It’s safe to say we will never see another year like 2020. The world is in pandemic mode for more than a year. Hundreds of millions of people have lived through lockdowns. Many made the abrupt shift to working from home, and economies worldwide suffered the brunt. However, as vaccines continue to roll out and signal the beginning of the end of the novel coronavirus pandemic, investors are looking for the best investments to start 2021.
Since Covid-19 upended the financial markets, many industries like casino and gaming, oil and gas drilling, restaurants, auto parts and equipment, leisure facilities, and airlines are in tatters. Companies in these sectors will undoubtedly hope to feature somehow on the list of best investments to start 2021. However, if the markets are anything to go by, tech stocks and electric vehicle stocks remain the be-all and end-all investment vehicles.
We’ve sifted through many names to compile a list of consistent all-weather performers that can do well in both good times and bad. These companies aren’t 100% pandemic and recession-proof. But they are solid performers that have a track record of delivering consistent returns.
So without further ado, let’s take a look at five of the best investments to start 2021:
- PulteGroup (NYSE:PHM)
- Apple (NASDAQ:AAPL)
- Allstate (NYSE:ALL)
- Nexstar Media Group (NASDAQ:NXST)
- Starbucks (NASDAQ:SBUX)
Best Investments to Start 2021: PulteGroup (PHM)
PulteGroup is a national builder that is the third-largest home construction company in the U.S. based on the number of homes closed. Naturally, the pandemic did a number on PHM stock. It fell to $17.12 in the equity-market sell-off brutality in March. However, since then, the company had a fairy tale turnaround. It’s now trading close to its 52-week high of $49.70 a pop.
That must have you thinking whether there is more room to grow, considering the stock is already trading at full speed. I believe that isn’t the case. There is a lot of pent up demand for houses that will unleash once we see the back of this crisis. That’s why sales and EPS are projected to grow at 20.0% and 16.9%, respectively, next year.
And these are certainly not overly optimistic targets. PulteGroup is one of the most consistent companies. In the last 12 quarters, it reported positive earnings surprises 10 times. It has beat analyst expectations for the last six quarters successively.
In announcing its third-quarter results, PulteGroup reported a 36% increase in net new orders and a 4% increase in closings. Reported homebuilding gross margin increased 140 basis points to 24.5%. And adjusted net income increased 33% to $1.34 per share, beating analyst estimates of $1.11 per share.
As we enter the new year, PHM stock looks set to grow manifold. Shares are trading at 9.5x price-to-earnings, while the industry trades at 15.8x. Analysts predict the stock price will be $54.90 per share within the next 12 months, a 21.5% upside.
It’s tough advocating for Apple. You don’t need me to convince you to buy AAPL stock, the world’s largest company by market cap. But bulls are returning for a Christmas rally, and you don’t want to be caught napping.
There are two major catalysts pushing shares higher. Firstly the holiday-season “supercycle” in iPhone 12 sales, and possibly in AirPod sales. Second, and more interestingly, Apple reportedly plans to build a self-driving electric car by 2024.
I don’t need to tell you how hot the EV sector is right now. Tesla (NASDAQ:TSLA) is leading the charge. It will undoubtedly be the most formidable competitor if Apple decides to build an upmarket luxury car and compete in that segment.
Apple may reportedly not build its own car at all, deciding instead to integrate its battery and self-driving technology. Regardless, shares are soaring on the back of this news item.
Coming back to the holiday season, I think it’s time we talk about perhaps the most eagerly anticipated tech release of all time, the iPhone 12. Wedbush’s Dan Ives recently upgraded his Apple 12-month price target to $160 from $150, keeping an “outperform” rating for the stock.
Wedbush expects the tech juggernaut to sell more than 240 million units next year, compared with Wall Street estimates of 215 million.
“With more order activity kicking in over the last few weeks for iPhone 12, our initial reads are very bullish and give us incremental confidence in our supercycle thesis on iPhone 12,” Wedbush wrote.
AAPL stock has a year-to-date return of 81.3%. It’s trading at 8.4x price-to-sales, quite reasonable considering the year it’s set to have.
Best Investments to Start 2021: Allstate (ALL)
Allstate is one of the largest U.S. property-casualty insurers based on premium sales. Personal auto represents the largest percentage of revenue, but life insurance contributes about 10% of revenue. If you are looking for a safe investment with an excellent dividend yield, you should look no further.
Allstate has a 3-year EPS growth rate of 25.5%. Sales are projected to grow at 7.0% next year. That’s a bit conservative, but the American insurance company is operating in a mature market at a time when asset risks, volatility in capital markets, and weaker premium growth hammer the insurance business. Consistent growth makes ALL one of the best investments to start 2021.
