It’s crystal ball time. Technology and environmental stocks have been the big winners of 2020, but which stocks will skyrocket next year? The enforced digitisation of the world during the pandemic drove the likes of Amazon, Apple, Google and Netflix to new highs, while making household names of companies such as Zoom.
Coronavirus vaccine breakthroughs in November sparked a much-vaunted rotation in market leadership from the “stay at home” play to “the reopening trade”. Many believe this has much further to run, with the potential for missteps along the way around mass vaccination delivery or central bank policy.
Here are six stocks analysts are backing to shine in the New Year.
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The cinema chain, which has screens across the U.S. and U.K., has been an archetypal business victim of the pandemic. Worst still, it went into the pandemic with $8 billion of net debt, following two highly leveraged acquisitions in recent years. Investors took flight, with the stock collapsing by just over 90% as lockdown was announced.
It has rallied by 122% since November, driven by the vaccine news, plus a fundraising and new $450m debt facility. MORE FOR YOUWhy Huawei’s New Update Is Seriously Bad News For Android UsersWhatsApp Users Suddenly Get This Surprise New Boost From FacebookHuawei’s Striking New Billion-Dollar Gamble Targets Apple, Google (And Tesla)
Neil Wilson, chief market analyst at Markets.com, is backing Cineworld as a higher risk reopening trade. “This new debt facility should act as a bridge to get to a point where it can reopen screens in the U.K. and the U.S. and get the cash flow moving in the right direction again,” he said.
Assuming it can reopen its screens fully in May, it has sufficient cash to cover “2021 and beyond”. However, “if there is a stock trading on this vaccine roll-out it’s Cineworld”, he cautioned.
Tekmar operates in power and telecommunications infrastructure, delivering systems that protect cables under the sea. It’s a niche area, but fast-growing, with offshore wind projects a big customer.
AJ Bell investment director Russ Mould describes the U.K. micro-cap stock as high risk, given its size, but believes it can deliver for patient, longer-term investors.
Tekmar’s shares have sold off sharply in 2020, down 61.9%, in part down to contract delays that can punish small businesses disproportionately.
But Mould points to the company having net cash of £36 million -against a net asset value of £46 million- cost-cutting, and a new product launch due in 2021.
“Meanwhile, the company’s leading position in the niche of protection systems for subsea cables and pipes offers plenty of scope for upside. There are surely few markets as packed with potential as this one, as the UK prepares to launch its green industrial revolution and throw money at wind power, an area where Tekmar’s skills are likely to be in high demand,” he said.
American building supplier Vulcan Materials has lagged the bounceback in U.S. equities, still trading down 3.8% for the year. Some analysts have highlighted the company’s hefty debt burden, at around three times earnings before interest, depreciation and tax as a red flag to investors.
However, Steve Clayton, head of equity funds at Hargreaves Lansdown, believes Vulcan is solidly positioned to prosper from the expected further financial stimulus under president-elect Joe Biden.
“Vulcan sells building aggregates like gravel and because these are expensive to transport, Vulcan benefit from local monopolies and oligopolies, giving them reliable pricing power in what should be increasingly active markets,”
With the requirement for extensive new housebuilding and infrastructure development in the U.S., he rates the stock a good play for more balanced investors.
British Airways owner IAG is a classic reopening trade. Its stock was pummelled earlier in the year as flight routes, down just over 74% at their worst in August. Since the November vaccine breakthroughs, IAG’s stock has surged by 80%, but remains 38.5% below where it started the year.
Wilson said that while the recent rebound has effectively priced in flight routes reopening in 2021, “there could be further upside driven by on the ground improvements to travel”.
“In addition to the roll-out of vaccines, efforts by airlines like BA and airports like Heathrow to find creative solutions to ending quarantine requirements for travellers such as digital health passes will progress and make it easier for travel to take place,” he said.
Wilson added that he does not expect the airline conglomerate’s shares to return to their pre-pandemic levels next year, as “passenger travel levels are not seen returning to 2019 numbers for some years”.
“But a steady reopening of the economy and pent-up demand among holidaymakers to get out and travel ought to support earnings recovery in 2021,” he added, making it a good pick for balanced investors.
Braintree, Massachusetts-based Haemonetics is a global operator in blood and plasma services and supplies. Clayton said it is a fast-growing field and one in which the company has built a significant presence, operating in 16 different countries.
Haemonetics’ shares have had a relatively pedestrian year, near-halving in the savage March sell-off before going on to claw back two-thirds of those losses. They remain 16.6% down for the year but have likely been overlooked by many investors who were focusing on biotech this year.
Clayton believes the firm is well-positioned to benefit from advances in blood plasma therapies, with the stock a buy for balanced investors.
“Haemonetics leads the world in blood plasma technology and has a new generation of products that should boost profits at the same time as saving customers money,” he said.
“Looking ahead, there are over 750 new therapies that use plasma undergoing trials. As trials turn to product launches, demand looks set to grow for years to come.”
The U.K. power company, formerly known as Scottish & Southern Energy, is a good play for cautious investors, according to Mould. With stable revenue streams, it is paying a healthy 5.6% dividend with inflation-linked increases planned for the next two years.
But there could be a bit of a hidden growth story in the FTSE 100 stalwart too, he feels.
“SSE’s existing renewables portfolio and growth plans leave it well placed to be in the vanguard of the drive in the UK toward alternative sources of energy, a drive given fresh impetus by the government’s announcement in November of a multi-billion-pound green industrial revolution,” he said.
The value of SSE’s renewable assets was underlined earlier this year when the firm bagged a nice profit selling a stake in a wind project in Dogger Bank that SSE co-owns with Norway’s Equinor to Italian oil major ENI earlier this year.
“That seemed to confirm the clear upward trend in the market value of renewable assets and with oil majors potentially wading in at almost any price given their determination – and need – to reinvent themselves – SSE’s shares could yet offer greater potential for capital appreciation than many investors realise.”
I have been writing about wealth, the wealthy and investment for 20 years now. From how the rich amassed their fortunes to the investment strategies they employ to build and grow their assets, and what we can learn from them. But also what they spend it on, because all work and no play would be no fun. I was previously editor of Citywire Wealth Manager for eight years, where I saw first-hand both the good and bad of private client investment management. My goal is to help you identify opportunities while navigating the pitfalls. You can contact me at email@example.com
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