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US Economy to Return to Growth Trajectory in 2021: 5 Top Picks

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Nalak Das
·6 min read
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The U.S. economy suffered its largest yearly decline in 2020 since the World War II and for the first time since the financial crisis of 2009 owing fully to the global outbreak of the deadly novel coronavirus. On Feb 1, the Congressional Budget Office (CBO) projected a rosy picture for the country's economy, much higher than what was projected in July 2020. The agency has changed its outlook ''because the downturn was not as severe as expected and the first stage of recovery was stronger than expected.''

At this stage, it will be prudent to invest in growth-oriented technology behemoths with a favorable Zacks Rank to maximize gains going forward.

CBO Draws a Rosy Picture

The CBO projected that the U.S. economy will expand 4.6% in 2021 after contracting 3.5% last year. The economy is expected to reach the pre-pandemic level of February 2020 by mid-2021, much earlier than what was projected in July. This is primarily attributable to the unprecedented fiscal and monetary stimulus provided in 2020.

The U.S. GDP is expected to grow at 2.6% on average during 2021-2025. The real GDP (after taking inflation into account) is projected to grow at 1.7% on average from 2026-2031.

However, the CBO cautioned that pace of the full recovery of the U.S. economy will slow down . Per the CBO, economic activities will remain at a sub-optimal level -- or maximum sustainable output -- until 2025. Moreover, the job market won't return to the pre-pandemic level until 2024. The unemployment rate is likely to decline to 5.3% at the end of 2021 compared with 6.8% at the end of 2020.

Notably, the CBO's projection will form the basis of measuring the size of next round of the coronavirus-aid package. The Biden administration has proposed a $1.9 trillion fiscal stimulus while the Senate Republicans have released a package of just $618 billion.

Why Technology Stocks?

In the long term, technology stocks will remain the best bets. It was the technology sector that had helped Wall Street to exit a coronavirus-induced short bear market to form a new bull market in 2020. This overwhelming performance prompted several economists and financial experts to comment that the technology sector is the new safe haven for investors.

We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, has given a boost to the overall space.

The thrust for digitization is likely to come from two sides. Individuals, who enjoyed immense benefits of digital platforms during the coronavirus-induced lockdowns last year, are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and AI to establish smooth supply chain systems.

The countries that are more digitized have been able to minimize their losses during the pandemic. These are major lessons to the other countries. Even those who are less inclined toward digital technology and online platforms, either because they have to learn using smartphones or tablets or due to fear of data theft, are now feeling the massive advantage of online platforms.

Our Top Picks

We have narrowed down our search to five technology behemoths (market capital > $100 billion) that have strong growth potential for both the short and the long term (3-5 years) and have witnessed robust earnings estimation revisions in the last 7 to 30 days. All these stocks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Apple Inc. 's AAPL Services and Wearables businesses are expected to drive top-line growth in fiscal 2021 and beyond. Although its business primarily runs around its flagship iPhone, the Services portfolio has emerged as the new cash cow. The company's focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul.

The Zacks Rank #1 company has an expected earnings growth rate of 36.3% for the current year (ending September 2021). It has a long-term growth rate of 11.5%. The Zacks Consensus Estimate for the current year has improved 10.9% over the last 7 days.

Microsoft Corp. MSFT has a dominant position in the desktop PC market, with its operating systems being used in the majority of PCs worldwide. The company has doubled down on the cloud computing opportunity. Moreover, it is one of the three largest providers of gaming hardware.

The Zacks Rank #2 company has an expected earnings growth rate of 26.9% for the current year (ending June 2021). It has a long-term growth rate of 11.9%. The Zacks Consensus Estimate for the current year has improved 8.6% over the last 7 days.

Facebook Inc. FB is the world’s largest social media platform. Its portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app. It continues to witness significant traction in online and mobile advertising spending.

The Zacks Rank #2 company has an expected earnings growth rate of 10.6% for the current year. It has a long-term growth rate of 19.2%. The Zacks Consensus Estimate for the current year has improved 7.5% over the last 7 days.

Texas Instruments Inc. TXN designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide. The company is seeing particular success in certain fast-growing segments of the automotive market. It operates in two segments, Analog and Embedded Processing.

The Zacks Rank #2 company has an expected earnings growth rate of 12.1% for the current year. It has a long-term growth rate of 9.3%. The Zacks Consensus Estimate for the current year has improved 11.7% over the last 7 days.

QUALCOMM Inc. QCOM designs, develops, manufactures and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, and Qualcomm Strategic Initiatives.

The Zacks Rank #2 company has an expected earnings growth rate of 71.6% for the current year (ending September 2021). It has a long-term growth rate of 19.6%. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 30 days.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>


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