Before getting into the top stocks for 2021, I must admit I haven’t been this nervous about a market since January of 2000. At the time, I was billing myself as an expert on “Internet Commerce.” I was paid $20,000 to spend four days at a Los Angeles hotel and opine on the future of online sales. As usual, my views were prescient. As usual, my timing was early.
By the time I got home, internet fever had peaked. Time Warner “bought” America Online (AOL) in a deal that gave AOL 60% of Time Warner’s equity. It was the end of the dot-com bubble, the start of what history now calls the dot-bomb.
At the time I had been warning of a stock bubble for nearly three years. But knowing what was coming didn’t save me. At the bubble’s height I earned six figures. In the following two years I earned zero dollars. I thank god for my good wife’s job, but our whole family was scarred.
It’s terrible to feel that way again, so the speculations I offer of top stocks for 2021 are mainly defensive. The real economy must catch up with the market. We must have more demand. This will inevitably cure speculative fever. After the fire investors will go toward real companies, with real sales and real income. Even — dare we say it — dividends.
Some of today’s top stocks for 2021 have all that, but in 2022 you won’t have to pay a premium for them. In other words, losers today will be winners tomorrow.
- Ford (NYSE:F)
- Plug Power (NASDAQ:PLUG)
- Moderna (NASDAQ:MRNA)
- Intel (NASDAQ:INTC)
- General Electric (NYSE:GE)
- Alibaba Group Holding (NASDAQ:BABA)
- Draftkings (NASDAQ:DKNG)
Top Stocks for 2021: Ford
First up on this list of top stocks for 2021 is Ford Motor. Ford enters 2021 where it entered 2020, in the stock market’s doghouse.
Shares opened at about $8.90, 35 cents below where they started last year. That’s a market cap of $35 billion for a company that, even during the pandemic had sales of $130 billion and only a small loss. The market cap is less than the cash it had on the books in September, almost $45 billion.
Ford does make electric cars, and its F-150 pick-up is still among America’s most popular models. But investors are shunning the stock in favor of electric start-ups like Workhorse Group (NASDAQ:WKHS), Lordstown Motors (NASDAQ:RIDE) and even Fisker (NYSE:FSR). Nio (NYSE:NIO), the Chinese luxury electric start-up with just 5% of Ford’s revenue, has more than twice its market cap.
Either Ford is dying or it’s the biggest bargain on the planet.
But the pandemic will end, pick-up trucks will sell, and as our Mark Hake noted last month, Ford should make about $1 per share this year. That’s well over its old 15 cent/share quarterly dividend, which he thinks could be restored.
Momentum looks favorable. CEO Jim Farley, who took over in October, is a former Toyota Motor (NYSE:TM) executive who has been with Ford since 2007. He has promised to “speed up” the transition started by predecessor Jim Hackett.
This means more cars like the Mustang Mach-E, competing with the Tesla (NASDAQ:TSLA) Model Y. Ford has also launched new hybrid cars this year with prices starting at $28,000. For 2022 Ford will electrify its delivery trucks and the F-150.
If Ford can get its electrics to the market, its total sales shouldn’t take a big hit. Analysts are estimating sales of $150 billion in 2022, with a small profit.
You’re speculating when you buy Ford stock. But you’re speculating on something real.
Plug Power: A Real Opportunity in Hydrogen
I began writing about the hydrogen economy over a decade ago. Now the promise is becoming reality.
Plug Power, which produces fuel cell systems for short-haul transport, has announced a $1.5 billion investment from SK Group of Korea. Plug Power now has the cash to transform warehouse logistics, where non-polluting vehicles that run all day are prized. The market is growing, especially in the Asia-Pacific region. It was worth $14 billion in 2020, expected to double in five years.
The problem for Plug Power has always been fuel. The primary feedstock was natural gas, which produces what’s called “blue hydrogen.” But Plug Power’s purchase of two small companies in June changed the equation. It can now collect hydrogen as a byproduct of chemical production. Hydrogen can also be produced with excess solar or wind energy, giving such energy a market and making electric grids more stable. This is called “green hydrogen.”
Warehouse logistics exploded during the pandemic, as e-commerce replaced stores. After remaining stable for decades, warehouse construction has expanded, for use by Amazon (NASDAQ:AMZN) and its competitors.
Plug Power’s biggest deal before this was the sale of warrants to Amazon, which vested for over 55 million shares, roughly a 10% stake. Plug Power is also supplying hydrogen equipment for Walmart (NYSE:WMT) warehouses.
There are risks. Plug Power was sued after an exploding forklift at a Proctor & Gamble (NYSE:PG) facility in Louisiana killed its driver. An explosion last year at another company’s North Carolina hydrogen plant was felt 60 miles away.
