Editor’s Note: “The 12 Best Stocks to Buy for a Whole New Year of Return in 2021” was released on December 4th. It has since been updated to include the most important information available.]Back in July, I recommended seven of the best stocks for 2021 and beyond. As a group, they have done very well over the past three months. For example, Livongo Health was acquired by Teladoc Health (NYSE: TDOC) on October 30 for $ 11.33 per share in cash and 0.592 times shares of Teladoc.
In search of a twist in my stock selection process, I decided that this list would be based on the first letter of every 12 months. This means that my January stock pick will have a company name that starts with J, then an F for February, and so on. InvestorPlace – Stock market news, stock advice and trading tips
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All 12 will also have a market cap of $ 2 billion or more and positive free cash flow for the past 12 months. Until this point next year, I am confident that my choices, by and large, will not disappoint.
So, without further ado, here are my 12 best stocks for a brand new year:
Johnson & Johnson (NYSE: JNJ)
Fidelity National Information Services (NYSE: FIS)
McDonalds (NYSE: MCD)
Adobe (NASDAQ: ADBE)
MercadoLibre (NASDAQ: MELI)
Johnson Controls (NYSE: JCI)
Jeld-Wen Holding (NYSE: JELD)
Apple (NASDAQ: AAPL)
SVB Financial (NASDAQ: SIVB)
Otis Worldwide (NYSE: OTIS)
NextEra Energy (NYSE: NEE)
Dollar General (NYSE: DG)
Stocks To Buy: Johnson & Johnson (JNJ)
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Johnson & Johnson represents January on my list of the best stocks to buy for 2021. It is currently a sideways year for the markets. The YTD total return through December 4th is only 2.6%.
Based on a trailing 12 month free cash flow (FCF) of $ 18.3 billion and a current enterprise value (EV) of over $ 399 billion, JNJ’s FCF return is a sensible 4.7%. It might not be an area of value – I think anything over 8% is cheap – but it’s damn good.
As InvestorPlace colleague Faisal Humayun recently stated, JNJ shares have an excellent product offering.
“From a business perspective, the company offers diversified exposure to consumer health, pharmaceuticals and medical devices,” wrote Humayun. “The growth of the company’s pharmaceuticals segment in the third quarter of 2020 was impressive as most of its therapeutic areas were strong.”
Not to mention, JNJ is still very strong in the Covid-19 vaccine race. This suggests 2021 could be a breakout year for this dividend aristocrat.
Fidelity National Information Services (FIS)
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Next on my list of the best stocks for February is Fidelity National Information Services. Overall, this payment processor is not having a good year compared to the US markets. It is only a fraction lower than it was at this time last year.
Based on a trailing 12 month free cash flow of $ 2.57 billion and an enterprise value of $ 109.75 billion, Fidelity National’s FCF return is very decent at 3.8%.
You won’t find much comment on this stock from InvestorPlace staff, despite the fact that it does play a role on the tech side of the financial services industry.
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However, on November 19, the Florida-based company announced that it had ranked first in a ranking of 100 leading risk and compliance technology providers for the sixth consecutive year.
While Covid-19 has slowed the speed at which FIS can process transactions, it nonetheless managed to achieve organic sales growth of 1% to approximately $ 3.2 billion in the third quarter. The company also increased adjusted net income 18% to $ 887 million.
So this isn’t a glamorous stock, but its services are certainly in demand.
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To represent March for the year ahead, I picked the golden arcs of MCD stock. Like many of the names on this list, McDonald’s has a good year ahead of it, up around 7% year-to-date. That’s better than many of his restaurant counterparts, but it follows US markets overall.
Thanks to the Covid-19 shutdown, McDonald’s trailing 12-month free cash flow is nowhere near as strong as usual at $ 4.25 billion. Currently, the industry leader has an FCF return of 2.7% on an enterprise value of around $ 205 billion.
Despite being in one of the hardest hit industries, McDonald’s has continued to look beyond the novel coronavirus and continually seek ways to transform its business without annoying its core customer.
For example, Beyond Meat (NASDAQ: BYND) recently gave the cold shoulder by announcing it would be testing a number of meat-free alternatives in 2021, including the McPlant burger. Interestingly, despite developing the plant-based burger with input from Beyond Meat, the fast food company decided to go its own way.
The decision to start your own business had two reasons. First, MCD didn’t want to alienate its meat-loving customers. Second, it’s not a fan of letting licensees and other brands into its home. Beyond Meat would certainly have given the Golden Arches a bit of shine.
McDonald’s has had a tough time, but it keeps recovering. That makes it one of the best stocks for the coming year.
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Adobe, the mastermind behind PDF and much more, is my choice for April. It’s just had an excellent year in the markets with a total YTD return of over 47%.
That’s vastly better than either its software counterparts or the US market as a whole, making it one of the best stocks to buy right now.
