2020 has been a historical year for the stock market, with a market crash and a phenomenal rebound and rally. Additionally, 2021 is also an interesting year with many challenges for investors looking for stocks to buy. The surge in the bond yields has caused concerns about inflationary pressures, but at the same time are a good sign for a rapid economic recovery.

The recent shift in stock market performance with a selloff for tech stocks can be explained as the Nasdaq Composite index hit new record highs. And rising bond yields can also signal a change in the loose monetary policy by the Federal Reserve sooner than expected. With stock market volatility expected to be both persistent and even increased in 2021, the following four stocks to buy are prime candidates for growth, income and future capital gains — adding also significant safety in any portfolio having very attractive valuations.

Overall, the main argument I want to focus on is that 2021 is time to be prudent and selective about stocks to buy. Why? Major stock indices are near record highs, and the valuation of stocks seems too expensive. Especially tech stocks, and the hot trends of 2021 such as electric vehicle (EV) stocks, and special purpose acquisition companies (SPACs).

So, what four companies are the top stocks to buy?

• Toyota Motor Corporation (NYSE:TM)
• Honda Motor Co., Ltd. (NYSE:HMC)
• Biogen Inc. (NASDAQ:BIIB)
• Vale S.A. (NYSE:VALE)

Now, let’s dive in and take a closer look at each one.

Stocks to Buy: Toyota (TM)

In my articles about Tesla (NASDAQ:TSLA) and NIO (NYSE:NIO), one of the major concerns and my investment thesis focus was that they are overvalued. And they have been subject to a selloff recently.

Toyota, on the other hand, is a very cheap automotive stock. But while a cheap stock is not the only reason to buy a stock, TM stock is also a qualitative stock.

Moreover, data from Zacks shows expected earnings per share (EPS) growth for TM stock the next three-to-five years of 11.19% and a PEG ratio of 0.99. That said, Toyota is a leader in the automotive industry and a pioneer in hybrid cars with its model Prius back in 1995. Thus, I expect plenty of growth and innovation from this company.

Honda (HMC)

The second choice of mine according to my financial analysis in this list of stocks to buy is also another automotive company. And also happens to be a Japanese company like Toyota.

Honda is another cheap stock that has many things to like now. Its trailing price-earnings (P/E) ratio of 13.5 is too attractive. And it also has a forward dividend yield of 2.63%.

Moreover, Zacks mentions that HMC stock has a PEG ratio of 0.47, and any ratio less than 1 makes a stock relatively cheap. And with expected EPS growth of 21.82% for the next three-to-five years, there is plenty of expected growth.

When NIO struggles to become profitable, as it is not yet near profitability but rather is losing money, Honda produces consistent revenue, operating income and positive net income. With a trailing P/E ratio of 13.5 and a forward dividend yield of 2.63%, HMC stock is a choice for investors aiming at income, growth, and at a very attractive price with significant upside potential to compensate for its risk.

Stocks to Buy: Biogen (BIIB)

Biogen is a healthcare stock that has missed the 2020 stock market rally with a drop of 11.25% the past year. This is good news as its stock price is very attractive with a trailing P/E ratio of 10.8. And is also a defensive stock with a Beta (5Y Monthly) of 0.42.

In any stock market selloff, BIIB stock should fall less compared to the S&P 500. But what about its upside price potential?

So far this year, Biogen has already gained about 7.7%. That said, 2020 was a year of decline in revenue growth and net income growth. But looking back two or three years ago to examine the trend, BIIB stock has a lot of positive EPS growth. In 2018, EPS growth was 81.10%. And in 2019, it was 45.55%. In 2020, though, this EPS growth turned negative — with a reported drop of 21%.

Zacks estimates a three-to-five EPS growth rate of 10.51%. Free cash flow growth is also strong and positive, although was negative in 2020. Overall, though, the management has repurchased common and preferred stock for all past five consecutive years. And this is another indication of a relatively undervalued stock with good fundamentals.

Vale S.A. (VALE)

Can the forward dividend and yield of $1.19 and 6.94% be the only investment criterion to buy VALE stock? It could, but it shouldn’t be. There are other things to look for due diligence, and Vale is an industrial stock that plenty of qualitative things to like.

Its valuation seems relatively cheap. According to Zacks, VALE stock has a PEG ratio of only 0.16, and an expected three-to-five-year EPS growth of 25.09%. Combining growth with value is an excellent investment strategy.

However, VALE stock could be a great pick should commodities rally in 2021 amid a strong economic recovery. And while it has performed well with a one-year return of 116%, I see even more upside potential. A company with strong and positive revenue growth for the past foue years, good and consistent profitability, and a rebound from the bad financial performance in 2019. Its strong free cash flow trend could mean even a dividend hike in the future.

On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.