Fossil fuels, chipmakers and cybersecurity stocks were among the best performers for 2021.
The S&P 500 is up a solid 24% for the year through Dec. 16, but even the worst performing stock on this list has risen by more than 100%. As far as a theme among 2021’s best performing stocks, three of the top 10 were oil and gas companies. High demand and low supply have pushed oil prices up more than 45% since last December, and corporate revenues, as well as profits, have largely followed. In other corners of the market, growth-oriented investors have ditched Big Tech for what could be called infrastructure technology, banking on chipmakers and cybersecurity players to support metaverses, artificial intelligence and virtual reality. While these stocks would have made incredible Christmas gifts last year, there’s still time to buy into some of them, with most offering enough upside to justify a spot on this year’s wish list. With the year mostly over, here are 10 of the top performing S&P 500 stocks of 2021 so far, in reverse order.
Gartner Inc. (IT)
Gartner provides information technology research and consulting products for more than 14,000 enterprises in over 100 countries. One of the more nominally expensive stocks on the list, it trades around $300 per share, up from about $150 at the end of last year. It operates in three segments — research, conferences and consulting — with the research division making up about 85% of sales. Third-quarter revenue jumped 16.3% compared with the same period prior, and management expects greater than 10% earnings growth in the medium term. With demand for IT services and cloud computing not expected to wane anytime soon, Gartner has an opportunity to realize strong, consistent growth both now and into the future.
Nucor Corp. (NUE)
The largest steel company in the U.S., Nucor has been producing steel for more than 100 years. From automobiles to oil rigs to residential construction, steel finds its way into almost every industry. Nucor expects record profits in 2021, as the price of steel jumped 8.5% year over year and robust demand for end market goods remains strong. In mid-December, Nucor acquired 50% of California Steel Industries Inc. for $400 million, expanding its presence to the West Coast and increasing production capabilities by 2 million tons. 2021 may be an anomaly for the generally steady and stable steel industry, but there remains a lot for investors to like. Nucor has raised dividends for 48 straight years and faces little direct competition in the U.S., making it an ideal buy and hold for long-term investors.
Fortinet Inc. (FTNT)
Fortinet develops cybersecurity services and sells them to corporations and government organizations worldwide. On Dec. 13, the California-based company joined the Nasdaq-100, wrapping up a massive year for the company, with its stock more than doubling and management guiding for 29% year-over-year billing growth. Since going public in 2009, revenue growth has stayed positive each year and the company has never posted a loss. Fortinet’s business is highly diversified among products, customers, geographies and industries, allowing it to effectively attack a total addressable market estimated to be $174 billion by 2025. Revenue is split 65-35 between products, primarily FortiGate hardware and software licenses, and services, such as security subscriptions and technical support. Just over half of the company’s revenue comes from overseas. “Fortinet is executing well in a healthy cybersecurity spending market,” says Deutsche Bank analyst Patrick Colville, noting skyrocketing product sales.
Nvidia Corp. (NVDA)
After going public in 1999, Nvidia struck key deals to place its graphics processing units, or GPUs, in Xboxes and PlayStations in the early 2000s. Today, its GPUs power the displays on the world’s most iconic devices. At about $300 per share, the stock commands a premium price, but bulls still see massive growth potential as Nvidia appears well positioned to handle big data and the future of technology. In April, Nvidia announced Grace, its first central processing unit for data centers, offering 30 times more aggregate bandwidth than other leading servers. What’s more, Nvidia’s Omniverse software creates and simulates shared virtual worlds and focuses on solving real-world business problems. “Importantly, management vision continues to position [Nvidia] at the forefront of some of the largest/fastest growth markets in technology including cloud computing/AI, gaming, edge processing, metaverse and advanced autos,” says Bank of America analyst Vivek Arya.
Diamondback Energy Inc. (FANG)
Not to be confused with the FAANG group of technology stocks, FANG is a U.S. oil and gas company operating through two segments: upstream, which explores for and extracts resources, and midstream, which distributes the products. In the most recent quarter, revenue grew 165% year over year, and the company earns elite cash operating margins, above 75%. “FANG has turned the corner on Midland Basin well productivity, and we anticipate more consistent operating performance in 2022+ as FANG shifts more activity to its bread-and-butter Midland Basin program,” say analysts from JPMorgan Securities Inc.
