This year has been rewarding for those who invested during the market meltdown triggered by the novel coronavirus pandemic. Hundreds of stocks have provided multi-fold returns in a matter of a few quarters. As we move closer to fiscal year 2021, I am optimistic that investors will have an equally rewarding New Year. This article will discuss seven hot stocks to buy by Jan. 1.
I believe that the following stocks can rally in the near term. Further, these seven stocks are also attractive for exposure through fiscal year 2021. In my view, a portfolio of these stocks can outperform the index in the next 12 months.
So, let’s discuss the seven hot stocks worth buying in the next few days:
- Nio Limited (NYSE:NIO)
- Chipotle Mexican Grill (NYSE:CMG)
- Moderna (NASDAQ:MRNA)
- Pinduoduo (NASDAQ:PDD)
- SolarEdge Technologies (NASDAQ:SEDG)
- Tilray (NASDAQ:TLRY)
- Dollar General (NYSE:DG)
Hot Stocks to Buy by Jan. 1: Nio Limited (NIO)
Nio stock has been on fire, having skyrocketed by 1,117% year-to-date. In my view, the stock is likely to maintain positive momentum even in the coming year. Nio stock is therefore among the top hot stocks to buy by Jan. 1.
The first reason to be excited about Nio is the potential launch of its first sedan model early next year. With this, Nio will be competing with Tesla’s (NASDAQ:TSLA) Model 3 sedan vehicle. In addition, William Bin Li, chairman and CEO of Nio, confirmed that the company will launch two sedans back-to-back. Depending on the time line for market launch, these new electric vehicles (EVs) will boost the company’s growth.
It’s also expected that Nio will expand in Europe in the second half of fiscal year 2021. The company will initially be launching the ES6 and ES8 models. If the market response is positive, it will be yet another stock upside trigger.
From a financial perspective, the vehicle-level margin has been improving. As vehicle deliveries continue to increase, I expect sustained improvement in margins. Further, as operating cash flows improve, the company will be internally funded beyond the current year.
Chipotle Mexican Grill (CMG)
CMG stock has been on an uptrend in the current year. In all probability, the positive momentum is likely to sustain in the coming year. Recently, Chipotle made it to the list of best ideas at Cowen for fiscal year 2021. Analyst Andrew Charles believes that the stock has a price target of $1,550. That would imply a potential upside of 10% from current levels.
There are strong reasons to be bullish on CMG stock. Even with the impact of the pandemic, the company delivered healthy revenue growth of 14.1% for the third quarter of 2020. Digital sales growth was impressive at 202.5% and accounted for 48.8% of the total sales.
Once the company navigates the pandemic headwinds, restaurant sales coupled with digital sales can trigger strong earnings growth. It’s worth noting that for Q3 2020, the company opened 44 new restaurants. The positive impact of these new openings will be seen in the coming year.
Chipotle also believes that it has seen a 100 basis-point drag related to Covid-19. With fiscal year 2021 likely to be a year of mass vaccinations, I expect the EBITDA margin to rise as the pandemic is controlled.
Overall, Chipotle Mexican Grill is on a strong growth trajectory. With a focus on healthy food offerings, the company is well positioned to deliver value. CMG stock is therefore another hot stock to buy by Jan. 1.
MRNA stock has been among the hot stocks of 2020. Further upside is due in the coming year, making Moderna among the hot stocks to buy by Jan. 1.
In the current year, the progress related to clinical trials was the key trigger for the stock. For fiscal year 2021, the company is likely to see strong top-line growth and cash flow upside. This will keep the momentum positive for the stock.
As I write this, the U.S. Food and Drug Administration advisory panel has just endorsed Moderna’s Covid-19 vaccine. In all probability, this will clear the way for emergency use authorization of the vaccine in the U.S.
Moncef Slaoui, who is leading Operation Warp Speed, believes that the “U.S. should be able to immunize nearly a third of [its] population by [the] end of February.” If this target is achieved, Moderna will play a key role.
In addition, the European Medicines Agency (EMA) will also be meeting on Jan. 6 to review Moderna’s Covid-19 vaccine. A positive outcome is very likely, and this will be another potential upside trigger for the stock.
