Back in July, I recommended seven of the best stocks to buy for 2021 and beyond. As a group, they’ve done very well over the past three months. For instance, Livongo Health was acquired by Teladoc Health (NYSE:TDOC) on Oct. 30 for $11.33 per share in cash and 0.592 times shares in Teladoc.
But looking for a bit of a twist on my stock selection process, I’ve decided that this list will be based on the first letter of all 12 months. That means my stock pick for January will have a corporate name beginning with J, then an F for February and so forth.
All 12 will also have a market capitalization of $2 billion or more and positive free cash flow for the trailing 12 months. By this time next year, I’m confident that my picks, on the whole, won’t disappoint.InvestorPlace – Stock Market News, Stock Advice & Trading Tips
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So, without further ado, here are my 12 best stocks for a brand new year:
Johnson & Johnson (NYSE:JNJ)
Fidelity National Information Services (NYSE:FIS)
Johnson Controls (NYSE:JCI)
Jeld-Wen Holding (NYSE:JELD)
SVB Financial (NASDAQ:SIVB)
Otis Worldwide (NYSE:OTIS)
NextEra Energy (NYSE:NEE)
Dollar General (NYSE:DG)
Stocks to Buy: Johnson & Johnson (JNJ)
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Johnson & Johnson represents the month of January on my list of best stocks to buy for 2021. Right now, it’s having a sideways kind of year in the markets. Its year-to-date (YTD) total return through Dec. 4 is just 2.6%.
Based on a trailing 12-month free cash flow (FCF) of $18.3 billion and a current enterprise value (EV) of over $399 billion, JNJ’s FCF yield is a reasonable 4.7%. It might not be value territory — I consider anything above 8% to be cheap — but it’s pretty darn good.
As InvestorPlace colleague Faisal Humayun recently stated, JNJ stock has an excellent product offering.
“From a business perspective, the company provides diversified exposure to the segments of consumer health, pharmaceuticals and medical devices. The company’s pharmaceutical segment growth for Q3 2020 was impressive with most therapeutic areas delivering strong numbers.”
Not to mention, JNJ is still very much in the Covid-19 vaccine race. That suggests that 2021 could be a breakout year for this Dividend Aristocrat.
Fidelity National Information Services (FIS)
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Next on my list of best stocks to buy is Fidelity National Information Services, representing the month of February. This payment processor is having an underwhelming year relative to the U.S. markets as a whole. Currently, FIS stock has a YTD total return of just over 7%, about half the markets’ rate of return in 2020.
Based on a trailing 12-month free cash flow of $2.57 billion and an enterprise value of $109.75 billion, though, Fidelity National’s FCF yield is very decent at 3.8%.
You won’t find a lot of commentary from InvestorPlace contributors on this stock, despite the fact it does have a part to play in the technology side of the financial services industry.
However, on Nov. 19, the Florida-based company announced that it earned the top spot for the sixth consecutive year in a ranking of 100 leading providers of risk and compliance technology.
Additionally, while Covid-19 has slowed the rate at which FIS can process transactions, it still has managed to generate organic revenue growth during its third quarter of 1% to about $3.2 billion. The company also increased adjusted net income by 18% to $887 million.
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So, this is not a glamorous stock but its services are certainly in demand.
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To represent March for the coming year, I’ve picked the golden arches of MCD stock. Like many of the names on this list, McDonald’s has an okay year going, up 7.11% YTD today. That’s better than many of its restaurant peers, but it’s trailing the U.S. markets as a whole.
Thanks to Covid-19 shutdowns, McDonald’s trailing 12-month free cash flow isn’t nearly as strong as it usually is, now at $4.25 billion. Currently, the industry leader has an FCF yield of 2.7% based on an enterprise value of about $205 billion.
Despite operating in one of the hardest-hit industries, McDonald’s has continued to look beyond the novel coronavirus, continually finding ways to transform its business without upsetting the core customer.
For instance, the company recently gave Beyond Meat (NASDAQ:BYND) the cold shoulder by announcing it would be testing a line of meatless alternatives in 2021, including the McPlant burger. Interestingly — despite developing the plant-based burger with Beyond Meat’s input — the fast-food company decided to go its own way.
The decision to go on its own was a result of two reasons. First, MCD didn’t want to alienate its meat-loving customers. Secondly, it’s not a fan of letting licensees and other brands into its house. Beyond Meat would have surely taken some shine off of the Golden Arches.
McDonald’s has had a tough time, but it always bounces back. That makes it one of the best stocks to buy for the upcoming year.
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Adobe, the mastermind behind the PDF and so much more, is my pick for the month of April. It’s having an excellent year in the markets right now, with a YTD total return of over 47%. That’s considerably better than both its software peers and the U.S. markets as a whole, making it one of the best stocks to buy right now.
Adobe’s trailing 12-month free cash flow is $4.9 billion, while its enterprise value is nearly $232 billion for an FCF yield of 2.1%. Both its enterprise value and EV-EBITDA multiple have also risen dramatically in the past five years. In 2016, the company had an enterprise value of $48 billion and an EV-EBITDA of 26.1. Presently, the stock has an EV-EBITDA multiple of 48.3.
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In early February, I said ADBE stock was all but certain to hit $400 in 2020. It did and then some. Moving forward, I think it’s all but certain to hit $500 — perhaps $600 — in 2021.
