With 2020 practically in the history books, it's not too early to start thinking about 2021. And while nobody knows what the big investing trends will be in the new year, the best time to invest in a growth stock is before everyone else starts scooping up shares.
With that in mind, we asked three of our Motley Fool contributors what stocks they think are set to take off in 2021. They came back with PTC ( PTC 3.32% ), Clean Energy Fuels ( CLNE 3.78% ), and Intuitive Surgical ( ISRG 0.67% ). Here's why.
An industrial revolution is among us
Lee Samaha (PTC): The industrial software company's stock has had a great 2020 -- up 57% this year at the time of writing -- and I think there's more to come in 2021. Trading at 42 times 2021 earnings estimates, PTC is definitely not a superficially cheap stock.
However, growth stocks are, by definition, bought for their future growth prospects rather than current valuations, and PTC has a lot of growth ahead of it. In a nutshell, the company is a play on the increasing adoption of digital technologies in the factory. Management sees its core activities, namely computer aided design (CAD) and product lifecycle management (PLM) software, as having high-single-digit growth potential over the medium term.
However, the real excitement is around its internet of things (IoT) and augmented reality (AR) solutions, which management sees growing at annual rates of 26% and 60% over the medium term. The benefits of IoT, AR, and digital technologies are numerous and growing in importance.
For example, PTC's IoT solutions connect a factory owner's physical assets to the digital world. This enables them to be digitally modeled and/or analyzed in order to optimize performance and predict when they need servicing. Meanwhile, AR allows technicians to monitor and service equipment without even being physically present.
Given that PTC's valuation will be modeled on its growth prospects, it's likely that any increased adoption of its software in 2021 will lead to the market positively rerating the stock as it prices in expected improvements.
As such, if you believe in the digital industrial revolution, then you probably also believe PTC has a lot of potential to grow strongly in 2021. Not least because the COVID-19 pandemic and the reshoring movement is seen as accelerating interest in digitalizing factories. All told, PTC stock has a lot of potential to soar again in 2021.
Forget EVs: This alternative-fuel stock has the green flag
Scott Levine (Clean Energy): While electric vehicle (EV) stocks received considerable fanfare in 2020, those focused on 2021 would be wise to consider another investment related to vehicles and the evolving energy landscape: natural gas. The self-professed "only natural gas fueling solutions provider in the industry to offer CNG [compressed natural gas], LNG [liquid natural gas] & RNG [renewable natural gas] fueling," Clean Energy Fuels is a company that has developed a network of more than 550 natural gas-fueling stations across 41 states and Canada.
Shares of Clean Energy Fuels have soared about 150% higher in 2020 as investors celebrated the fact that the company's financials have improved throughout the year.
Although revenue growth has suffered due to lower sales volume stemming from the COVID-19 pandemic, Clean Energy Fuels has demonstrated the ability to reign in expenses and report notable bottom-line growth. Likewise, the company has also generated impressive cash flow throughout 2020. On a trailing-12-month basis, Clean Energy Fuels has reported operational cash flow (OCF) and free cash flow (FCF) of $61 million and $36 million, respectively -- impressive figures considering the company reported OCF of $12 million and FCF of negative $15 million for 2019, according to Morningstar. In addition, the company's balance sheet appears strong; the company ended the third quarter with a net cash position of $56 million.
So what's driving my optimism about this stock's chances in 2021? For years, investors have been unimpressed with Clean Energy Fuels, espousing incredulity with the notion that natural gas could be a viable option for heavy-duty trucking, fleet vehicles, and other applications. But it seems that the market is shaking off its doubt and is willing to go along for a ride. Besides the company's improved financial health, the company recently signed several deals that illustrate the industry's increasing enthusiasm for natural gas. This week, Clean Energy Fuels announced the signing of a memorandum of understanding with Total to develop RNG production and fueling infrastructure in the United States as well a deal with BP to develop RNG facilities. And these announcements come shortly after other encouraging signs the company's momentum. In mid-December, for example, Clean Energy Fuels reported that it had inked deals representing more than 58 million gallons of its Redeem RNG. Is that a lot? Consider the fact that in all of 2019, the company reported Redeem sales of 143 million gallons.
There may be some bumps in the road during 2021 as the company is still in its growth phase, and adverse news may lead to some volatility. However, I think the company has reached an inflection point in 2020, and it's headed in the right direction for 2021 and beyond.
A return to normalcy
John Bromels (Intuitive Surgical): With some healthcare workers already beginning to receive the first coronavirus vaccines, it's a good bet that the nation's medical systems will return to normalcy at some point in 2021. That's good news for robot-assisted surgery specialist Intuitive Surgical.
Intuitive makes the da Vinci series of robot-assisted surgical devices. Each of these very expensive systems primarily performs minimally invasive surgeries, mostly in the fields of urology and gynecology. Because robot-assisted surgery is much more precise than even a well-trained human surgeon, it leads to faster recovery times and better patient outcomes.
The pandemic decimated Intuitive's business. Because the surgeries currently performed by da Vinci machines are elective, business evaporated overnight as hospitals across the country canceled elective surgeries in the spring. Even when elective surgeries began to occur again, overwhelmed hospitals had to prioritize their spending. As a result, Intuitive's blockbuster share price growth slowed in 2020, with the stock up only about 33.5% for the year.
We may not see a recovery in Intuitive's shares until the coronavirus appears to have been truly beaten, which may not happen until well into 2021. But once it does, expect rapid growth from the undisputed king of robot-assisted surgery.