The stock market had a roller-coaster 2020, plunging in March amid the coronavirus crash, before rising over the summer. The market enters 2021 in a confirmed uptrend, with Covid-19 vaccines already rolling out, offering the promise of moving to a post-pandemic world with restrictions lifted.
That’s good news for real economy companies and sectors from used cars to credit cards to farm equipment. Deere (DE), General Motors (GM), Caterpillar (CAT), Visa (V) and Copart (CPRT) are top stocks at or near buy range heading into the new year.
Tech growth stocks, notably cloud software, electric vehicles and IPOs, dominated 2020’s biggest winners. But the new year could bring new leaders. A global economic rebound could deliver strong gains for cyclical stocks. Investors may not want to have a portfolio of cyclical names, but they might consider having a few such holdings. Many will deserve a place among investors’ watch lists.
Visa and Caterpillar stock are both on the Dow Jones Industrial Average.
Top Stocks Heading Into 2021
One way to find the best stocks is to look at their IBD Composite Ratings. The Composite Rating compiles scores on key fundamental and technical metrics: earnings and sales growth, profit margins, return on equity and relative price performance.
Deere leads the group with a 94 rating and Copart has a 90 rating. General Motors has a 76 rating, Caterpillar 64 and Visa just a 63 rating.
Investors generally should focus on stocks with a Composite Rating of 90 or higher. But the rating isn’t the only metric investors should keep track of.
The coronavirus pandemic and shutdowns triggered a massive economic recession, so real economy companies such as GM, Caterpillar or Visa reported sharp profit declines or outright losses in recent quarters, but are expected to rebound in calendar 2021.
Shares rose 1.1% to 269.05 on the stock market Thursday. Deere stock broke out of a flat base with a 265.97 buy point on Dec. 18, according to MarketSmith analysis. Since then, shares have been trading right around that entry. Investors could buy Deere stock here or wait to clear its little consolidation
Deere stock rallied 55% in 2020. After falling to 106.14 during the coronavirus stock market crash in March, Deere stock had a strong run from a mid-July breakout. The stock has an 81 Relative Strength Rating, meaning it has outperformed 81% of all stocks over the past 12 months.
The relative strength line is right at record highs after rising for several months. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
In November Deere reported Q4 earnings and sales that topped analyst estimates on growth from its agriculture and turf segment. Looking ahead, the company sees net income in fiscal 2021 between $3.6 billion and $4 billion as management forecasts higher crop prices in 2021.
Shares dipped 0.5% to 41.64 on Thursday, edging up 0.1% for the week. GM stock has found support at its key 10-week line. A solid rebound from this level, such as crossing the 21-day exponential moving average or the Dec. 23 high, would offer a buying opportunity.
General Motors stock could soon have a new base as well.
GM stock rallied 14% in 2020, roaring back from March’s crash to nearly hit all-time highs. GM stock soared in October and November on the Hummer EV launch and its new EV factory and production plans. GM outlined plans in November to beat a prior goal of 1 million electric vehicle sales by 2025, with an all-electric Hummer due out in late 2021.
GM reported Q3 earnings that beat Wall Street estimates in November, but its sales fell short.
The RS line fell to a historic low in July but has since rebounded. GM stock now has an 83 RS Rating but a weak 45 EPS Rating.
Shares climbed 1.1% to 182.02. Caterpillar stock has a four-weeks-tight formation — a longer version of the three-weeks-tight — with a 183.43 entry. But investors could wait until 183.91 to catch CAT stock at a new high. Caterpillar stock has been finding support at its 21-day line in recent weeks, and in the past week rebounded from just above its 10-week line. Investors could use that 10-week bounce as an early entry.
CAT stock climbed 23% in 2020, more than doubling from its March low.
CAT is the second-ranked stock in IBD’s Machinery-Construction/Mining Group. But it has a weak 59 EPS Rating and a 68 RS Rating. But Caterpillar earnings should rebound in 2021, while the RS Rating has been improving. The RS line is at its highest level in 20 months.
Shares edged up 0.2% to 218.73, but rallied 4.8% for the week. Visa stock peeked out past a 217.75 buy point on Wednesday. The pattern is a short flat base, though investors could view it as a handle on a consolidation going back to early September.
Investors could have bought Visa stock as it cleared a downward-sloping trend line on Monday. For the week, Visa stock climbed 4.8%
The recent IBD Stock of the Day climbed 16% in 2020.
But even with the recent uptick, Visa stock has been a laggard during the coronavirus pandemic. It has an EPS rating of 74, after Visa earnings fell 23% vs. a year earlier in the last two quarters. The RS line has been falling since late May, though it bounced last week.
Still, Wall Street is bullish on the credit card provider in 2021 with stimulus checks on the way to millions of Americans and widespread Covid-19 vaccinations expected by the summer. At an investor presentation in early December, Visa CFO Vasant Prabhu said there were “massive opportunities” for growth in unbanked emerging markets, person-to-person payments via its Visa Direct service and in business-to-business payments.
Shares edged up 0.6% to 127.25 on Thursday, a record close and capping a 2.9% weekly gain. Copart stock is now working on a cup-shaped base showing a 131.06 buy point. The stock jumped 40% on the year and hit an all-time high in November. Used car sales have been on the rise during the pandemic, partly due to temporary new-car shortages and as Americans looked to avoid public transit.
Copart, an online used vehicle auction site, is the top-ranked stock in IBD’s Retail/Wholesale-Auto Parts Group. It has a 96 EPS Rating and a 77 RS Rating.
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