Risks like these underly the importance of the SK deal. The Koreans are experienced with industrial chemicals, with scaled manufacturing, and with warehouse operations.
Incoming President Joe Biden has promised a renewable energy revolution, based on union jobs. Companies like Plug Power can fulfill some of the promise.
Moderna: Buy Systems, Not Drugs
Most drug companies create drugs. Only a few have systems for creating drugs. Those are the drug companies I think you should invest in and are top stocks for 2021.
The mRNA platform was used by Moderna to create its COVID-19 vaccine. While the stock’s price is high and has a market cap of $46 billion, the promise of its system makes it worth buying, as I did recently.
Moderna, founded a decade ago by scientists from Harvard University, came public in December 2018 with an IPO price of $23/share. It opened Jan. 7 at about $146.
The run-up was based mostly on mRNA-1273, its COVID-19 vaccine, which went from design to approval in less than a year. This promise sent the shares as high as $169 in early December, before falling on the news. By the end of 2020, the stock was trading below $105.
The idea is that DNA stores instructions for building organisms, from viruses like COVID-19 to more complex things like Donald Trump. The mRNA acts as a set of instructions for making proteins. The proteins, in turn, are applications for fixing, or mitigating the impacts of DNA.
In other words, mRNA-1273 is just one app built from the mRNA operating system, which is still in what you might call its MS-DOS phase of development.
Moderna ended the third quarter with about $4 billion in cash. But that money isn’t going to be splashed out to shareholders, as Gilead (NASDAQ:GILD) did after its success with hepatitis-C. It’s going into the pipeline, which includes drugs against cancer, heart disease and rare diseases.
Instead of seeking cash from Merck (NYSE:MRK) to advance its mRNA-4157 as a treatment for melanoma, alongside Merck’s Keytruda, Moderna can now fund the work itself. This means more profits down the road. Moderna can also license its system to companies developing riskier drugs, and to universities in exchange for intellectual property.
The December low in Moderna stock may be retested. Some of the money going into the company now may be speculators seeking short-term profits. But Moderna’s proven system gives it a long runway of real growth as one of the top stocks for 2021.
Intel: Time for Action
I have been telling readers here that Intel should be broken up for over four years. Those calls are getting louder as the company built around Moore’s Law falls further behind on both the chip design and the fabrication front.
Why buy it as one of the top stocks for 2021, then? Because it’s dirt cheap. Intel opened Jan. 6 at about $50 per share. That’s a market cap of $207 billion on expected 2020 sales of $78 billion. This is despite a 33 cent per share dividend yielding 2.66%, one that might be raised soon.
Intel is like a rundown house with great bones. Those bones are its numbers. The company delivered $25 billion of operating cash flow for the first three quarters of 2020. It had $18 billion of cash and securities on the books at the end of September, against $36 billion of debt. The dividend costs $5.4 billion/year and it’s buying back $10 billion in stock.
The problem is that, as Techopedia writer Kishore Jethanandani wrote recently, Intel is still focused on microlithography, burning smaller and smaller lines onto silicon. The industry has moved on to nanotechnology, new materials like graphene and Indo Gallium Zinc Oxide (IGZO) changing chips from components into systems.
Intel still has the cash and the equity needed to get back in the game. Intel’s problems are a national security issue. This tell me they will be addressed, especially as speculation eases and great engineering talent becomes available.
Until it does you get a nice dividend. Buy low. Sell high.
General Electric: Can Culp Deliver a Recovery?
Larry Culp saved General Electric and has reaped a $47 million reward for it. GE was the “best performing” industrial stock during the fourth quarter of 2020. Will it be one of the top stocks for 2021?
Culp’s General Electric consists mainly of four businesses. Two of them, health care and aviation, make money. The others, both involved in energy, don’t. But they might soon.
All the operating units of GE are true industrial companies. GE Power makes gas turbines. GE Aviation makes jet engines. GE Renewable Power makes wind power platforms as big as two football fields.
But it’s GE Healthcare that drives the earnings train. The unit earned $2.21 billion in the first three quarters of 2020. Without it, GE would have been operating at break-even last year. Healthcare’s success was underlined by Culp’s first acquisition, Prismatic Sensors of Sweden, in November.
Before coming to GE, which recruited him from the Harvard Business School, Culp had been CEO of Danaher (NYSE:DHR), which he made a health care giant through acquisitions. Danaher is now worth $158 billion, 72% more than GE.
GE is no longer playing games with the books, and it’s no longer making stupid acquisitions. GE may also get value soon from GE Digital, a relic from the bad-old days of Jeff Immelt. It’s the company’s play in the Machine Internet, sensor systems that will make equipment more resilient.
