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Top Stocks to Buy in 11 Different Sectors

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Wayne Duggan
·7 min read
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Here are the best stocks to buy in each market sector.

Heading into an uncertain and potentially volatile year like 2021, one of the best ways for investors to protect their portfolios is through the power of diversification. The Bank of America research team recently selected its best stock pick from each of 11 market sectors. Investors looking for a good place to start in 2021 should consider a basket of these 11 stocks to ensure they don't miss out on the hottest sectors or get dragged down by the coldest ones in 2021. Here's a look at Bank of America's single top stock pick from each sector.

Communication Services: Walt Disney Co. (ticker: DIS)

Analyst Jessica Reif Ehrlich says Disney's theme parks, cruises, movie studios and other businesses continue to face pandemic-related headwinds in the near term. Those headwinds make Disney an excellent economic recovery play. However, the shelter-in-place environment has also facilitated Disney's transition to a direct-to-consumer model via its Disney+ streaming service. Disney has reported robust subscriber growth with Disney+, Hulu and ESPN+. In the longer term, Disney+ price hikes could boost margins, while the resumption of feature film and TV releases is also a bullish catalyst. Bank of America has a "buy" rating and $192 price target for DIS stock.

Consumer Discretionary: Hilton Worldwide Holdings (HLT)

Hilton Worldwide shares are down about 3% overall in the past year, and for good reason. The company reported a 59.9% drop in revenue and a $79 million net loss in the third quarter as travelers opted to stay at home. Analyst Shaun Kelley says Hilton is an excellent economic recovery stock given its extremely soft year-over-year comparisons. He says shares appear fully valued based on 2021 earnings estimates, but they are cheap based on the company's long-term free cash flow yield potential. Bank of America has a "buy" rating and $95 price target for HLT stock.

Consumer Staples: Walmart (WMT)

Walmart shares performed extremely well in 2020 on the strength of robust same-store sales growth. Analyst Robert Ohmes says investors should expect Walmart's omnichannel sales strategy to keep producing results in 2021. Ohmes says Walmart will likely continue to gain market share from its brick-and-mortar competitors in the current climate. In the longer term, he says Walmart is a major winner from the "Discount Store Decade," Ohmes' name for the shift among younger American consumers from high-end, name-brand retail stores to discount retailers. Bank of America has a "buy" rating and $175 price target for WMT stock.

Energy: Chevron Corp. (CVX)

As surreal as 2020 was for everyone, it was certainly unbelievable at times for energy stock investors. In fact, the price of West Texas Intermediate crude oil temporarily dipped below $0 per barrel at one point. Oil prices have since recovered to more than $50, and analyst Doug Leggate says Chevron is an extremely attractive value stock based on his long-term earnings and cash flow projections. Leggate says Chevron should benefit from rotation to energy value stocks, and its 5.7% dividend is safe. Bank of America has a "buy" rating and $116 price target for CVX stock.

Financials: Allstate Corp. (ALL)

The financial sector has been a major market leader since the November U.S. election. Investors are optimistic about the positive impact of additional government stimulus in the near term and an economic recovery in the longer term, but bank stocks have received the bulk of the recent buying. Outside of bank stocks, analyst Joshua Shanker says Allstate is an attractive value stock, priced at just 7.9 times his 2022 earnings per share estimates. Shanker says the market appears to be materially underestimating the company's earnings power. Bank of America has a "buy" rating and $151 price target for ALL stock.

Health Care: HCA Healthcare (HCA)

Analyst Kevin Fischbeck says hospital companies like HCA Healthcare have been hurt financially by the pandemic. However, he says the vaccine rollouts give investors hope that volumes and surgeries will normalize and hospitals will be able to deploy capital more confidently by the end of 2021. Surgeries are the highest-margin volumes for hospitals, and HCA could benefit from pent-up demand after many surgeries were delayed in 2020. Fischbech says HCA is a high-quality domestic value stock poised for impressive long-term growth. Bank of America has a "buy" rating and $172 price target for HCA stock.

Industrials: Alaska Air Group (ALK)

The airline industry was unequivocally crushed by the pandemic. However, assuming air travel eventually returns to near pre-pandemic levels, the sell-off in airline stocks may have created some excellent long-term investment opportunities. Analyst Andrew Didora chose Alaska Air as his top stock pick in the entire industrial sector. He says Alaska is a value stock and an economic rebound play with extremely easy year-over-year comparisons ahead. He says domestic air travel will likely recover sooner than international air travel, which is good news for Alaska investors. Bank of America has a "buy" rating and $60 price target for ALK stock.

Information Technology: Qorvo (QRVO)

Year after year, the tech sector continues to outperform the rest of the market, and mobile radio frequency solutions provider Qorvo is analyst Vivek Arya's top tech sector stock pick in 2021. Arya says Qorvo is benefiting from increasing complexity and content in next-generation smartphones and tablets. The stock is highly exposed to long-term growth themes, including 5G wireless networks and the Internet of Things. The company has trade war exposure, but trade relations will likely improve under a new U.S. administration. Bank of America has a "buy" rating and $216 price target for QRVO stock.

Materials: Vale S.A. (VALE)

Unprecedented stimulus measures by the U.S. government in 2020 have many investors betting on stocks that could potentially benefit from inflation, and iron ore producer Vale S.A. fits that bill perfectly. Analyst Timna Tanners says Vale should benefit from a potential financial settlement related to its Brumadinho dam disaster. She says Vale should maintain at least $6 billion in annual free cash flow, and investors will appreciate the resumption of its sizable dividend. Chinese fiscal stimulus is also a bullish catalyst for Vale. Bank of America has a "buy" rating and $25 price target for VALE stock.

Real Estate: Realty Income Corp. (O)

Analyst Jeffrey Spector says Realty Income is a high-quality real estate investment trust that has a large percentage of nondiscretionary tenants. Movie theaters accounted for 75% of the company's unpaid rent as of early November. Spector says the movie theater business is the most challenged industry among Realty Income's customer base, but the vaccine rollouts could help it bounce back. Spector says the REIT's current valuation represents an adequate margin of safety given its exposure to high-risk industries. The REIT also pays a 4.8% yield. Bank of America has a "buy" rating and $74 price target for O stock.

Utilities: NextEra Energy (NEE)

NextEra Energy operates Florida Power & Light, a utility business, and NextEra Energy Resources, a deregulated wind, natural gas, nuclear and solar power generator. Analyst Julien Dumoulin-Smith says NextEra should benefit from both bullish investor sentiment related to renewable and alternative energy and bullish policies under the Joe Biden administration. He says the stock is attractive for environmental, social and governance, or ESG, investors, an increasingly important theme among younger investors. In addition, potential hydrogen-related opportunities could provide upside for NextEra in the long term. Bank of America has a "buy" rating and $81 price target for NEE stock.

Top stocks in each sector:

-- Communication Services: Walt Disney Co. (DIS)

-- Consumer Discretionary: Hilton Worldwide Holdings (HLT)

-- Consumer Staples: Walmart (WMT)

-- Energy: Chevron Corp. (CVX)

-- Financials: Allstate Corp. (ALL)

-- Health Care: HCA Healthcare (HCA)

-- Industrials: Alaska Air Group (ALK)

-- Information Technology: Qorvo (QRVO)

-- Materials: Vale S.A. (VALE)

-- Real Estate: Realty Income Corp. (O)

-- Utilities: NextEra Energy (NEE)