Best companies to invest in 2021: where should you look to buy? (2022)

Best companies to invest in 2021: where should you look to buy? (1)

The US stock market has been trading at record highs in recent days, with both the of the largest companies and the Dow Jones Industrial Average (US30) up by 13.1%year-to-date.

However, with the rollout of COVID-19 vaccines and governments eyeing a return to regular economic activity in the coming months, investors have been rotating out of stocks that saw accelerated growth during the pandemic into recovery stocks. The shift has investors wondering: which are the best companies on the stock market to invest in now?

A recent sharp rise in US Treasury yields has had implications for equities. Analysts at Jefferies said in a note to clients last week that the macroeconomic environment is supportive of value stocks over growth stocks. They are favouring companies in the industrials, materials and financials sectors, with internet and technology stocks carrying greater risk as interest rates rise further over the long term.

So, what are some of the best companies to invest in right now? Read on for our pick of 10 stocks to consider adding to your portfolio after further research.

Best companies to invest in 2021: which sectors will outperform?

Best companies to invest in 2021: where should you look to buy? (2)

  • Bank of America (BAC)

Financial stocks have been out of favour with investors, particularly during 2020 when concerns about business bankruptcies during the pandemic and the impact on banks drove down share prices. However, banks are in better shape than they were during the 2008 financial crisis and the US Federal Reserve provided support.

Bank of America, the second-largest bank in the US by assets after JP Morgan (JPM), offers an opportunity to take a position on the US economic recovery. The stock has gained 30.3%year-to-date, reaching the $40 per share level for the first time since 2008.

So far in April, equities analysts have upgraded their price targets on the stock from the mid-$30 range to $41-45 per share.

  • Realty Income (O)

Real estate investment trusts (REITs) have also come under pressure during the pandemic, with the Vanguard Real Estate Index Fund ETF falling by 7.7%in 2020. But it has climbed by 17% year-to-date with the prospect of businesses reopening.

Realty Income is one of the most popular REITs among investors, as it has an average dividend yield around 4%. The company, which has trademarked the moniker “The Monthly Dividend Company'', is a Dividend Aristocrat, having increased its dividend payment annually for more than 25 years, and may be one of the safest companies to invest in for 2021.

Realty Income reported a 10.7%increase in revenue in 2020 despite the pandemic, as many of the tenants in its properties in the US and UK are considered essential businesses that continued to operate during shutdowns.

The share price has risen by around 11.9%so far this year to $67, and on April 15, analysts at Morgan Stanley boosted their price target from $67 per share to $74 per share.

  • Disney (DIS)

Disney launched its streaming service, Disney+ in November 2019, which turned out to be well-timed for pandemic lockdowns. The service had 94.9 million paid subscribers as of January 2, 2021, helping to offset some of the company’s loss in revenues from the closure of its amusement parks and delays to cinema releases.

With half of US adults having received at least one dose of a COVID-19 vaccine, the company’s stock offers a strong recovery play as entertainment outside the home begins to make a comeback.

  • Square (SQ)

Digital payments firm Square offers a range of payment products such as credit card readers and point-of-sale devices. But it is the company’s mobile payments app, Cash App, that has attracted the attention of investors – particularly after it added support for cryptocurrencies.

Analysts at Needham said in a note to clients last week: “We are revisiting our thoughts on SQ following several recent developments such as the start of limited banking services through Square Financial Services and the recent passage of additional fiscal stimulus, which we believe create an upward bias to our and the Street’s Cash App estimates.”

The analysts added:


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“We remain positive on the shares and recommend SQ for growth investors looking for exposure to digital payments. Our view is that Cash App will thrive during the pandemic and that fundamental trends in the seller ecosystem should bounce back as economic conditions improve in 2021.”

The share price soared by 241%in 2020. Needham’s analysts upgraded their price target to $310 per share from $300, while Barclays last week raised its target to $330 from $320 per share.

  • Taiwan Semiconductor (TSM)

While investors have been broadly rotating out of technology stocks, a global shortage of semiconductors because of a sharp rise in demand indicates the strong potential for growth in the chip sector. Taiwan Semiconductor is the world’s largest foundry and is well placed to benefit from scramble for supply.

The stock gained 86.5%in 2020 and has risen by another 9per cent year-to-date but there is room for further growth. Customers such as Apple (AAPL), AMD (AMD) and Mediatek, as well as Qualcomm (QCOM) and Nvidia (NVDA), are likely committing to orders three or four years in advance, reflected in the company’s pledge to spend $100bn in the next three years to build capacity, noted analysts at Deutsche Bank.

  • Alibaba (BABA)

E-commerce giant Alibaba offers investors exposure to Chinese economic growth as it emerges from the pandemic as the world’s largest online retail market. The stock had been under pressure in recent months on concerns about the potential for it to be delisted from the US market and regulatory intervention from the government in China. That had pulled the stock down from an all-time high of $319.32 per share in October 2020 to the $222 level in December and March.

However, the company reported 37% revenue growth for 2020 to RMB 221.08bn ($33.88bn), and on April 12, the Chinese regulator imposed a fine of $2.8bn, removing uncertainty about the verdict of its investigation. The share price gained 4.6 per cent in response and analysts reiterated buy ratings, with an average price forecast of $322.48 per share.

  • Lowe's (LOW)

A strong housing market in the US is driving growth in home improvement retail. A boom in DIY during pandemic stay-at-home orders, as well as a trend towards homeowners moving out of cities into suburban and rural areas thanks to remote working, is driving strong sales growth at home retailers such as Lowe’s and Home Depot (HD).

Lowe’s stock gained 33.5%last year and has already risen by another 29.7% year-to-date.

Analysts at RBC see the US housing market as stable despite concerns about the affordability of rising property prices: “Due to the scarcity of home supply and strong consumer balance sheets/home equity levels, we expect home improvement activity to remain strong for the foreseeable future (build-on vs buy decision process).”

  • 3M (MMM)

Manufacturing conglomerate 3M is one of the best companies to buy shares in for 2021 in the industrial sector. The company operates in four main sectors: safety and industrial, transportation and electronics, health care and consumer.

The stock has gained 15.5% so far this year to approach $200 per share for the first time in two years after slipping by 1.4%in 2020, as investors have turned their attention to cyclical stocks such as industrials in hopes of economic recovery.

  • Rio Tinto (RIO)

The Anglo-Australian mining giant Rio Tinto offers investors a way to gain exposure to basic materials such as copper and iron ore, which are expected to see rising demand during the economic recovery.

The copper price hit a 10-year high in February, with the industrial metal also used by investors as a hedge against inflation. Physical demand for copper is forecast to rise sharply in the coming years, as it plays an essential role in renewable energy infrastructure and electric vehicles.

  • CrowdStrike (CRWD)

While technology stocks broadly fell out of favour in the first quarter, there is still potential for strong long-term growth, particularly in enterprise sectors such as cybersecurity. Deutsche Bank initiated coverage of CrowdStrike last week with a buy rating because it is “in the sweet spot for two important secular trends of this decade: the rising importance of cybersecurity and cloud adoption”.

The analysts added:

“We think investors are underappreciating the incremental dollars flowing into endpoint security, a [total addressable market] TAM we peg at $36bn, with CrowdStrike currently only around 5 per cent penetrated.”

The stock has gained 7%year-to-date to trade around $215 per share. Deutsche issued a price target of $265 per share.

Read more: Best NFT projects: 10 names everyone should know in 2021

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