Top Sectors for 2021

We made a lot of money for readers in 2020 despite the global pandemic and related lockdowns. 

The money printing from central banks to combat the economic slowdown was enough to inflate many asset groups. 

The S&P 500 delivered over 13% returns for the year, which is well above average. 

But with certain sectors affected more than others because of lockdowns, the average doesn’t begin to tell the entire story. 

Think American Airlines (NASDAQ: AAL) versus Zoom (NASDAQ: ZM). 

The NASDAQ, with its tech-heavy weighting, was up more than 37% for the year!

Other top performers included biotech stocks, with the S&P Biotechnology Select Index (INDEX: SPSIBI) up nearly 50% for the year. And precious metals stocks with the Philadelphia Gold and Silver Index (INDEX: XAU) up 29%.

What didn’t do so hot in 2020?

Energy, plain and simple.  The S&P 500 Energy Index (INDEX: IXE) was down 32% for the year. That’s more than three times worse than the second worst performing sector: Financials (INDEX: IXM), down 7%. 

So what’s next? What can we look forward to in the markets in 2021? 

Top Sectors for 2021

Technology

Expect technology stocks to continue to do well in 2021 driven by fundamental shifts in how we’re now working and recreating. 

Two stocks to like here are:

Microsoft (NASDAQ: MSFT) — Microsoft is the second-largest weighting in the S&P Technology Index behind Apple. It’s what everyone owns. At a US$1.6 trillion market cap, it is one of the largest companies in the world. It’s one of the big places liquidity goes. And there is a lot of liquidity in the system with the world’s central banks running the printing presses full speed. Microsoft will also do well because it’s a good business. It’s profitable, which is a rarity on Wall Street these days, with a price to earnings ratio of 33.95. And it yields just over 1%, which is more than bonds can say. 

Visa (NYSE: V) — Visa is the third-largest weighting in the S&P Technology Index. The number of new businesses being created as millions of people lost their jobs coupled with the vast rise in BOPIS (Buy Online Pick Up In Store) is driving growth at Visa, which processes nearly twice as many transactions as Mastercard. There is also a bit of a recovery in credit spending underway. 

Materials

The materials sector includes metals and mining. And with gold, copper, palladium, and rare earth prices inflating higher, the companies that mine them are poised to do well in 2021. In mining, your costs typically are fixed, so when the value of what you’re mining goes up what you get is leverage. It’s this leverage that torques materials stocks.

Two stocks to get some of that leverage are:

Newmont Corporation (NYSE: NEM) — Newmont is the fifth-largest weighting in the S&P Materials Index. It is the world’s number one gold producer, slated to produce greater than seven million gold equivalent ounces per year through 2029. It also produces silver, copper, lead, and zinc. With recent higher metals prices, the bottom line at Newmont has improved. It delivered record free cash flows in 2020 and hiked its dividend twice. It now yields over 2%. And we expect this to continue into 2021.

Freeport-McMoRan (NYSE: FCX) — Freeport is the seventh-largest weighting in the S&P Materials Index. It is one of the world’s largest mining companies, focusing on large, long-lived assets with significant reserves of copper, gold, and molybdenum. It is also growing revenues and expects to reinstate its dividend, which it suspended in 2020, in 2021. That will bring in a new class of buyers. 

Energy 

Energy was the worst-performing sector of 2020, but began to show life at the end of the year. As the cycle is concerned, energy is due to come back. But not just oil and gas. Cleantech is back in a big way. And with a new and supportive presidential administration, clean and renewable energy — including solar, wind, and nuclear — are going to get a bump. 

Two energy stocks for 2021 are:

Exxon Mobil (NYSE: XOM) — It’s the go-to, despite now being the second-largest weighting in the S&P Energy Index behind Chevron. Exxon looks better fundamentally. It is profitable. And it is yielding nearly 8%. 

First Solar (NASDAQ: FSLR) — Going outside the S&P index here to harness some of the cleantech trend. First Solar has been a leader in thin film for a decade. It reported a quarter of 400%+ net income growth in Q3 2020, and with support coming from a Biden administration things are looking even better for 2021.

Cannabis

Cannabis isn’t an S&P sector at all. I’m throwing it in as a bonus. 

After the election, 15 states now have legalized adult recreational cannabis use, including liberal bastions like South Dakota and Montana. Every single state that had legalization on the ballot approved it. 

Another 22 states have medical programs.

At the national level, the House voted last week to decriminalize cannabis with no chance of Senate approval on Mitch’s watch. But it’s a big signal where things are headed.

Multi-state operators (MSOs) are seeing the bulk of the action. These stocks will rip when cannabis gets removed from the Controlled Substance Act (CSA).

The ten largest cannabis firms in the U.S. are expected to generate US$5.5 billion in sales next year, up from $3.3 billion this year. Topline revenues are expected to grow at a 50%-100% clip with 30-40% gross margins for the next few years.

A good way to get access to cannabis multi-state operators in the US is with the AdvisorShares Pure US Cannabis ETF (NYSE: MSOS).

MSOS is the first and only actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators. 

It is 100% US-focused. It is over 57% weighted to multi-state operators. 

Its top four holdings as of December 2020 are:

• Curaleaf Holdings (CSE: CURA)(OTC: CURLF)

• Green Thumb Industries (CSE: GTII)(OTC: GTBIF)

• Cresco Labs (CSE: CL)(OTC: CRLBF)

• Trulieve Cannabis (CSE: TRUL)(OTC: TCNNF)

To spread the risk in this still quickly evolving sector buying the ETF makes sense for most investors. 

What’s Next? 

The experts at Daily Profit Cycle have generated significant profits for themselves and their readers in the markets. 

We do this in the long-term by seeking out quality companies in the market’s top sectors. These companies often pay you in the form of dividends as well as capital appreciation. 

And we do it in the short- and medium-term by identifying and capitalizing on trends and transitory market moves — or cycles. 

We expect the coronavirus and global government’s response to it to continue propelling US stocks higher through at least the first and second quarter of 2021. This inflation will also translate into energy and commodity prices, which should be positives for energy and commodity stocks. 

Our premium research publications cover nearly every facet of the market — from conservative strategies using dividends and value to speculations in energy, commodities, and currencies. 

Check them out here. 

Call it like you see it, 

Nick Hodge

Editor, Daily Profit Cycle

Nick Hodge is the co-owner and publisher of Daily Profit Cycle and Resource Stock Digest. He's also the founder of Hodge Family Office, the umbrella organization for his three premium services: Hodge Family Office, Family Office Advantage, and Foundational Profits. He specializes in private placements and speculations in early stage ventures, and has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world.