2021 Growth Stocks
Our list of estimated 2021 growth stocks.
2020 has been an insane year. Between the COVID disasters, market manipulations, and cyclical downturns, we believe 2021 is positioned for the return of the undervalued (& early growth stocks, of course). Obviously, we are long all the stocks that we quote below.
VMWARE
THE COMPANY
VMware is a diversified technology company. VMware allows users to turn their entire platform digitally, while protecting its users, stimulating growth, and maintaining consumer connection.
VMware has multiple cloud platforms (and other tech services) that work directly with multiple sectors: Healthcare, banking, government, retail, transportation, telecommunication and manufacturing.
VMware is owned by DELL. This is a win-win scenario if a spinoff is indeed materialized.
THE POTENTIAL
Because of the applicability of VMware’s software (and their nonstop transformation to more unique partnerships), we believe its growth story is just starting. VMware has the potential to be manufacturing software for more hospitals, banks, government agencies, and other consumer services. At $155 a share, VMware is extremely undervalued. VMware is already tremendously profitable with the 500,000 customers they serve. Imagine what it would look like if it was 1,000,000+ customers. 5G is another interesting approach for VMW. It is believed that VMW can make strategic partnerships to leverage its platform within the 5G space.
WHY IT'S A WINNER
VMware averaged a .57% stock price growth (TTM). Comparatively, the QQQ grew 54.11%, while the NASDAQ grew 46.38%. The fact that DELL owns VMW could be a reasonable argument to explain why it gets no love (look at DELL EPS/PER/Multiple vs. similar companies). However, none of this matters to us. VMW (and DELL), if a spin-off does occur, will likely skyrocket to the level of its peers. But even if a spinoff does not happen, VMW is worth the buy. We believe in the next few years it will reach $300.
Jan 1st 2020 Close: $150.34
2021 VMW PRICE TARGET:
Bank Of America
THE COMPANY
The 2nd largest financial institution in the US, BAC has hugely recovered from the 2008 crisis and set itself as one of the top institutions in the world. It’s true that its counterpart, JPMorgan, was better leveraged in 2008, made better decisions (by unloading its subprime positions), and ultimately continues to dominate its revenue growth. But that gives BAC a justification to grow even more. Just by the simple reconstruction that has happened since 2010 (Moynihan took over as CEO), we are true believers in their ability to fight hardships and come out better. The case of BAC vs. JPM really comes down to this: someone who had to come back from adversity vs someone who avoided hardship entirely (albeit from calculated strategy).
THE POTENTIAL
BAC, as well as the entire financial sector, has been destroyed this year. Fortunately, fear and economic hardships allow for patient investors to find bargains. BAC, in particular, is not only a bargain but is more positioned for growth compared to its peers. The reason is simple: BAC is more undervalued than JP Morgan, & has less risk than the rebuilding WF & C. Pre-COVID, BAC had a lower Y/Y returns than JPMorgan. To a rational mind that would sound like JPMorgan is the clear winner. But, we are talking about which has the most potential growth. And the winner is BAC.
WHY IT'S A WINNER
To be clear, all financials will rise tremendously in the next 12 months. But because BAC has the lowest value, less risk than Citi & Wells Fargo, and a history of continued growth throughout hardship, we believe BAC is the true financial winner.
AVERAGES & CONSIDERATIONS
Trailing 3 Year Averages:
BAC: -8.56%
JPM: -1.63%
S&P: 44.29%
DOW: 32.48%
Trailing 3 Year Revenue Growth:
BAC: 6.72
JPM: 10.52
What This Means To Us:
This means that the market has decently priced in both stocks relative to their growth. BAC has a good return for total dividends. But more importantly, BAC has a bigger opportunity to cash in on growth following the post COVID world.
A NOTE ON FINANCIALS
To us, there is no argument here. People will return to spending money, mortgages will get written, loans will be cast, and investments will continue to get made. It seems absurd to assume that the financials (that have proven cash strength) will not return to pre-COVID levels. What do you think, people won’t spend money anymore?
Jan 1st Close: $34.62
2021 BAC PRICE TARGET:
COTY
THE COMPANY
COTY is one of the largest beauty companies in the world. Coty is the largest fragrance provider and third-largest in color cosmetics in the world. However, the company has also been progressively less profitable. In fact, it’s certainly the riskiest stock on this list, but we believe it has a major upside.