In the last 12 quarters, the insurance provider beat consensus estimates a total of nine times. Most recently, Allstate reported EPS of $2.94 per share, a 66.1% beat versus the consensus estimate of $1.77 per share. If you think that’s impressive, the company reported a 74.5% beat in Q2 when the pandemic was at its height.
Allstate is also one of the most consistent dividend growth performers in the sector. It has 10+ consecutive years of dividend growth. It has a 2% yield. Despite the pandemic, the company did not suspend or cut its dividend and increased its quarterly payout to 54 cents from 50 cents. The payout ratio of 14.7% also indicates that its earnings well and truly cover the payout.
ALL stock is trading at 0.8 times price-to-sales and has a five-year return of 87.1%. Being an industry leader at a reasonable price, Allstate is one of the best investments to start 2021.
Nexstar Media Group (NXST)
Nexstar is the largest television station owner and operator in the U.S., with 197 stations in 115 markets. Management has been ahead of the curve in running the business. That’s why it seems strange that NXST stock is down 10.16% in the last year. You can chalk that up to the rise of Netflix (NASDAQ:NFLX) and the general pessimism surrounding the broadcast industry. However, you can’t judge a book by its cover.
In the third quarter, Nexstar reported net revenue of $1.1 billion, up 68.5% from $664 million in the same quarter of 2019. The results included the impact of Nexstar’s acquisition of Tribune Media. Core ad revenue came in at $382 million, up 31.6% from $290.2 million in the year-ago period.
More importantly, political ad revenue came in at $21.6 million, up 583% from a year ago. This year, political advertising spending hit a record $6.7 billion, triple the numbers we saw in the last presidential election cycle in 2016.
Considering the number of state races still to go, this is a secular tailwind. Plus, unlike several other geographies, local news is still vibrant in the U.S., so the business model Nexstar operates still has a lot of steam. I know streaming is all the rage these days, but that does not mean that TV is dying. It still has a huge footprint, and Nexstar has stellar management guiding the company much better than its peers. That’s why free cash flow is up approximately 228% on a trailing 12-month basis.
Nexstar pays an annual dividend of $2.24 per share, translating into a yield of 2.1%. It has six years of consecutive earnings growth. And it’s not like the company is burning through cash to pay the dividend. The payout ratio is very manageable, 17.3%.
And despite the steep fall in its ad sales earlier in the pandemic, the company still boosted quarterly payments from 45 cents to 56 cents. Despite challenging conditions, that payout did not receive a cut or suspension during this time.
NXST stock is trading at 6.40 times forward price-to-earnings versus the sector median of 19.49 times.
Best Investments to Start 2021: Starbucks (SBUX)
We end this list with a company that has rebounded exceptionally well from the pandemic. The global coffee chain soundly beat analysts’ earnings and revenue estimates for its fiscal fourth quarter. Its two largest markets, the U.S. and China, are bouncing back from the pandemic quicker than expected.
Foot traffic is still down, but that’s expected. We haven’t seen the back of this crisis as of yet. Vaccines are rolling out, but the retail coffee and snacks store industry will take time to recover. The good news is that Starbucks is doing better than others. Demand improved throughout the quarter, with U.S. same-store sales falling just 4%. In China, Starbucks’ second-largest market, the coffee chain’s same-store sales dipped by just 3%.
Looking ahead, the coffee giant forecasts EPS between $2.70 and $2.90 per share, after adjustments, on revenue of $28 billion to $29 billion in fiscal 2021. U.S. same-store sales are expected to grow between 17% to 22%, and global same-store sales will grow 18% to 23% for the year. China’s same-store sales growth is anticipated to touch 27% to 32%.
The company opened 480 net new cafes during the quarter. The coffee giant expects to open 1,100 net new stores in the next fiscal year. When most of its rivals, including McDonald’s (NYSE:MCD) and Dunkin’, are looking to reduce their store count, Starbucks takes the opposite approach.
By 2030, Starbucks plans to add 22,000 locations, bringing its store count to 55,000. It will expand drive-thru to approximately 45% of its U.S. portfolio by 2023, up almost 10% from fiscal 2020.
While many companies chose to suspend their payouts at the onset of lockdowns, Starbucks chose to maintain distributions. What’s more, the company’s board raised its dividend to 45 cents from 41 cents in the fiscal fourth quarter. The company has a dividend yield of 1.8% and a 5-year growth rate of 17.6%.
As the pandemic recedes to the background, Starbucks is the kind of consumer discretionary company that you should have in your portfolio,
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.