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5 Up-and-Coming Stocks in Red-Hot Sectors for 2021

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·8 min read
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So far, 2021 has been a year full of high hopes surrounding a global economic recovery. With vaccine rollouts at almost full speed in many countries, the expectations for a return to “normal” are very high. However, with the U.S. indices also at record highs, it has become challenging to find up-and-coming stocks this year. These are names that have great prospects but are not too overvalued.

For this list, I have found five stocks from different sectors that I believe you should monitor. All of these picks have great fundamentals, could deliver nice returns in 2021 and will add diversification to any portfolio.

That said, now is not the time to let your guard down. True, some stocks are attractive now and not too overpriced. But it’s important that you tread lightly. At an event hosted by The Atlantic, former U.S. Federal Reserve chair and current Secretary of the U.S. Treasury Janet Yellen noted the following: “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”

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This partially caused a selloff of tech stocks back on May 4. It may also mean that the Fed could raise rates sooner than expected. That should be a negative factor for stocks in terms of their valuation.

So, all of these factors in mind, here are five up-and-coming stocks to consider as we move further into 2021.

  • Alibaba (NYSE:BABA)

  • Intel (NASDAQ:INTC)

  • JPMorgan Chase (NYSE:JPM)

  • Enterprise Products Partners (NYSE:EPD)

  • Lowe’s (NYSE:LOW)

Up-and-Coming Stocks: Alibaba (BABA)

Alibaba (BABA) logo displayed on phone screen in person's hands
Alibaba (BABA) logo displayed on phone screen in person's hands

Source: Jirapong Manustrong / Shutterstock.com

Sector: Consumer cyclical
Industry: Internet retail

Why should you consider a stake in Alibaba stock? For starters, e-commerce is expected to boom in the post-pandemic era. Right now, BABA stock is down 2.4% year-to-date (YTD) but has a one-year return of 16.4%. This name has a trailing 12-month price-earnings (P/E) ratio of 23.67. Moreover, Zacks expects earnings per share (EPS) growth of 17.15% for the next three t0 five years. So, the stock is not too expensive now and has a lot of future growth.

On top of that, amid a tough 2020, sales managed to rise some 35% year-over-year (YOY) to 509.7 billion RMB ($71.9 billion) (Page 102). But revenue is just one positive among many points for BABA stock. For instance, net income growth is another area where BABA shines; the company maximizes shareholder value with a business model that converts sales into net profits. In 2020, net income surged to 140.3 billion RMB ($19.8 billion), or an increase of 75% YOY.

Alibaba is expected to be among the top leaders in global e-commerce in the years to come. That lands it a well-deserved spot on this list of up-and-coming stocks.

Intel (INTC)

Sign of Intel at entrance of The Intel Museum in Silicon Valley
Sign of Intel at entrance of The Intel Museum in Silicon Valley

Source: JHVEPhoto / Shutterstock.com

Sector: Technology
Industry: Semiconductors

Today, Intel is up 15.7% YTD and still has a very attractive trailing P/E ratio of 12.35. INTC stock also has a annual dividend of $1.39 and a forward yield of 2.43%. Additionally, this company is set to benefit from the “CHIPS for America Act” and investments in domestic semiconductor manufacturing and research.

How so? Well, Intel is a tech giant with a strong, innovative focus on product development as well as a solid, dominant market share of the technology sector. But that’s not the only thing to like about INTC. On Apr. 22, the company even announced first-quarter earnings that were better than expected.

According to Investor’s Business Daily, “Intel earned an adjusted $1.39 a share on sales of $19.67 billion in the March quarter. Analysts had expected Intel earnings of $1.15 a share on sales of $17.86 billion. On a year-over-year basis, Intel earnings and sales both dipped 1%.”

That said, Intel’s Q2 earnings guidance disappointed and the stock still fell after the release. However, while there are declining sales YOY for the past three consecutive quarters, I am optimistic that Intel will soon recover and deliver even stronger results.

Intel increased revenue by 8.2% to $77.87 billion in 2020. Additionally, some more positive INTC news has already come to light; the company “has announced massive plans for investments in improving its products.” More specifically, Intel will be spending $3.5 billion on its semiconductor packaging and 3D packaging technologies.

Right now, many tech stocks look too overvalued at their current price. This pick of the up-and-coming stocks, however, looks like a tech bargain. With expected EPS growth of 7.5% for the next three to five years, INTC is definitely attractive.

