Investing in stocks is always something that involves an element of uncertainty and that’s never been more true than today, when the pandemic and vaccines make a 2021 economic resurgence possible, or a prolonged pandemic due to mutations a credible alternative. There are, however, still plenty of good investing options.
What is Value Investing?
Before considering what stocks might be best value in 2021, it’s important to define what value investing actually means. According to value investing the price and intrinsic value of an asset are completely distinct matters. By using fundamental analysis, value investors seek to place their money wisely after evaluating intrinsic value by assessing related economic and financial factors. Focusing on the long term fundamentals rather than day-to-day volatility and (as always) buying as low as possible is the way to go.
For example, 2020 saw many land-based casinos close their doors due to pandemic restrictions. This actually proved to be beneficial for the stock price of some of the top iGaming companies such as Entain PLC who saw their stocks rise significantly, particularly because of the recent acquisition of a couple of online casinos as well as the rise in gambling at home during the pandemic.
Potential Investments – Biotech and Hospitality
Investing in biotech may be a good call for 2021. The sector’s stocks have grown significantly in recent years, with the SPDR S&P Biotech ETF (XBI) up 30% in 2019 and 40% at the end of November 2020. Obviously, pharmaceutical companies have a huge role in ending the pandemic through the various vaccines. Looking long term, it’s also worth reflecting that COVID-19 is far from the first new infectious disease to arise in recent years. SARS and new strains of avian and swine flu were early warning shots, and while COVID-19 has been dramatically more disruptive there’s the possibility a similar disease could arise in the future. It’s also possible we might see COVID-19 as a test run for a more dangerous pandemic in the future. Whether that happens or not, biotech stocks, such as Castle Biosciences, are worth considering.
Biotech looks like a good bet regardless of what happens with the pandemic. But if you’re confident of a swifter recovery than backing stocks in the hospitality sector, which has been substantially harmed by the disease and may correspondingly rebound, is another option. Major hotel chains have seen large declines in guest numbers and profit margins, and if you want to bet on a recovery then putting money into Hilton Worldwide Holdings and the like is one way to go. And, even if 2021 doesn’t see a full return to normality, this will happen sooner or later.
How will the Global Economy be Affected by the Pandemic in 2021?
The world has been turned upside down by the COVID-19 global pandemic, which has seen politicians struggling to maintain economic activity while at the same time attempting to limit the disease’s impact and keep healthcare systems from collapsing under the weight of infected patients. How quickly the vaccine rollout allows a semblance of normality and then a full return to business as usual is a critical consideration when contemplating where best to invest in 2021, a year that begins with the pandemic in full swing but also with multiple vaccines starting to be distributed and administered.
Potential Investments – Tech and Delivery
Microsoft has been around a while longer than fellow tech big beasts Google and Amazon, but it might be worth buying into for 2021. Cloud computing has boosted revenue for the tech giant, and there’s a modest 1% dividend for a little bit of extra income.
Another firm that looks in good shape whether the pandemic recovery is swift or slow is United Parcel Service (UPS). Profits have been enhanced by increased efficiencies, and the business is inherently well-suited to both recovery and prolonged lockdown scenarios. In the latter, shoppers will be browsing more online, increasing home deliveries. In the former, more business to business deliveries will be required. It’s also likely that there will be at least a small boost, long term, to the number of people shopping online simply due to having been forced into that during the pandemic and deciding not to go back to shopping in person.
Growth Stocks and Dividend Stocks
When it comes to stocks, there are two broad areas to look at: stocks that have the potential for growth, and stocks that pay dividends.
Growth stocks are those that rise in capital value, although they may not pay significant dividends. Online companies such as the e-wallet PayPal can be a good bet in this area, as they have shown strong growth over the last decade and a half and are more resilient in the face of potential economic effects of COVID-19 than other firms due to the nature of their business model.
Quarterly dividends can offer regular income from stocks. This adds short term income to the long term financial advantage yielded by investing in stocks with strong growth potential.
Whatever you end up putting your money into, remember to try and make sure that your investments can pay regardless of what happens with COVID-19. If you bank on either a swift or prolonged economic recovery, you might find the pandemic hitting you in the wallet.