Adobe’s trailing 12-month free cash flow is $ 4.9 billion, while the enterprise value is nearly $ 232 billion with an FCF return of 2.1%. Both the enterprise value and the EV EBITDA multiple have also increased dramatically over the past five years.
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In 2016, the company had an enterprise value of $ 48 billion and EV EBITDA of 26.1. The stock currently has an EV EBITDA multiple of 48.3.
In early February, I said that ADBE stock would almost certainly reach $ 400 in 2020. I think it’s far from certain that we might hit $ 600 in 2021.
Source: rafapress / Shutterstock.com
MercadoLibre is sometimes referred to as the Amazon (NASDAQ: AMZN) of Latin America, although it is more similar to Alibaba (NYSE: BABA). For my list of the best stocks to buy in 2021, this is May.
Currently, MELI stock is having a fantastic year in the markets with a total YTD return of almost 200%. Like Adobe, MercadoLibre is far better off than its internet retail counterparts and the US markets as a whole.
This company’s trailing 12 month free cash flow is $ 810 million, while its enterprise value is nearly $ 76 billion with an FCF return of 1.1%. While this may seem low, MercadoLibre’s free cash flow has never been higher. Likewise, its earnings burn and grow like weeds.
True to the Amazon comparison, this name is also likely to see exponential growth in free cash flow over the next few years.
I’ve been a fan of the company since 2013 when it was trading around $ 120. At the time, I argued that it had a dominant position in Latin American e-commerce and its stock would benefit from it.
As of this writing, stocks are valued at around $ 1,700 and will rise in 2021.
Johnson Controls (JCI)
There aren’t many great companies that start with a J in their name. There are even fewer with strong free cash flow. Even so, Johnson Controls represents June on my list of the best stocks to buy.
Interestingly, JCI stock is doing better in 2020 than it has for some time, although it is generally just in line with the YTD performance of US markets as a whole. Over the past five years, shareholders achieved a total annual return of around 9.1%, well below the markets.
However, with an increase of nearly 14% over the past three months, the company appears to be picking up momentum on its way into 2021.
In early November, Johnson Controls also announced fourth quarter results, which were excellent despite the challenging business environment. In fiscal 2020, the company had sales of $ 22.3 billion and net income of $ 1.69 billion.
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That’s not bad for a company that makes, installs, and maintains products for offices, industrial property, and other types of commercial property, all of which have been hit by the pandemic.
Johnson Controls’ 12-month trailing free cash flow is nearly $ 1.8 billion, while the enterprise value is approximately $ 39 billion with an FCF return of 5.3%.
I consider JCI a good stock for risk averse investors who also like a little dividend income – the dividend yield is currently 2.28%.
Jeld-Wen Holding (JELD)
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JELD stock is by far the smallest of the 12 names on this list and has a market capitalization of $ 2.42 billion. This manufacturer of windows and doors represents the month of July on my list of the best stocks to buy.
At the end of January 2017, Jeld-Wen went public at USD 23 per share.
Now, however, if you bought and still hold shares in its IPO, you have made almost no money on your investment. Since the beginning of the year, the total return has been well below the booming returns of the peer group of construction products and the equipment industry. These stocks have mainly benefited from Covid-19.
The company’s trailing 12 month free cash flow is $ 250 million, while the enterprise value is $ 3.8 billion with an FCF return of 11.3%.
However, on November 3, the company reported third quarter results that were better than analysts’ expectations. The bottom line was sales of $ 1.11 billion, $ 2 million above consensus estimate. The bottom line was adjusted earnings per share of 52 cents, eight cents more than analysts expected.
“Consumer focus on their homes, coupled with our strategy of generating profitable market share with key customers, is driving demand for products in both new home construction and repair and remodeling channels,” said Gary Michel, President and CEO.
With the focus still on homes in 2021, I expect Jeld-Wen to get out of his funk and do it well.
Source: WeDesing / Shutterstock.com
For August, the famous maker of the iPhone is the next choice on this list. However, if a month started with the letter B, I would recommend Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) as this is a much better value game and happens to own nearly 965 million AAPL shares.
Apple’s total YTD return is over 66%, which sounds pretty normal considering the total annual return of nearly 30% over the past 15 years. I would take it any day of the week.
Free cash flow and enterprise value are nearly $ 73.4 billion and $ 2.1 trillion, respectively. This is an FCF return of 3.5%, a great valuation for one of the world’s largest public companies.
Simply put, Apple has become so much more than a smartphone maker.
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According to AppleInsider.com, Apple’s new “Mac Mini with M1 equipment” jumped to number one in sales after only two weeks of availability on the Japanese market for desktop computers. In addition, Apple now has a 27% market share in Japan, up from around 13% last year.
So I don’t think you can go wrong in the long run if you own Apple. It’s clearly one of the best stocks to buy for the coming year.
