A new year means new opportunities to put your money to work in the greatest wealth creator on the planet: the stock market.
Even with the broad-based S&P 500 ending 2020 at an all-time high, history has shown time and again that if you buy high-quality companies and hang onto them over the long run, you have a very good chance to build wealth. As we push forward into 2021, the following 10 top stocks should give investors the best opportunity to end the year in the profit column.
Recessions are an inevitable part of the economic cycle. But take a step back, and you'll note that periods of economic expansion last many times longer than recessions. As the young bull market finds its legs and the U.S. economy continues to rebound from the worst recession in decades, payment processor Visa (V -0.28%) should thrive.
Visa benefits when business and consumers spend more. With coronavirus vaccines beginning to make their way to frontline workers, and in a few months the general public, the expectation is that we'll see previously cooped-up consumers spend liberally.
Further, Visa is a company that strictly focuses on the payment side of the equation. By avoiding lending, Visa ensures it suffers no direct negative effects from higher credit delinquencies. In short, it means the company bounces back from recessions faster than most of its peers. Investors should expect a return to double-digit topline growth in 2021.
2. NextEra Energy
Electric utility stocks are typically boring businesses that investors buy for their income potential. However, NextEra Energy (NEE 1.06%) is doing things a bit differently.
Among electric utilities, none is generating more capacity from solar and wind power than NextEra. While this focus on renewable energy projects is pricey, it's allowed the company to substantially reduce its energy-generation costs. These lower generation costs have pushed its compound annual growth rate to the high single digits.
What's more, NextEra's traditional utility operations (i.e., those not operating on renewable energy sources) are regulated. Though it can't just raise rates on its customers at will, it also means the company isn't exposed to potentially volatile wholesale electricity pricing. Investors who buy into NextEra can count on predictable demand and cash flow.
That sound you hear is me beating the drum on cloud-based customer relationship management (CRM) software company salesforece.com (CRM 2.06%) to begin 2021. My top stock to buy for January has been trending lower since announcing a $27.7 billion cash-and-stock deal to buy Slack Technologies.
The beauty of salesforce is twofold. First, it's the dominant player in CRM software, which should continue to grow at a double-digit annual rate. At the end of 2019, salesforce controlled nearly as much global CRM share as the No.'s 2, 3, and 4 CRM players combined. It's established itself as the go-to CRM solution for consumer-facing businesses.
Second, salesforce can use Slack's rapidly growing enterprise platform as a jumping off point to promote its core CRM services. The integration of Slack should help salesforce maintain a 20%+ growth rate.
4. Kirkland Lake Gold
All that glitters is gold in 2021! Expect the new year to be kind to gold stocks -- especially Kirkland Lake Gold (KL).
The tailwinds for physical gold just keep getting better. The Federal Reserve has pledged to keep interest rates at or near historic lows through 2023, with the central bank buying up $120 billion in government-backed debt each month. When coupled with the likelihood of increasing precious-metal demand due to the economic recovery, the table is set for the price of gold to move higher.
As for Kirkland Lake, its three producing mines are among the most efficient in the industry, with a cash operating margin that could top $1,100 per ounce. Kirkland Lake Gold has the best balance sheet among miners, too: $848 million in cash and no debt. Through the first nine months of 2020, the company tripled its dividend and repurchased nearly $527 million in stock. It looks set for a lustrous year.
5. Teladoc Health
Even though it more than doubled in 2020, top telemedicine stock Teladoc Health (TDOC 3.26%) should be in for another banner year.
Last year, Teladoc benefited from the coronavirus pandemic, with virtual visits more than tripling from the prior-year period in the second and third quarters. The thing is, this demand isn't fleeting. Consumers and physicians are realizing the convenience and benefits of telehealth, while insurers are enjoying the lower billing costs associated with virtual visits.
Teladoc's acquisition of applied health signals company Livongo Health will also accelerate growth in 2021. Prior to its acquisition, Livongo had already turned the corner to profitability. This year, it'll be organically growing its diabetes member count and looking to expand its services into new chronic disease indications. Teladoc could be just what the doctor ordered for investors.
The FAANG stocks have been near-surefire winners over the past decade. In 2021, Alphabet (GOOGL -0.65%) (GOOG -1.02%) should continue that streak and make its shareholders richer.