Up-and-Coming Stocks: JPMorgan Chase (JPM)

A sign for JP Morgan Chase & Co (JPM).
A sign for JP Morgan Chase & Co (JPM).

Source: Bjorn Bakstad / Shutterstock.com

Sector: Financial services
Industry: Banks (diversified)

Of course, an economy poised for a rebound also needs to rely on a strong banking system. That’s part of why I’ve put JPMorgan Chase on this list of up-and-coming stocks for the recovery. JPM is a U.S. mega-bank that can benefit from any sooner-than-expected increase in interest rates, per the comments of Janet Yellen.

Low interest rates have reduced the bank’s net interest income, which is the difference between the interest it earns from lending money and what the bank pays to its depositors. In 2020, net income fell a little over 20% to $29.1 billion. That’s compared to a net income of $36.43 billion in 2019.

Now, though, JPM stock is well-positioned for an economic rebound in 2021. Even this name’s Q1 earnings were stronger than expected. According to CNBC, “The bank posted first-quarter profit of $4.50 a share […] higher than the $3.10 per share expected by analysts surveyed by Refinitiv […] Revenue of $33.12 billion exceeded the $30.52 billion estimate, driven by the firm’s trading operations.”

Currently, JPM stock has rallied more than 77% in one year and is up 26% YTD. I still argue that it’s very attractive today, with a trailing P/E ratio of 13.58. It also has an annual dividend and yield of $3.60 and 2.24%, respectively.

Enterprise Products Partners (EPD)

Natural gas pipeline through green field with blue sky above
Natural gas pipeline through green field with blue sky above

Source: Shutterstock

Sector: Energy
Industry: Oil and gas midstream

EPD stock is a value stock and a pick in the energy sector. With crude oil prices touching highs and strong energy demand, either or both crude oil and natural gas should be supportive for this company’s financial results. Of course, Enterprise Products Partners was hurt a lot in 2020 — the year was tough for energy stocks all around. At one point last year, for a very short time, a barrel of crude oil dropped to -$37.63 in the futures market.

Ever since, though, the rebound in the commodities markets has been significant. Moreover, EPD stock has performed well, with a return of 18.4% YTD and 37.7% for the past one year.

On the whole, this company has four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services and Petrochemical & Refined Products Services. The Crude Oil Pipelines & Services segment operates crude oil pipelines. If crude oil prices remain high during 2021, they should be able to boost the overall profitability of the company.

With a trailing P/E ratio of 10.87 and a forward dividend and yield of $1.80 and 7.74%, respectively, this stock is a value play and an income deliverer. As such, even if the market gets bumpy for the rest of 2021, this pick of the up-and-coming stocks will provide some assurance in the form of dividends.

Up-and-Coming Stocks: Lowe’s (LOW)

the front of a Lowe's store
the front of a Lowe's store

Source: Helen89 / Shutterstock.com

Sector: Consumer cyclical
Industry: Home-improvement retail

Last up on my list of up-and-coming stocks, this home-improvement retailer is a pick for a strong U.S. housing market in 2021. If we start to see a boom in home-improvement spending, LOW stock could deliver very strong profits due to the broader macroeconomic outlook.

For starters, the pandemic seems to have had little impact on Lowe’s revenue this past year, which increased a little over 24% to $89.6 billion, up from $72.15 billion in 2019. That said, net income growth did slow in fiscal 2021, up 36% YOY to $5.83 billion. In fiscal 2020, net income had grown 85%, from $2.31 billion in 2019 to $4.27 billion.

Looking at its trailing P/E ratio of 23.3, though, LOW stock is still not too bad in terms of valuation. The stock has rallied 29.3% so far in 2021 and is up 89.3% for the past one year. Plus, even though the company “reiterated its prior forecast, which says spending on DIY projects and home improvement could ease as consumers resume normal activities post-pandemic,” the fourth-quarter earnings were a beat.

Finally, Lowe’s had a surge in free cash flow in 2021, up to $9.26 billion or an increase of over 229% YOY. That’s another very positive financial metric, both for valuation and for further business expansion– or even to buy back shares. Today, this stock sports a forward dividend of $2.40 and a yield of 1.17%.

On the date of publication, Stavros Georgiadis, CFA did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

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