SVB Financial (SIVB)
Next, the representation of the month of September is my favorite bank in the US. SVB Financial is the holding company that operates Silicon Valley Bank, the Santa Clara-based financial institution focused on entrepreneurs and innovators.
It’s been a great year at the moment compared to my colleagues in regional banking. While SIVB stock is up nearly 43% since the start of the year, most of its competitors have fallen. It also leaves the US markets in the dust. Even so, I won’t notice the free cash flow for this name as it doesn’t matter to any banking institution. Instead, what matters most is the balance sheet.
SIVB reported results for the third quarter of 2020 with earnings per share of $ 8.47, almost double the previous year’s figure ($ 4.42 per share).
“We had an exceptional quarter, driven by excellent balance sheet growth, higher core fee income, strong investment banking income, solid credit that led to a reduction in reserves, and oversized stock gains related to client IPOs,” said Greg Becker, President and CEO. “These results reflect the resilience of our markets and our ability to operate effectively.”
SIVB was on my list of the top five stocks to buy for the next 20 years in 2013, right up there on Amazon. I think you owe it to yourself to check it out in 2021.
Otis Worldwide (OTIS)
Source: rafapress / shutterstock.com
In early April, this elevator company was spun off from United Technologies, which merged with Raytheon (NYSE: RTX) to become one of the world’s largest aerospace and defense companies.
While there won’t be a full 12-month track record through April, this representative is up 43.5% for the month of October since the start of the year, suggesting 2021 could do a great job.
For the past 12 months, Otis has free cash flow of $ 1.47 billion and an enterprise value of approximately $ 33 billion. This corresponds to an FCF return of 5.2% and is therefore inexpensive.
Additionally, the company’s third quarter results show that it can hold its own during the pandemic. Organic revenue decreased 1.2% to $ 3.3 billion in the third quarter of 2020, while operating income rose 7% on an adjusted non-GAAP basis. The operating margin also increased by 120 basis points to 15.4%.
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In November, Toronto-based portfolio manager Christine Poole made OTIS stock one of her top three picks on BNN Bloomberg’s Market Call, suggesting that her 17% global elevator market share is an excellent long-term investment with a great balance between sales and service represents at 57% and 43% respectively.
That makes it worth buying these best stocks for 2021. Can you tell recurring income?
NextEra Energy (NEE)
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I recently recommended this Florida-based utility for its renewable energy business, NextEra Energy Resources, which generates nearly 40% of total profits. I contend that NEE stock is one of the best stocks for 2021, making November on this list.
NEE stocks are a thing of beauty when constant returns are your thing. YTD it’s up about 20%. Total annual returns of 25.1%, 26.8% and 20.5% have been achieved over the past three, five, and ten years. Let’s say it crushes its peers during one of these time periods.
NextEra’s free cash flow over the past 12 months is $ 2.1 billion while its enterprise value is $ 190 billion, representing a -3.2% FCF return. So it’s certainly not cheap.
However, InvestorPlace’s Mark Hake made an interesting observation on Nov. 25 when he suggested that NextEra would buy another utility company with its strong share price. As Hake would agree, this is capital allocation 101.
NextEra made overtures to Duke Energy (NYSE: DUK) and Evergy (NYSE: EVRG). Both refused the offers. However, I am sure that something will soon change. As Hake said, a bid could come with more money.
What I know for sure is that NextEra is one of the best run utility companies in North America.
Dollar General (DG)
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The last month of the year represents Dollar General, the dollar store discount chain with 17,000 locations in 46 states. It’s another strong year, up nearly 37% year-to-date. Combine that with a 10-year annualized total return of 20.8% and you have one hell of a long-term investment.
Trailing 12-month free cash flow is $ 3.1 billion and the enterprise value is nearly $ 64 billion. Currently the FCF return is 5.9%.
On November 14, the company announced the opening of its 17,000th store in Fountain, Colorado. As a kind gesture to the community, Dollar General donated $ 17,000 to one of the local schools.
“Since our inception more than 80 years ago, we’ve focused on helping customers save time and money,” said CEO Todd Vasos in the company’s press release announcing the event.
In my book, the hallmark of a successful company is helping customers save time and money.
Back in November, I recommended Dollar General as one of three stocks with relative values compared to Nio (NYSE: NIO), the Chinese manufacturer of electric vehicles. And while I like Nio long term, buying short term at current prices isn’t a name. DG stocks are much more down to earth.
As long as workers have money to save, Dollar General’s business remains a solid bet. That, in turn, makes it one of the best stocks to buy given the uncertainty of 2021.
At the time of this writing, Will Ashworth held positions (either directly or indirectly) in any of the securities identified in this article.
Will Ashworth has been a full-time investing writer since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the US and Canada. He particularly enjoys creating model portfolios that will stand the test of time. He lives in Halifax, Nova Scotia.
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