Wall Street is calling for recovery, reflation and rotation this year amid continued accommodative monetary and fiscal policy, according to analysts.
Among the bulls, strategists from J.P. Morgan estimate that the S&P 500 could reach 4,400, with a range of 4,200 to 4,600.
"Global growth will likely be below trend in early 2021, but the strongest global recovery in a decade should play out by the end of 2021, with global GDP growth reaching 4.7% (Q4/Q4) if vaccine prospects play out as expected… our forecast sees macro and market momentum ahead as the advancement of vaccines breaks the link between mobility and the virus and largely removes the single biggest growth headwind – the pandemic – from the scene by 2H21," the strategists wrote in a recent note.
With this in mind, how are investors supposed to find compelling investment opportunities? By following the moves of the analysts with a proven track record of success. TipRanks analyst forecasting service attempts to lock in on the Street's best-performing analysts, or the analysts with the highest success rate and average return per rating.
Here are the best-performing analysts' top stock picks for 2021:
Clean Harbors provides environmental, energy and industrial services, and is one of the largest re-refiners and recyclers of used oil in North America. Going into 2021, the company is Needham analyst James Ricchiuti's top pick. To support his even more bullish stance, the five-star analyst bumped up the price target to $91 (20% upside potential) from $75, in addition to reiterating a Buy rating.
Ricchiuti acknowledges that CLH shares "have a low bar to clear," as it was one of the few names in his coverage universe to drop in 2020 and was outpaced by several of its competitors. According to the analyst, two COVID-related factors played a part in this lackluster performance.
"The shock from COVID dampened an expected recovery in CLH's Safety-Kleen (SK) used-oil recycling business while the core Environmental Services (ES) business also was dinged as the effects of COVID rippled through the broader economy," Ricchiuti explained.
However, the tides could be turning for the company in 2021. "With improving macro data, including higher manufacturing output, we expect CLH's core incineration and landfill services to see stronger demand in 2021. Even if the recent COVID spike causes the recovery to pause, CLH has something of a natural hedge in the ES business, as it will likely drive more high-margin COVID emergency response business," the Needham analyst noted. Additionally, he expects to see a gradual recovery in the SK segment next year.
On top of this, the increased focus on ESG could benefit CLH, "both in its oil-recycling business and given its leadership position in safely handling hazardous waste and capabilities in responding to a variety of environmental emergencies," in Ricchiuti's opinion.
Therefore, given that the stock is trading at less than 10x Ricchiuti's 2021 adjusted EBITDA estimate, the risk/reward profile is "attractive."
Landing a top 100 ranking, Ricchiuti is currently tracking a 68% success rate and 21.6% average return per rating.
The travel industry as a whole was leveled by the COVID-19 pandemic, but Cowen analyst Helane Becker sees Southwest Airlines as a top pick for 2021. In a recent note, she maintained a Buy rating on the stock and increased the price target from $46 to $55 (19% upside potential).
According to Becker, the air travel environment will most likely be under pressure until a COVID-19 vaccine is widely available. However, she argues "Southwest is uniquely positioned to take advantage of the current landscape."
Pointing to the company's balance sheet, Becker highlights the fact that LUV has sourced roughly $18.9 billion in liquidity year-to-date, with it currently boasting a net cash position of approximately $2 billion, versus 16% cumulative net debt growth year-to-date by other U.S. airlines.
"We note that investor sentiment towards the stock is already favorable. However, the path forward over the next six months will be challenging. We believe Southwest shares remain an attractive option for participating in airline recovery upside without taking on outsized downside risk, compared to peers," Becker opined.
Although some investors have expressed concern about when LUV will see traffic, capacity, revenue and profits rebound to 2019 levels, Becker notes that these questions don't necessarily apply to this airline company. 2019 saw headwinds related to the MAX grounding hamper the company. As the aircraft returns to service, the analyst believes the cost outlook will improve and growth will accelerate.
Becker added, "Southwest's cost structure has the most to gain from a normalized schedule as they've staved off furloughs and are carrying excess pilots due to the MAX grounding. We expect the company to return to 2019 profit levels quicker than others given their better balance sheet, share gain opportunities, and low hanging fruit on cost savings and are currently modeling for the company to achieve that goal in 2023."
Given her 71% success rate and 18.5% average return per rating, Becker scores the #130 spot on TipRanks' list of best-performing analysts.