Immelt had GE playing both sides of the energy game, all-in on bigger power demand, all-in on efficiency and renewable energy. That contradiction is slowly fading away. Bigger demand should be a tailwind.
Alibaba Group Holding
Reports of Jack Ma’s death were somewhat exaggerated. You can have my Alibaba shares when you pry them from my cold, dead hands. Ma no longer works for Alibaba. He’s an investor, through venture capital firm Yunfeng Capital. He has interests in healthcare, insurance, consumer goods and finance.
Where Ma overstepped the mark is with Ant Financial, of which Alibaba owns one-third. Ma accused financial regulators of having a “pawnshop mentality.” At the time Alipay was pushing loans to individuals and small businesses, but only taking a small part of the loan risk. Ant is now restructuring, with a regulated holding company controlling its banking activity. Ant will now have to take on 30% of its loan risk.
On his way out the door, President Trump is also doing all he can to drive down the stock. A Jan. 6 order banned Alipay from the U.S., along with Tencent Holding’s (OTCMKTS:TCEHY) WeChat Pay. The ban takes effect in 45 days, however, giving the Biden Administration time to alter or abolish it. The same is true with threats to de-list Alibaba, alongside its rival Tencent. Before panicking, see what Biden’s team thinks of all this.
Like the U.S., China has also begun reforming its antitrust laws. It has launched an investigation into Alibaba policies mandating merchants use just one online platform. What China is doing to Alibaba isn’t very different from what American policymakers are doing to our Cloud Czars.
China’s efforts will push the Cloud Emperors to invest more internationally. Unlike the Amazon cloud, which mainly offers infrastructure, or the Microsoft (NASDAQ:MSFT) cloud, which is a platform for applications, Alibaba’s cloud offers a full application suite. It’s like Amazon, Microsoft and Salesforce (NYSE:CRM) rolled into one, along with Intuit (NASDAQ:INTU).
What this means is we’re likely to get a “war in the clouds” between American and Chinese cloud companies that will only make both sides stronger. Alibaba’s strength as a business partner is going to show as one of the very top stocks for 2021.
DraftKings: A Flutter on a Flutter?
In Europe, a bet is known as a “flutter” and gambling on sporting events, even from a mobile app, is common.
The Supreme Court’s 2018 decision allowing each state to control sports betting, removing the exclusivity of New Jersey and Nevada casinos, means the whole business is becoming Americanized.
Draftkings, which began as an online home for fantasy sports leagues, is leaping into the new world. Wall Street is taking its own flutter on it. At its Jan. 5 opening price of about $43.70 per share, it has a market cap of $17.6 billion on expected 2020 revenue of just $450 million.
DraftKings came public last April through a Special Purpose Acquisition Company (SPAC). It had launched its sports betting service in 2018 and now operates it in six states. It also has deals to run sports books in some small casinos.
Its hole card is a deal with Walt Disney’s (NYSE:DIS) ESPN, making it the network’s fantasy sports provider. (Caesar’s Entertainment (NASDAQ:CZR) will run the sports book through William Hill, a British bookie it bought for $3.7 billion in September.) DraftKings also has an affiliation deal with AT&T’s (NYSE:T) Turner Broadcasting.
The idea is that DraftKings now has low customer acquisition costs, and a huge, cheap marketing platform, with which to dominate the space. Rosenblatt Securities has made it a “top pick” for 2021. It believes state budget deficits, which exploded under the COVID pandemic, will lead to quick legalization. New York is expected to legalize sports betting for just that reason. Other states may follow.
The biggest risk for DraftKings is competition. The industry’s biggest player is Flutter Entertainment (OTCMKTS:PDYPY), which began with European books Paddy Power and Betfair. It also owns Fanduel, a sports fantasy site DraftKings once tried to merge with, before being stopped by anti-trust regulators. Flutter has more than twice DraftKings’ market cap, at $36 billion.
Then there’s Bally’s (NASDAQ:BALY). This is the former Twin River Holdings, which bought its name from Caesar’s (which started 2020 as Eldorado). It has a deal with Sinclair Broadcasting (NASDAQ:SBGI), which bought Fox’ regional sports networks and has stuck the Bally’s name on them.
There is reason to believe that online sports betting, and sports betting generally, is ready to take off, which is why Draftkings lands on this list of top stocks for 2021.
I won’t argue with them. Valuation and competition are both major concerns. But I know enough sports nuts to know that there’s a ready market for what DraftKings is selling. Wait for its lock-up selling to subside before placing your bet.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/. At the time of publication, he owned shares in AAPL, T, MSFT, AMZN, TSM, CRM, INTC, MRNA and BABA.