Marathon Oil Corp. (MRO)
Another oil and gas company on the list is Marathon Oil, up 130% through Dec. 16. Net income hit $184 million in the third quarter, reversing a $317 million loss in the same period in 2020, and more than $1.3 billion in free cash flow has been generated year to date. For investors, “the shareholder will get the first call on cash flow,” says Chairman and CEO Lee Tillman. Marathon’s dividend is up more than 100% from last year, and the company has executed $200 million of share repurchases since Oct. 1. “MRO made a point to highlight it has $1.3 billion outstanding on its current share repurchase authorization — a signal consistent with our view that MRO is more inclined to rely on buybacks (over a variable/special dividend) as the primary cash return mechanism,” says Credit Suisse analyst William Janela.
Bath & Body Works Inc. (ticker: BBWI)
Bath & Body Works used to be part of L Brands corporate family, along with Victoria’s Secret and Pink, but in August 2021, L Brands broke into two stand-alone publicly traded companies, with BBWI the surviving entity and Victoria’s Secret & Co. (VSCO) spinning off. As a retailer of body care products, hand soaps and home fragrance items, BBWI’s products are shelf-stable and cheap to produce, resulting in efficient inventory management and solid margins. Sales are divided in thirds between digital, mall and off-mall, giving BBWI broad exposure to many distribution avenues and positioning it well in the growing e-commerce market. And, according to company estimates, it’s only tapped 3% of the $71 billion bath, body and beauty market, leaving ample room to grow. “BBWI delivered EPS around 50% ahead of consensus on a 5% sales beat as the company continues to demonstrate its ability to sustain higher levels of sales/profitability post-COVID,” notes Baird senior research analyst Mark Altschwager.
Ford Motor Co. (F)
Flashy electric vehicle stocks received much attention from the financial press in 2021, stealing the spotlight from legacy automakers, which had successful years of their own. Ford booked more than $90 billion in revenue during the first 9 months of 2021, up nearly 10% from 2020, and maintains a market capitalization of about $80 billion. In comparison, the startups Rivian Automotive Inc. (RIVN) and Lucid Group Inc. (LCID) have market capitalizations of about $90 billion and $65 billion, respectively, but little revenue. Ford has its own EVs in the pipeline, as well, such as the F-150 Lightning and the Mustang Mach-E, with plans to increase EV production capacity to 600,000 by 2023. The outlook for the automotive industry remains muddled into next year, as supply chain snarls keep prices high and consumers consider delaying purchases. That said, “if the company continues to execute and market conditions are favorable, we do see further upside,” says RBC analyst Joseph Spak.
Devon Energy Corp. (DVN)
Since joining the S&P 500 in 2000, oil and gas exploration company Devon Energy has largely operated under the radar, quietly completing acquisitions to expand properties and drilling sites from the Gulf of Mexico to Texas’s Permian Basin. In January 2021, it completed a “merger of equals” with fellow Permian operator WPX Energy Inc. and became the dominant producer in the region. Investors benefit from a fixed quarterly dividend and, importantly, an additional variable dividend worth up to 50% of excess cash flows, which pushed the dividend yield from 1.8% in the first quarter to 7% in the second. “Over recent years, DVN repositioned its asset portfolio to focus on high-returning, oil-growth properties with an emphasis on running the business for shareholder returns,” says RBC analyst Scott Hanold. With high oil prices and a hefty dividend, it’s not hard to understand why investors love DVN stock.
Moderna Inc. (MRNA)
Virtually unknown before rolling out its COVID-19 vaccine, Moderna manufactures and develops vaccines with state-of-the-art mRNA technology. Amid much speculation regarding vaccine efficacy and potential sales, the stock absolutely crushed the market in 2021, up 170% to date. Beyond the COVID vaccine, Moderna has 37 mRNA products in development, including vaccines for the seasonal flu, Zika and HIV, with 22 having entered clinical trials. While debates around the definition of “fully vaccinated” and concerns regarding the omicron variant have the potential to keep supporting vaccine sales, last quarter management guided for lower full-year COVID-19 vaccine sales, taking the full-year 2021 forecast down from $20 billion to a range of $15 billion to $18 billion. “Although we expect a strong overreaction to [these] results, we continue to be bullish on MRNA’s long-term prospects and the potential of other mRNA vaccine candidates,” CFRA equity research analyst Sel Hardy noted in a recent research report.
10 of the S&P 500’s best performing stocks of 2021:
— Moderna Inc. (MRNA): +170%
— Devon Energy Corp. (DVN): +155%
— Ford Motor Co. (F): +132%
— Bath & Body Works Inc. (BBWI): +131%
— Marathon Oil Corp. (MRO): +130%
— Diamondback Energy Inc. (FANG): +118%
— Nvidia Corp. (NVDA): +117%
— Fortinet Inc. (FTNT): +117%
— Nucor Corp. (NUE): +114%
— Gartner Inc. (IT): +104%
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10 of the S&P 500’s Best Performing Stocks of 2021 originally appeared on usnews.com
