Fiscal year 2020 has been one of the most challenging years in the recent past due to the novel coronavirus pandemic. However, the year was rewarding for investors as some investment themes out-performed. The market valuation seems stretched, but there are ample opportunities to make money. It would be great to start the new year with some gains. This column will discuss the top stocks to buy in January.
Using the bottom-up analysis, I identified four stocks that can break-out on the upside in January 2021. These stocks are worth holding for the medium-term to long-term.
Let’s discuss the top stocks to buy in January for quick returns. And that will help investors start the year on an optimistic note.
- Xpeng (NYSE:XPEV)
- Walmart (NYSE:WMT)
- Vertex Pharmaceuticals (NASDAQ:VRTX)
- Colonnade Acquisition (NYSE:CLA)
Top Stocks to Buy in January: Xpeng (XPEV)
XPEV stock would be among the top stocks to buy in January. Electric vehicle stocks have been in limelight in FY2020. The coming year is unlikely to be different with the industry in a high-growth trajectory.
As an overview, Xpeng is a leading Chinese smart electric vehicle company. After listing at $21.22 in August 2020, XPEV stock surged to a high of $72. The stock subsequently corrected to $47. This is a good opportunity to accumulate for potential upside in the near-term.
In terms of growth, the company reported vehicle delivery of 8,578 vehicles for the third quarter of 2020. On a year-on-year basis, vehicle delivery growth was 265.8%. Clearly, the company has been reporting stellar growth. With Q4 2020 results round the corner, it’s likely that the stock will surge again.
With increasing vehicle deliveries, the company’s vehicle margin also improved. Loss from operations was $256.9 million for Q3 2020. I believe that the company is positioned to deliver profitability at operating level in the next few quarters. This is another trigger for XPEV stock.
In December 2020, the company also commenced delivery of its G3 smart electric SUV to customers in Norway. Further expansion in Europe is also on the cards. This is likely to ensure that vehicle delivery growth remains strong in the coming year.
Overall, Xpeng is another attractive name in the Chinese electric vehicle industry. The stock seems poised to move higher after the recent correction.
Walmart (WMT)
RBC Capital Markets upgraded WMT stock to “outperform” for FY2021. Analyst Scot Ciccarelli believes that “the retailer is well positioned into 2021 due to its size, e-commerce platform and value to consumers.”
Further, RBC Capital Markets assigned a price target of $170 for the stock. This would imply a potential upside of 16% from current levels. I would not be surprised if WMT stock has a strong rally in January.
A key reason to include WMT stock among the top stocks to buy in January is the holiday season sales trigger. In September 2020, the company said that it will hire 20,000 seasonal employees “as it anticipates more holiday shopping to shift online during the coronavirus pandemic.”
Even from a valuation perspective, WMT stock is attractive at a forward price-to-earnings-ratio of 26.1. If holiday season sales exceed analyst estimates, the stock has room for upside in the coming month.
It’s worth noting that WMT stock is among the 100 most popular Robinhood stocks. In the recent past, Robinhood investors demonstrated the ability to pick stocks that out-perform the broader markets.
Overall, WMT stock is worth holding for the near-term and is also a core portfolio stock. The stock has a low beta and an attractive annual dividend of $2.16.
Vertex Pharmaceuticals (VRTX)
VRTX stock touched a 52-week high of $303 in July 2020. The stock subsequently declined to current levels of around $234.
Recently, the company announced that the U.S. Food and Drug Administration approval expanded use of its cystic fibrosis (CF) therapy.
This can be a near-term trigger for the stock upside and potentially re-test of July 2020 highs. It’s worth noting that besides expansion to younger age groups, the company expanded to new geographies. This is likely to be a trigger for strong top-line growth.
In another news, Vertex Pharmaceuticals announced an agreement with Skyhawk Therapeutics. The collaboration is “aimed at the discovery and development of novel small molecules that modulate RNA splicing for the treatment of serious diseases.”
Besides being a monopoly play in the CF market, the company has a robust pipeline of drugs under development. This includes drugs for alpha-1 antitrypsin deficiency, type 1 diabetes and others.
Given these positive developments and a deep pipeline of clinical research, VRTX stock is bound to surge. I would therefore include the stock among the top stocks to buy in January.
Colonnade Acquisition (CLA)
SPACs were an attractive investment theme through FY2020. CLA stock is another SPAC that’s worth considering for January 2020. As I write CLA stock is higher by 40% with the news of Ouster merging with Colonnade Acquisition.
Ouster is the manufacturer of lidar sensors for self-driving cars, smart cities, industrial and robotics. The deal to go public has a $1.9 billion valuation. To make things interesting, Ouster has guided for annual revenue growth of 143% through FY2025. In addition, the company believes that gross margin from the business can be 60% by FY2025. Therefore, there is a strong bull case for investing in CLA stock and the positive momentum is likely to sustain through the coming year.
It’s worth noting that the company has 29 patents granted with 100 patents pending globally. Currently, the company has 450 customers in 50 countries. With innovation-driven growth, the company aims to reach 14,000 customers by FY2025. Given the ambitious growth plans, it makes sense to consider some exposure to CLA stock.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