As you might be aware, Alphabet is the parent company of dominant search engine Google. According to GlobalStats, Google controls over 92% of global internet search. This makes it the logical destination for advertisers looking to reach a targeted or broad audience. A rebounding U.S. and global economy will only further play into Google's significant ad-pricing power.
Beyond search, Alphabet is seeing plenty of robust growth from content streaming platform YouTube and cloud infrastructure segment Google Cloud. YouTube is one of the three most-visited social platforms on the planet, while Cloud is Alphabet's fastest-growing operating segment (45% in Q3 2020). As Cloud grows into a larger percentage of total sales, Alphabet's operating cash flow can head significantly higher.
7. Cresco Labs
Forget the idea of nationwide marijuana legalization in the United States. Cresco Labs (CRLBF -6.09%) merely needs ongoing state-level legalizations and organic opportunities to grow like a weed this year.
To date, Cresco has opened 20 dispensaries. Half of these retail locations are in the limited license state of Illinois (10 is currently the maximum number of allowable retail stores in Illinois). By ramping up its presence in the Land of Lincoln, Cresco is ensuring that it secures its piece of what should become a billion-dollar cannabis market by 2024.
Cresco's wholesale operations should be an even bigger growth driver. Closing the Origin House acquisition in January 2020 allowed the company to place pot products into more than 575 dispensaries throughout California, the largest cannabis market in the world. With California working through red tape to open new retail locations, Cresco's ability to reach new pot consumers should broaden considerably in 2021.
8. Costco Wholesale
Sometimes the easiest way to get richer as an investor is to buy into industry leaders. That's why warehouse club Costco Wholesale (COST 0.69%) should be in your shopping cart.
The Costco advantage really boils down to its bulk-buying and memberships. Buying items in bulk allows the company to purchase goods at a lower price. These savings can be passed along to its members, with its low prices acting like a dangling carrot to attract new shoppers.
Meanwhile, the memberships Costco sells generate a boatload of revenue that it uses to further undercut its competitors on price and bolster its margins. The membership model makes it far less likely that Costco shoppers will go elsewhere for their grocery and consumer discretionary purchases.
Costco is currently riding a 12-year winning streak and should deliver for investors, once again, in 2021.
9. UnitedHealth Group
One of the biggest under-the-radar winners of the recent U.S. election is health insurance giant UnitedHealth Group (UNH 1.54%). That's because it's looking unlikely that we'll see meaningful healthcare reform anytime soon. With President-elect Joe Biden looking to build on the Affordable Care Act, UnitedHeath's pricing power for insurance plans should remain strong.
UnitedHealth Group's growth from Optum, the company's operating segment devoted to streamlining healthcare systems, has also been impressive. Optum handles pharmacy care services, software, and general health management services, with the purpose of improving quality of care while reducing healthcare costs. In the September-ended quarter, Optum's revenue catapulted 21% from the prior-year period. It's worth noting that Optum's operating margin happens to be nearly double the operating margin of UnitedHealth's traditional insurance operations.
This isn't a fancy pick to make you money in 2021. It's simply UnitedHealth becoming even more engrained in America's fast-growing healthcare industry.
Last but not least, America's top e-commerce company, Amazon (AMZN -0.89%), can make investors richer in 2021.
In case you didn't know, Amazon is the kingpin of U.S. online retail. In March 2020, eMarketer estimated that Amazon controlled 38.7% of all U.S. online sales, and was on track to expand its share lead another 100 basis points in 2021. For some context here, no other company is within 33 percentage points of Amazon when it comes to U.S. online retail share. Though the margins from retail aren't great, Amazon's been able to pivot its e-commerce success into signing up more than 150 million Prime members worldwide.
The more exciting growth catalyst is cloud infrastructure service Amazon Web Services (AWS). AWS has a current annual run-rate of $46 billion, and is responsible for generating most of Amazon's operating income, despite accounting for only an eighth of total sales. Because the margins associated with cloud services are so much higher than retail, AWS gives Amazon a real chance to triple its operating cash flow in the next four years.
Here's to a happier, richer, and hopefully soon-to-be pandemic-free 2021.