With the earliest doses of a vaccine being distributed to frontline workers and other vulnerable populations, investors are increasingly bullish about what the 2021 stock market may have in store. But, some experts aren't convinced. For example, at a virtual summit for the Financial Times in November, legendary hedge funder Bill Ackman expressed his concern that the prospect of a light at the end of the tunnel would cause the general public to revert to laxity, promoting a surge in coronavirus cases and another market downturn.
Whether or not the market will dip again before a COVID-19 vaccine becomes widely available is anyone's guess. The good news is, the way you structure your basket of stocks and investing approach is entirely up to you. If you're concerned about another recession putting a dent in your portfolio, consider these three companies that can bring you growth and value for years to come.
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West Pharmaceutical
West Pharmaceutical Services (WST -0.42%) certainly isn't the most glamorous of stocks, but this company that makes drug packaging and delivery products has had a remarkable year even as other healthcare companies struggle against pandemic headwinds. The company qualifies as a large-cap stock, with a current market capitalization of nearly $21 billion. Shares have risen 83% since the beginning of the year, a sign that investors are increasingly paying attention to this lesser-known stock. West Pharmaceutical also pays a dividend, albeit a modest 0.24%.
The primary reason West Pharmaceutical has fared so well during the pandemic is the nature of its product portfolio. As a "a leading manufacturer of packaging components and delivery systems for injectable drugs and healthcare products", the company's products are always going to be in demand, regardless of market conditions. This makes it an attractive buy and a solid choice to counterbalance riskier stocks in your portfolio.
During the first, second, and third quarters of 2020 (ended March 31, June 30, and Sep. 30), the company recorded 10.8%, 12.2%, and 20.1% net sales growth, respectively, from the same quarters in 2019. West Pharmaceutical also reported double-digit increases to its adjusted diluted and reported diluted earnings per share during each of these quarters. Between January and September, the company grew its operating cash flow by more than 24% compared to the corresponding stretch in 2019, the result of which was it closing the third quarter with $519 million in cash and cash equivalents and only $256 million in debt on its balance sheet.
Management has said that it expects West Pharmaceutical's full-year organic sales to grow between 14% and 15% from last year. Previously, management had estimated 12% organic sales growth for 2020, so this guidance boost is a testament to the company's stellar performance in the worst-hit economy since the Great Depression. With analysts forecasting more than 20% annual earnings growth for West Pharmaceutical over the next five years alone, this stock is an ideal candidate for buy-and-hold investors.
Apple
If ever there was a recession-proof stock to buy, Apple (AAPL -0.74%) is unequivocally it. Apple's sales growth can't be characterized as above average, but it is consistent. During fiscal 2020 (ended Sep. 26), Apple grew its total net sales 6% from fiscal 2019. The company also posted net sales increases every quarter of fiscal 2020 – 9% in the first quarter (ended Dec. 28), 1% in the second quarter (ended March 28), 11% in the third quarter (ended June 27), and 1% in the fourth quarter.
Apple's Services, Wearables, and Mac product segments led its revenue growth throughout the fiscal year. CEO Tim Cook commented on the company's fiscal 2020 financial performance, "Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive." Incidentally, it's been reported that Apple plans to increase iPhone production by 30% next year, which should fuel significant top and bottom-line growth.
Besides its dependable financial performance, investors also like Apple for its dividend, which currently yields 0.7%. In the fourth quarter of fiscal 2020 alone, Apple paid out almost $22 billion to its shareholder base, a figure representing almost a third of its total net sales during that period ($64.7 billion).
Apple's dividend yield is admittedly less than that of the average stock on the S&P 500 (2%). But in a day and age where companies have had to cut or suspend dividends altogether, Apple's history of faithfully paying and increasing its dividend is worth its weight in gold. The continued high demand for Apple's products also makes it a force to be reckoned with and a worthy addition to your investment portfolio for 2021 and beyond.
Snap
Social media stock Snap (SNAP -1.31%) is primarily known for Snapchat, an app that at last record boasted 249 million daily active users. Shares of the company have jumped from just $17 in January to approximately $53 each at the time of this article as investors take increased notice of just how much upside the stock has to offer.
During the first three quarters of 2020, Snap achieved meaningful year-over-year growth in terms of its top line, as well as its operating cash flow and daily active users. The company reported revenue growth of 44%, 17%, and 52% during these quarters, while its operating cash flow rose 109%, 31%, and 28%. Daily active users surged 20%, 17%, and 18% during these periods.
Snap has managed to achieve unbelievable growth without compromising the strength of its balance sheet. At the close of the third quarter (ended Sep. 30), it had $824 million cash on its balance sheet, and $610.1 million in current liabilities, so investors needn't worry about the the company's ability to meet its debt obligations.
Analysts seem particularly enthused about Snap's earnings outlook over the next half decade. They expect that the company will grow its earnings by nearly 70% every year during the forecast period, which seems reasonable given its consistent revenue growth over the past few years. Consider that in 2017, 2018, and 2019 alone, Snap's revenues surged 104%, 43%, and 45%, respectively.
Snap is the ideal stock for the stay-at-home era, both because it provides a popular venue for entertainment and a way for people to stay connected as extended lockdowns keep them physically apart. But, its business model will stay relevant long after a vaccine is broadly available to the general public, which makes the company a compelling buy in any market scenario.
