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10 Best Stocks of 2021

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·12 min read
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  • ^GSPC
  • NUE
  • MRNA
  • RRR
  • NVDA
  • DVN
  • TSLA

In this article, we discuss the 10 best stocks of 2021. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Stocks of 2021.

The past ten months have been characterized by the post-pandemic economic recovery. A rebound in demand for travel as restrictions are lifted — the United States Travel Association recently welcomed non-US citizens to the country for the first time in eighteen months — and the repopulation of casinos, theatres, and restaurants has helped the stock market to record highs. Even industries like biopharma and software, which rallied during the pandemic, have continued their gains as the recovery accelerates.

The US GDP grew at a record 6.7% annualized rate between June and September this year. Stock market volumes were through the roof as retail investors, regarded as a pandemic-era market anomaly, continued to pour into equities. The increase in demand for semiconductor chips, electric vehicles, oil, and other commodities like steel, combined with supply chain issues, helped push prices, offsetting some of the blowback of the pandemic lockdowns. Even pharma firms kept pace with the new economy, announcing research into COVID-19 pills.

Several of these trends are expected to continue into the new year and investors should design their portfolios around these growth catalysts. Some of the best performing stocks of 2021 include NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), among others discussed in detail below.

Our Methodology

We picked some of the best-performing stocks of 2021 based on their year-to-date gains.

Analyst ratings and the hedge fund sentiment around each stock was also considered to provide readers with some context for their investment decisions.

The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.

Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Photo by Adam Nowakowski on Unsplash

Best Stocks of 2021

10. The ONE Group Hospitality, Inc. (NASDAQ:STKS)

Number of Hedge Fund Holders: 6

Year-To-Date Gain: 317%

The ONE Group Hospitality, Inc. (NASDAQ:STKS) owns and runs restaurants around the world that operate under the STK and Kona Grill brands. The stock has performed well this year because of the increased turnout at restaurants and eateries following almost twelve months of lockdown. In the first quarter, the operating profit margin of the firm was 18.8%. This figure jumped to a record high of 22.6% in the second quarter.

Piper Sandler analyst Nicole Miller Regan recently upgraded The ONE Group Hospitality, Inc. (NASDAQ:STKS) stock to Overweight from Neutral and raised the price target to $17 from $12, underlining that the firm had the potential for accelerated global expansion in the coming months.

At the end of the second quarter of 2021, 6 hedge funds in the database of Insider Monkey held stakes worth $4 million in The ONE Group Hospitality, Inc. (NASDAQ:STKS), down from 8 the preceding quarter worth $2 million.

Just like NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), The ONE Group Hospitality, Inc. (NASDAQ:STKS) is one of the stocks that hedge funds are buying.

9. Red Rock Resorts, Inc. (NASDAQ:RRR)

Number of Hedge Fund Holders: 26

Year-To-Date Gain: 99.6%

In addition to restaurants, another sector that has bounced back after a torrid 2020 is the casino and resorts business. Red Rock Resorts, Inc. (NASDAQ:RRR), a gambling and entertainment business based in Vegas, is one such firm. In September, the Nevada Gaming Control board reported that the monthly gaming win for August had crossed $1.17 billion, up 57% year-on-year but also 22% above pre-pandemic levels. Red Rock Resorts is a direct beneficiary of this boom, recently beating market predictions on earning per share by $0.27.

Deutsche Bank analyst Carlo Santarelli has a Buy rating on Red Rock Resorts, Inc. (NASDAQ:RRR) stock with a price target of $60. The analyst said in an investor note recently that the margins of the firm remained “elevated”.

At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $658 million in Red Rock Resorts, Inc. (NASDAQ:RRR), down from 28 the preceding quarter worth $607 million.

In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Red Rock Resorts, Inc. (NASDAQ:RRR) was one of them. Here is what the fund said:

“The shares of Red Rock Resorts, Inc., a real estate gaming, development, and management company that generates 100% of its cash flow in the Las Vegas Locals market continued to perform well in the most recent quarter. We remain optimistic about the long-term prospects for the company given the quality of its 100% owned real estate assets, the attractive and expanding Las Vegas Locals market (strong population growth), and the company’s impressive growth and free cash flow prospects. We believe the shares could appreciate by approximately 50% in the next few years.”

8. Nucor Corporation (NYSE:NUE)

Number of Hedge Fund Holders: 32

Year-To-Date Gain: 118%

Nucor Corporation (NYSE:NUE) has benefited from the increase in iron prices over the past few months as the economy roars back into life following a muted 2020. As US President Biden approves a multi-trillion dollar infrastructure overhaul plan, the stock has room to climb further because of the increased government spending on rebuilding roads, bridges, and other projects that require a lot of iron and steel.