THE POTENTIAL
COTY has been one of the worst-performing stocks in the S&P this year. Again, it’s obvious as to why that is. Since 2016, Coty has made sketchy purchases, mismanaged their company, marketing, and customer acquisitions. In fact, Coty hasn’t been near 21 per share since Feb of 2018. And interestingly, they haven’t been profitable since 2016 (even though their 2016 market price was huge). 2017 resulted in a huge growth in revenue, which could account for the cashed in 2016 share price growth. However, the moral here is that the company is almost the antithesis of a logical sound investment. So, why on earth are we so long?
WHY IT'S A WINNER
Coty has gotten rid of some of its bad debt. They sold 60% of some less interesting inventory to KKR (while still owning 40%??) The “Wella transaction” gave KKR some of their unnecessary products, which seems to illuminate Coty’s future plans. However, none of their old products make a strong investment case. In fact, their old ways are what got them into this place from the get-go.
The investment only makes sense for three reasons: Jenner, West, and Nabi Sue. Purchasing controlling stake in Kylie Jenner’s products make this stock a winner independently. Instead of buying P&G’s products in 2016 (What started their awful downtrend), they should’ve focused on high niche brands. Luckily, they have got rid of most of their awful debt and made moves towards the future of niche brands via the social media marketing of the world’s most powerful social stars (Kylie Jenner and Kim Kardashian). Sue Nabi, who is the newest CEO, actually has productive industry experience (unlike their other hires?), and seems to be one of the most capable to lead towards a path of profitability.
T3Y OF COTY & RELATED COMPANIES
Trailing 3 Year Averages:
COTY: -83.10%
EL (Estee Lauder): 110.89%
ULTA: 9.33%
Trailing 3 Year Revenue Growth:
COTY: -14.88
EL: 6.53
ULTA: 15.1
What This Means:
Coty had negative earnings since 2017 (since the bad debt took hold), and had -$5.04 EPS in 2019. This was of course due to write-offs of their awful investments. On the flip side, EL has grown EPS by 63% since 2016. But, between the three, Ulta is the most sound fundamentally. Their EPS has grown by 86% since 2016. We believe all three are going to grow continuously, but COTY has the largest upside by a huge margin.
OUR BET
We believe COTY has a huge amount of growth ahead of them. They have maintained a market price of $13 on average for the past three years. This is even when their business was burning to the ground. So, assuming they gain traction with the power of Kylie Jenner and Kim Kardashian, and even come remotely close to positive guidance, it will shoot up. COTY is already set up for success. With their industry connections, strategy, and footprint, COTY just needs to get rid of its terrible products to thrive. Let’s not forget their audience. Do you believe will stop buying beauty products? Do you believe Kylie and Kim will lose their social popularity?
Jan 2nd Close: $10.72
2021 COTY PRICE TARGET:
CCL
THE COMPANY
Carnival Cruise Line is the largest cruise company in the world. With over 100 ships world-wide, Carnival carries over 10 million passengers annually.* They carry over 4 million more passengers than Royal Caribbean and about 7 million more than Norwegian. Carnival is the only company on earth that is on the S&P 500 and the FTSE 250.
*As of 2019
THE POTENTIAL
Another one of the worst-performing stocks in all of the market, CCL has been obliterated this year. Obviously, COVID has created a situation in which Carnival cannot operate as a business. So, the entire argument for purchasing CCL has nothing to do with a decline in operations. Travel, at some point, will return to normal. Buy the discounted CCL.
WHY IT'S A WINNER
It’s a no brainer to us. Carnival (Pre-COVID) is a solid company. They continue to position themselves as the #1 cruise operator, with a solid balance sheet, cash flow, and large market share. Travel will return at some point. In the short term, we will get a second round of stimulus and a vaccine, which will move the stock upwards (like it did on June 3rd). If you are someone who somehow believes we will stay in our cocoons for eternity, then travel stocks may not be for you. But for us, and most other logical humans, travel stocks will come back. And they will come back with a vengeance. Have you heard anyone say “I am so glad I get to be couped up during the shutdowns”?
2015-2019 Carnival vs Competitors Numbers
Revenue Growth (Trailing 5 Years):
CCL: 33%
RCL: 32%
NCLH: 49%
Stock Price (Trailing 5 years):
CCL: -72.31%
RCL: -35.93%
NCLH: -73%
What This Means:
All three of the cruise stocks have been destroyed this year. The trailing 5 years gets all of its losses just from the beginning of the COVID outbreak.
OUR BET
We believe CCL (And the other two lines) will come back roaring. To think there will be no more cruise travel is simply insane. In fact, I think demand is so pent-up, that when it is allowed, the floodgates will open dramatically. CCL is our favorite cruise stock just based on its market share, reach, and strong balance sheet. Again, when the cruises come back, please remember this article. We are talking about 200% plus gains in 2021.