Moderna has also secured agreements with Canada, Switzerland, Singapore, Israel and the U.K., among others. Through fiscal year 2021, I expect strong quarterly numbers. This is likely to help MRNA stock trend higher.
PDD stock has been among the hottest stocks of the current year. I will not be surprised if the stock is a big performer in the coming year as well.
Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) might be the preferred names when it comes to exposure to the Chinese e-commerce industry. However, Pinduoduo has witnessed strong top-line growth, and the positive momentum is likely to sustain in fiscal year 2021.
For Q3 2020, the company reported revenue of $2.1 billion, which was higher by 89% on a year-over-year basis. The company’s e-commerce platform has also witnessed sustained growth in active buyers and monthly active users.
Another important reason to consider PDD stock is that the company reported operating loss of 2.1 billion yuan for Q3 2019 but has since decreased that number. The operating loss has narrowed to 339.8 million yuan for Q3 2020. Operating loss was just 2% as a percentage of revenue. It’s likely that the company will report operating profit in Q4 2020.
Further, Alibaba and JD.com are good examples of the cash flow potential from the e-commerce business. Pinduoduo’s core business can be a cash flow machine as sales growth sustain along with improving margins.
SolarEdge Technologies (SEDG)
As President-elect Joe Biden takes charge, alternative-energy stocks will be in focus. Not just in January 2020, but through the coming year. SEDG stock is therefore among the hot stocks to buy by Jan. 1.
After the run-up in the last year, SolarEdge stock trades at a forward price-to-earnings (P/E) ratio of 60.24. I would, however, look at the company’s potential earnings growth in the coming years. It’s expected that annual earnings growth will be up 30% over the next five years. This makes SEDG stock attractive even after the big rally.
Besides the industry tailwinds, the company reported record revenue from outside the U.S. in Q3 2020. With regional diversification, the company is positioned for sustained growth. Europe and Asia Pacific are likely to be the key growth drivers.
In the most recent quarter, the company has also partnered with Schneider Electric for the U.S. new home segment. The partnership will commence operations in California, “where solar is now required on all new home constructions.”
In the coming years, I expect similar regulations throughout the U.S. Therefore, there is a big addressable market in the home segment, and SolarEdge Technologies is well positioned to benefit.
With Joe Biden as president-elect, the cannabis sector has also been in focus. In the coming years, legalization throughout the U.S. is likely to drive growth for cannabis companies.
On Dec. 16, Tilray and Aphria (NASDAQ:APHA) announced a merger, which would create the largest global cannabis company. The combined company will operate as Tilray. I am bullish on this consolidation, and the combined entity is likely to create value through the coming year.
The merged entity will have a pro-forma retail market share of 17.3% in Canada. Further, Tilray already has a leadership position in Europe, and Aphria has a strong presence in Germany. Therefore, the combined entity will be well positioned to benefit from impending growth in Europe. With a cash buffer of $454 million, Tilray will also be positioned for growth in the U.S. once there is regulatory clearance.
It’s also worth noting that Aphria (as a standalone entity), has generated positive EBITDA for six consecutive quarters. With cost synergies for the combined entity, I am optimistic on the operating level profitability.
Overall, cannabis stocks have made a comeback in the recent past. I believe that TLRY stock will continue to trend higher in fiscal year 2021 as benefits of the merger show in the form of top-line growth and profitability.
Dollar General (DG)
Dollar General is another attractive name on my list of hot stocks to buy by Jan. 1. At a forward P/E of 21.51, DG stock is attractive from a valuation perspective.
In addition, for Q3 2020, the company’s net sales increased by 17.3% and same-store sales increased by 12.2% on a year-over-year basis. Further, earnings growth was 62.7% for the quarter. The combination of strong growth and attractive valuations make DG stock a hot pick.
For the coming fiscal year, the company plans to execute “2,900 real estate projects, including 1,050 new store openings, 1,750 remodels, and 100 store relocations.” Therefore, the company is being aggressive in terms of new store openings, and this will ensure strong earnings growth in the coming quarters.
An important point to note is that the economic downturn has translated into consumers looking for cheaper groceries and household items. Economic recovery is likely to be gradual, and I expect the demand for the company’s discounted products to remain robust.
DG stock also pays an annual dividend of $1.44 per share. Considering the growth outlook, I expect dividends to increase. This is another reason to consider exposure to the 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.