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Why Nasdaq Can Win Again in 2021 After the Best Year Since 2009

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Optimism swept the broader market in the fourth quarter of 2020 with the S&P 500 and the Dow Jones hitting new highs to close out the year. Decent earnings releases, hopes of economic recovery in 2021, positive developments on vaccines, and super-easy global monetary policy aided the markets in 2020 despite the COVID-19 challenges.

However, the showstopper was the tech-heavy Nasdaq. A tech-driven rally led the Nasdaq Composite to jump about 44% in 2020. This made 2020 the best year for the index since 2009’s turnaround after surviving the Global Financial Crisis, per an article published on barrons.com.

Rising consumer spending on technology, coronavirus-induced social distancing leading to remote communications, a surge in e-commerce and online payments, stellar growth in the video-gaming segment, a 5G boom, and expectations of higher smartphone sales propelled the tech and semiconductor space in 2020, taking the Nasdaq to this height.

Will the Winning Momentum Continue in 2021?

Investors should note that the Nasdaq-100-based ETF (QQQ - Free Report)  (up 11.2%) performed almost in line with the S&P 500-based ETF (SPY - Free Report)  (up 10.9%) in the past three months and lagged the small-cap ETF (IWM - Free Report)  (up 28.8%) massively.

This happened because of the vaccine rollout which brightened the appeal for the coronavirus-hit investing zones or the value-investing options. In fact, hopes of faster-than-expected recovery dulled some of the shine in the tech stocks over the past three months. Still, a few reasons could act as tailwinds for the Nasdaq this year too.

New Strain of Coronavirus

There is a new strain of coronavirus, which can charge up the tech space in 2021 all over again. The faster-spreading variant of the virus has been discovered in more places in the United States, including California. However, everything depends on the efficacy of the recently rolled out vaccines. If the vaccines fail to restrain the new strain of virus, fears may flare up and the Nasdaq will again rule.

Digitization Taking the Spotlight

The touch of technology in business and health communications will be fine-fettle in 2021 as uncertainties prevail. Moreover, with the global economy striving to bounce back from the virus-led slump, corporate and social efforts to save on the cost structure will be a priority. Travels will likely be less in the post-COVID world and e-payments will gain precedence.

Biotechnology is another great area with genomics grabbing limelight. These two segments – tech and biotech – should continue to march ahead in 2021 with or without virus scare. Since the Nasdaq has great exposure to those two specific segments, 2021 has high chances of being a rewarding year for the index. In fact, the Nasdaq’s relatively restrained gains in the fourth quarter of 2020 may open up some great opportunities in early 2021.

Past Record Shows More Possibilities for Nasdaq

The Nasdaq clocked double-digit gains for two years in a row in 2020. DataTrek Research shows that the index's jump in double digits for at least three years in a row has happened four times since 1972, as quoted on investors.com. It means that the Nasdaq may witness another year of double-digit returns. "But it's tough to surprise markets three years in a row," said DataTrek co-founder Nicholas Colas, as quoted on investors.com.

The investors.com article went on to point out that since making its debut in 1972, the Nasdaq has logged four years of gains greater than 40%, according to Investor's Business Daily research. The best year after such a monumental surge was a 16.9% increment in 2010, when the market was still struggling with the last financial crisis. With the global markets still rebounding from a virus-related slump, another year of double-digit gains is highly likely for the Nasdaq.

Stock Picks

Against this backdrop, below we highlight a few Nasdaq stocks that look to be up for solid gains in 2021. These stocks' estimated growth rates are stellar.

Alpha and Omega Semiconductor Ltd. (AOSL - Free Report)

The Zacks Rank #1 (Strong Buy) stock is engaged in designing, developing and supplying a broad range of power semiconductors globally, including a portfolio of Power MOSFET and Power IC products.

2020 Price Change: 73.57%

12-Week Price Change: 41.90%

2021’s Estimated Growth Rate: 102.27%

Growth Score: B

Organogenesis Holdings Inc. (ORGO - Free Report)

The Zacks Rank #2 company is a leading regenerative medicine company focused on the development, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets.

2020 Price Change: 56.55%

12-Week Price Change: 95.1%

2021’s Estimated Growth Rate: 101.02%

Growth Score: B

Ultra Clean Holdings Inc. (UCTT - Free Report)

The Zacks Rank #2 company is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.

2020 Price Change: 32.7%

12-Week Price Change: 32.2%

2021’s Estimated Growth Rate: 208.2%

Growth Score: B

Cohu Inc. (COHU - Free Report)

The Zacks Rank #2 Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electro mechanical system (MEMS) test modules, test contactors and thermal sub-systems used by global semiconductor manufacturers and test subcontractors.

2020 Price Change: 67.1%

12-Week Price Change: 102.8%

2021’s Estimated Growth Rate: 660.7%

Growth Score: B

Advanced Energy Industries Inc. (AEIS - Free Report)

Advanced Energy Industries is a power technology company. It is one of the leading suppliers of power subsystems and process-control technologies to the semiconductor industry.

2020 Price Change: 36.19%

12-Week Price Change: 42.60%

2021’s Estimated Growth Rate: 124.2%

Growth Score: B

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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