For Mizuho Securities analyst Vijay Rakesh, semiconductor company Broadcom is his top pick going into the new year. In a bullish signal, the analyst gave the price target a lift on December 28, with the figure moving from $460 to $480 (10% upside potential).
2021 will be the first full year for the ramp of 5G handsets worldwide, and this is a good thing for AVGO, according to Rakesh. Specifically, he sees RF content gains benefiting Broadcom as well as a few other players in the semiconductor space.
In terms of the key 5G markets, the analyst points to "China with attractive sub-$400 5G handset options, US with 5G-capable iPhone 12, and South Korea."
Based on commentary from management, stronger iPhone trends have fueled "wireless top line up 50% year-over-year for January quarter and recent management shifts creating a more focused outlook for each the semiconductor and software segments."
On top of this, Rakesh applauds the company's ability to continue to drive earnings and free cash flow leverage from its software acquisitions as well as work-from-home trends. This software M&A has been "instrumental in driving better margins and stability in a cyclical semiconductor environment," in the analyst's opinion.
"We continue to see AVGO as a top pick with strong share and content growth in key segments, a leader in SerDes, increasing content with iPhone13, with potential Enterprise software M&A ahead, as the company increases FCF and continues to raise its dividend," Rakesh commented.
With a 70% success rate and 24.1% average return per rating, Rakesh is ranked #90.
Moving on to another player in the semiconductor space, Ambarella develops low-power and high-resolution video compression, image processing and deep neural network processors and software to allow cameras to extract data from high-resolution video streams.
The chip maker recently got a thumbs up from Rosenblatt Securities' Kevin Cassidy, with the analyst reiterating a Buy rating and $115 price target on December 27. This target suggests that shares could gain 24% in the next twelve months.
"We are convinced that Ambarella is at the cusp of the conversion of video to useful data at the network edge. We see this as a multi-year product cycle as the 100's of millions currently installed cameras are upgraded and previously unserved markets are reached," Cassidy stated.
According to management, "the first wave" of the computer vision-enabled (CV) System-on-chip (SoC) integrated into professional surveillance networks will be the major driver of new revenue growth. It should be noted that AMBA's lineup of CV SoC devices are compatible, so when new CV SoCs are launched, Cassidy argues "customers can port their software to the new device and lower time to market."
As for the next wave, Cassidy noted that CV-based revenue will most likely come from the home surveillance market starting in 2H21, with the third wave coming from the automotive market.
"We see multiple emerging applications for CV-enabled devices. The announced AWS Panorama system leverages the prior Sagemaker NEO announcement (January CY2020) and is an example of converting captured video into practical data for improving manufacturing safety, quality, and efficiency," Cassidy explained.
What's more, the five-star analyst points to AMBA's product demonstrations during CES starting January 11 as a potential catalyst for shares.
Cassidy more than earns his place on TipRanks' list thanks to his 72% success rate and 24.9% average return per rating.
2021 could be just as strange as 2020, says BTIG analyst Peter Saleh. He expects the negative impact from the COVID-19 resurgence to affect fundamentals in the first half of the year, with a steep recovery coming in the second half.
This sales recovery, however, will likely be "uneven," favoring the West Coast and Northeast, as these regions have operated under strict indoor dining restrictions for most of the year, in Saleh's opinion. "Given the success of outdoor dining, growth in off-premises and historically under-utilized dining rooms, we believe most full-service restaurants will be able to achieve pre-COVID sales levels as capacity is lifted to 50%-75%, setting these geographies up for a more pronounced recovery as the year progresses," he explained.
With this in mind, Saleh has backed Papa John's as his top pick for 2021. To this end, he reiterated a Buy rating and $115 price target, which is the highest on the Street. This target implies upside potential of 36% from current levels.
"We remain bullish on shares of Papa John's as we see several opportunities to increase shareholder value and believe these levers could make the company an interesting acquisition candidate… While the pandemic greatly benefited Papa John's this year, driving sales back to pre-COVID levels, we expect several near- and long-term levers to drive shareholder value to begin unfolding next year," Saleh commented.
Based on PZZA's ability to improve unit growth, expand restaurant and commissary margins, reduce G&A expense and increase leverage by up to $300 million, Saleh thinks the company is poised to outperform its competitors in the space.
As evidence of his stellar track record, Saleh has achieved a 75% success rate and 22.9% average return per rating.