Despite all of the coronavirus-based challenges, 2020 has been a great year for many investors, with millions of new retail investors jumping into the market that’s seen the S&P 500 surge 16% overall and well over 50% since its March lows.
It’s also worth noting that even though stories about new retail investors making seemingly crazy bets on hard-hit stocks and going all-in on options trading generate a ton of traction, the majority are reportedly opting to buy and hold stocks as longer-term investments.
Buy and hold investing doesn’t mean buy and forget, and portfolios must be monitored and evaluated. That said, investors who buy large-cap stocks with solid growth outlooks put themselves in a position to find stable long-term success.
The bull case for 2021 is relatively straightforward, with more economic stimulus starting to roll out in the U.S. This could prove vital as many hard-hit businesses face a harsh winter driven by renewed restrictions.
There is also hope that this won’t last long as the Covid-19 vaccine is administered in the U.S. and around the world, with federal officials projecting that 100 million Americans will be vaccinated by February or March.
Furthermore, the S&P 500 earnings outlook appears strong for 2021. Plus, low interest rates in the U.S. and elsewhere are ready to help boost stocks for the foreseeable future, as Wall Street chases returns in a yield-starved market.
This means that investors likely want to add stocks in 2021. And one of the best ways for longer-term investors to build a stronger portfolio is with proven, large-cap companies that provide exposure to growth industries. It might also be prudent to focus on stocks that aren’t banking on the vaccine to help return the economy to
normal in the near future. Nvidia ( NVDA Quick Quote NVDA - Free Report)
Nvidia has skyrocketed 1,500% in the last five years to leave Apple (
AAPL Quick Quote AAPL - Free Report) , Amazon ( AMZN Quick Quote AMZN - Free Report) , and other tech giants in the dust and become the largest U.S. chipmaker by market cap ($326 billion vs. Intel’s ( INTC Quick Quote INTC - Free Report) $200 billion). The GPU giant is up 125% in 2020 but it trades 10% below its early November highs heading into 2021. NVDA has hovered right near its 50-day moving average for the last two months and the cooldown could mean it is due to break out at some point.
Wall Street has known for years that Nvidia was ready to grow within the booming gaming industry. The company also gained traction in the cryptocurrency mining world. Yet investors appear most excited about NVDA’s success within data centers and cloud computing.
The firm posted blowout Q3 results in November, with data center sales up 162% to help lift its overall revenue by 57%. Jensen Huang’s company is also making inroads in AI and other next-generation tech.
Nvidia in September announced its $40 billion, mostly stock acquisition of Arm Limited from Softbank (
SFTBY Quick Quote SFTBY - Free Report) . Arm is one of the most important behind-the-scenes companies in the semiconductor world and it could be a potential game-changer for Nvidia and the industry.
Luckily, even if the Arm deal fails to get through regulators in the U.S., China, and the U.K., its outlook remains strong. Zacks estimates call for its sales to surge 55% in Q4 and 46% in Q1 FY22, with its adjusted earnings projected to jump 48% and 40%, respectively.
Meanwhile, the firm’s FY21 earnings are expected to soar 68% to reach $9.71 a share on 51% higher revenue that would see it hit $16.5 billion. Nvidia’s EPS is then projected to surge 19% higher in FY22 on 20% stronger sales. NVDA’s bottom-line revisions help it land a Zacks Rank #2 (Buy) at the moment and 19 of the 25 brokerage recommendations Zacks has are “Strong Buys” with three more at “Buys.”
Salesforce ( CRM Quick Quote CRM - Free Report)
Salesforce stock has fallen over the last several months even though it topped our Q3 estimates in early December. Most of the recent downturn is centered on its $28 billion deal—which is the second-largest in software history—to buy Slack (
WORK Quick Quote WORK - Free Report) .
Many on Wall Street think that CRM overpaid for the work-focused communication firm (26X forward 12-month sales). Yet clearly CRM’s executive team, who paid $15 billion last year for data-analytics platform Tableau, believe Slack will prove vital in the digital-heavy business world.
Salesforce gains a Microsoft competitor and it hopes that the more than 150,000 companies that use its platforms to help run everything from sales and e-commerce to marketing and analytics will find it a valuable resource. And even when things return to normal in a post-pandemic world, many businesses might permanently cut back on travel and office space, which will put an emphasis on non-email communication.
Zacks estimates call for CRM’s FY21 revenue to jump 23.5% to $21.1 billion, with FY22 projected to come in another 20% or $4.2 billion higher. CRM’s adjusted FY21 EPS figure is expected to surge 55% to $4.63, with its FY22 earnings projected to fall, as it spends on growth. These top-line figures mark a slowdown compared to recent years, but 20% growth for a company of its size and age is still highly impressive.
CRM stock is hovering between its 50 and 200-day moving averages, as it sits nearly 20% below its early September highs at $222 per share. Despite the recent setback, CRM has climbed 37% in 2020 to match its industry and 185% in the past five years. Salesforce stock is also trading in-line with its industry in terms of forward sales and it earns an “A” grade for Momentum in our Style Scores system.
Salesforce, which grabs a Zacks Rank #3 (Hold) at the moment, helped popularize the subscription-based cloud software model that has taken over the business world. In fact, companies big and small depend so much on SaaS offerings that there is no going back. And 21 of the 26 brokerage recommendations that Zacks has for CRM come in at a “Strong Buy.” Therefore, investors with longer-term horizons might consider buying this vital business software firm at a 20% discount to its all-time highs.
Microsoft ( MSFT Quick Quote MSFT - Free Report)
Microsoft shares had been neck-and-neck with Amazon and Apple over the past five years, but it has lagged both in 2020, up around 40% vs. roughly 80% gains for its fellow tech giant peers. That said, MSFT has arguably never been more influential as a company, as it expands in the booming cloud market.
Last quarter, Intelligent Cloud was the biggest top-line contributor of its three core areas and its cloud efforts now play a role in nearly every facet of its business. This includes MSFT’s Office offerings, as well as its gaming unit that features Xbox.
The pandemic has also highlighted its remote work space that competes against Zoom Video (
ZM Quick Quote ZM - Free Report) and others, and its consumer devices unit continues to grow. With this in mind, Zacks estimates call for MSFT’s revenue to climb by 10% in both FY21 (current year) and FY22.
These projections would follow three straight years of between 13% to 15% revenue expansion, which is highly impressive for a firm of its size and age. Meanwhile, its adjusted earnings are expected to climb 17% and 10%, respectively over this stretch.
Microsoft is a Zacks Rank #3 (Hold) at the moment that’s seen its longer-term earnings outlook improve. MSFT sits about 5% off its 52-week highs and buying stock in one of the world’s most valuable and important tech companies hardly seems like a risk over the long haul.
This becomes even clearer with its 1% dividend yield that beats the 10-year U.S. Treasury and Apple’s 0.60%. Furthermore, its $137 billion in cash and equivalents will help it continue to make strategic acquisitions for years to come.
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