inc. (PTON), and while NLS has indeed outperformed PTON by about 10 percentage points in 2021, shares are still down about 60% as the pandemic-induced surge in demand faded more rapidly than investors expected. The growth in connected fitness and subscription-based training classes should be good for the industry in the long term, but those trends weren’t enough to combat the headwind of quickly declining demand. The small-cap Nautilus lived up to its caveat of being the riskiest of the 10 picks and was the worst performer on the list this year.

YTD returns: -60.9%

Sonos Inc. (SONO)

Like Spotify, this sleek, wireless home speaker company has a great brand name and a loyal customer base of audiophiles. Unlike Spotify, Sonos stock actually surged in 2021, adding nearly 40%. Like Adobe, Sonos has strung together one record-setting quarter after another. All four of its 2021 fiscal quarters set new all-time highs for revenue in their respective periods, revenue rose 29% in the fiscal year, and the company announced a $150 million stock buyback program. That’s about 3.5% of the company’s value, which means a proportionately sized buyback plan from Apple Inc. (AAPL) would run $90 billion. Sonos looks poised to keep performing well, as existing customers accounted for a record 46% of product registrations in the fiscal year.

YTD returns: +39.5%

Newmont Corp. (NEM

Last among the 10 best stocks to buy for 2021 picks is the Denver-based gold and copper miner Newmont. After performing well in 2020 — shares rose 40%, outperforming the S&P 500 by 24 percentage points — NEM seemed like another natural hedge in case uncertainty, fear and COVID-19 wreaked havoc on markets again. Fortunately, that didn’t happen. Unfortunately for this pick, that meant gold didn’t get the safe-harbor boost it did in 2020 — a tail wind that would’ve gone a long way for NEM’s share price. The stock is still priced quite fairly at 22 times earnings, and it pays a comfortable 4% dividend and has very little debt. The pick didn’t pan out in 2021, but patient, conservative income investors might still want to consider the stock for long-term buy-and-hold accounts.

YTD returns: -7.5%

The top stocks to buy for 2021:

— Adobe Inc. (ADBE)

— Spotify Technology SA (SPOT)

— BJ’s Wholesale Club Holdings Inc. (BJ)

— The Walt Disney Co. (DIS)

— Meta Platforms 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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10 of the Best Stocks to Buy for 2021 originally appeared on usnews.com

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