Nucor Corporation (NYSE:NUE) will have to navigate labor shortages amid heightened demand if it can realize the gains of the post-pandemic recovery. The firm has purchased a coil processing facility and pledged $100 million to build a melt shop recently in pursuit of this goal.

At the end of the second quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $196 million in Nucor Corporation (NYSE:NUE), up from 25 in the preceding quarter worth $191 million.

In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE:NUE) was one of them. Here is what the fund said:

“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.

Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.

Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.

The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.

Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”

7. Moderna, Inc. (NASDAQ:MRNA)

Number of Hedge Fund Holders: 37

Year-To-Date Gain: 134%

Several drugmakers that market the COVID-19 vaccine have enjoyed a good start to the year and are still going strong as vaccinations continue. However, Moderna, Inc. (NASDAQ:MRNA) stands out as one of the more incredible success stories of the pharma industry during the virus crisis. The company, using cutting edge genetic sequencing, was able to develop the COVID-19 vaccine in just two days at the turn of the year, giving the stock a huge boost almost overnight.

Wolfe Research analyst Andrew Galler recently initiated coverage of Moderna, Inc. (NASDAQ:MRNA) stock with an Outperform rating and a price target of $304. Reports of the development of COVID-19 pills have also helped pharma stocks in recent weeks.

At the end of the second quarter of 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $5.7 billion in Moderna, Inc. (NASDAQ:MRNA), down from 39 in the preceding quarter worth $1.6 billion.

In its Q2 2021 investor letter, Baillie Gifford, an asset management firm, highlighted a few stocks and Moderna, Inc. (NASDAQ:MRNA) was one of them. Here is what the fund said:

“Among the top contributors to Fund performance in the second quarter was Moderna. Moderna has just reported its first profitable quarter in the company’s history – net income for the most recent quarter was $1.2 billion. It reported revenue of $1.9 billion, an impressive increase compared to $8 million a year ago, driven by the sales of its Covid-19 vaccine. Moderna is expecting to deliver up to 1 billion vaccine doses in 2021 and is in discussions to increase global supply to governments around the world. Our long-term focus remains on the transformational potential of Moderna’s technology and its ability to address different diseases.”

6. SoFi Technologies, Inc. (NASDAQ:SOFI)

Number of Hedge Fund Holders: 39

Year-To-Date Gain: 82%

In tandem with the incredible rally in cryptocurrencies this year, fintech stocks have jumped as well. SoFi Technologies, Inc. (NASDAQ:SOFI), which owns and runs an online financial services platform, debuted on the market in June this year and jumped more than 12% at the end of the first day of trading. The stock has since jumped further on the back of reports that the company will soon receive bank charter approval.

On October 11, investment advisory Morgan Stanley initiated coverage of SoFi Technologies, Inc. (NASDAQ:SOFI) with an Overweight rating and a price target of $25, backing the firm to be a “powerful revenue growth story” in the fintech market despite tough competition.

At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in SoFi Technologies, Inc. (NASDAQ:SOFI).

In addition to NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), SoFi Technologies, Inc. (NASDAQ:SOFI) is one of the stocks that is on the radar of institutional investors.

In its Q2 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and SoFi Technologies, Inc. (NASDAQ: SOFI) was one of them. Here is what the fund said:

“We invested in SoFi Technologies, Inc., an online consumer finance company or “neobank,” through a SPAC-PIPE transaction. The company was founded in 2011 to refinance student loans into lower interest rates and has since expanded into other financial services, such as bank accounts, debit and credit cards, brokerage, and cryptocurrency trading. We believe that SoFi now has the broadest product suite of any neobank in the U.S., and we view the core lending segment as a differentiated product line that few other neobanks offer. With most competitors targeting un-banked and under-banked individuals, we believe SoFi’s focus on a higher-income demographic coupled with its wide range of products positions it to be one of the leading digital banks. The company’s product breadth enables it to serve customers throughout their lives, such as offering student loan refinancing for new graduates or brokerage accounts when those graduates accumulate savings. SoFi seeks to cross-sell products to existing customers, driving higher customer engagement and retention. SoFi also owns a technology platform called Galileo that is used to power many other neobanks. We believe Galileo gives SoFi attractive exposure to the broader universe of fast-growing consumer FinTech companies. Over time, we expect SoFi to continue adding members and cross-selling additional services, which should drive improving unit economics and earnings growth.”

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Disclosure. None. 10 Best Stocks of 2021 is originally published on Insider Monkey.