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MercadoLibre is sometimes referred to as the Amazon (NASDAQ:AMZN) of Latin America, although it more closely resembles Alibaba (NYSE:BABA). For my list of best stocks to buy in 2021, it represents the month of May.
Currently, MELI stock is having a fantastic year in the markets with a YTD total return of over 170%. Like Adobe, MercadoLibre is faring far better than both its internet retail peers and U.S. markets as a whole.
This company’s trailing 12-month free cash flow is $810 million, while its enterprise value is almost $76 billion for an FCF yield of 1.1%. While that might seem low, MercadoLibre’s free cash flow has never been higher. Likewise, its revenues are on fire and growing like weeds. True to the Amazon comparison, this name will also probably see exponential growth in its free cash flow over the next few years.
I’ve been a fan of the company since as far back as 2013, when it was trading around $120. At the time, I argued that it had a dominant position in Latin American e-commerce and its stock would benefit from that.
As I write this, shares are priced around $1,555 and moving higher in 2021.
Johnson Controls (JCI)
There aren’t a lot of great companies with a J as the first letter in their name. There are even fewer with strong free cash flow. Nonetheless, Johnson Controls represents the month of June on my list of best stocks to buy.
Interestingly, while it’s only generally matching the YTD performance of the U.S. markets as a whole, JCI stock is doing better in 2020 than it has in some time. Over the past five years, it’s delivered an annualized total return for shareholders of about 9.1%, well below the markets.
However, up almost 14% over the past three months, the company appears to be gathering speed heading into 2021.
In early November, Johnson Controls also announced its fourth-quarter results, which were excellent despite the challenging business environment. In fiscal 2020, it had sales of $22.3 billion and net income of $1.69 billion, flat to a year earlier.
That’s not bad for a company that manufactures, installs and services products designed for offices, industrial properties and other types of commercial real estate — all of which were hurt by the pandemic.
Johnson Controls’ trailing 12-month free cash flow is nearly $1.8 billion, while its enterprise value is about $39 billion for an FCF yield of 5.3%.
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I view JCI as a nice stock for risk-averse investors who also like a little dividend income — its dividend yield is 2.27% at the moment.
Jeld-Wen Holding (JELD)
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By far the smallest of the 12 names on this list, JELD stock has a market cap of $2.42 billion. This maker of windows and doors represents the month of July on my best stocks to buy list.
Back in late January of 2017, Jeld-Wen went public at $23 a share.
Now, though — if you bought shares in its IPO and are still holding — you’ve made almost no money on your investment. Year-to-date, it’s got a total return of just 2.7%, well below the booming returns of its building products and equipment industry peer group. Those stocks have mostly benefited from Covid-19.
The company’s trailing 12-month free cash flow is $250 million, while its enterprise value is $3.8 billion for an FCF yield of 11.3%.
However, on Nov. 3, the company reported third-quarter results that were better than analyst expectations. On the top-line, revenue was $1.11 billion, $2 million higher than the consensus estimate. On the bottom line, it had adjusted earnings per share of 52 cents, eight cents higher than analyst expectations. President and CEO Gary Michel said the following:
“Consumers’ focus on their homes, coupled with our strategy to deliver profitable market share with key customers, is driving increased demand for products in both residential new construction and repair and remodel channels.”
As the focus remains on homes in 2021, I expect Jeld-Wen to snap out of its funk and do well.
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For August, the famous maker of the iPhone is the next pick of this list. However, if there were a month beginning with the letter B, I’d recommend Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) because it’s a much better value play and happens to own almost 965 million shares of AAPL stock.
Apple’s YTD total return is over 66%, which sounds rather ordinary, given its almost 30% annualized total return over the past 15 years. I’d take it every day of the week.
As for free cash flow and enterprise value, they are almost $73.4 billion and $2.1 trillion, respectively. That’s an FCF yield of 3.5%, an excellent valuation for one of the world’s largest public companies.
Put simply, Apple has become so much more than a maker of smartphones.
According to AppleInsider.com, Apple’s new “M1-equipped Mac mini” has jumped to the number one position in sales in the Japanese market for desktop computers — after only two weeks of availability. Further, Apple now has a 27% market share in Japan, up from roughly 13% a year earlier.
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So, I don’t think you can go wrong owning Apple over the long haul. Clearly, it’s one of the best stocks to buy for the coming year.
SVB Financial (SIVB)
Next, representing the month of September is my favorite U.S. bank. SVB Financial is the holding company that operates Silicon Valley Bank, the Santa Clara-based financial institution that focuses on entrepreneurs and innovators.
Right now, it’s having an awesome year compared to peers in regional banking. While SIVB stock is up nearly 43% YTD, most of its peers are down. It’s also leaving the U.S. markets in the dust. That said, I won’t bother noting the free cash flow for this name because it’s not meaningful for banking institutions. Instead, the balance sheet matters most.
SIVB reported Q3 2020 results that included earnings per share of $8.47, almost double the $4.42 per share it earned the year prior. The president and CEO of SVB Financial, Greg Becker, noted:
“We had an exceptional quarter driven by outstanding balance sheet growth, higher core fee income, strong investment banking revenue, solid credit resulting in a reduction of reserves, and outsized equity gains related to client IPO activity […] These results reflect the resilience of our markets and our ability to execute effectively.”
SIVB was on my 2013 list of the five best stocks to buy for the next 20 years, right up there with Amazon. I think you owe it to yourself to check it out in 2021.
Otis Worldwide (OTIS)
Back in early April, this elevator company spun off from United Technologies, which merged with Raytheon (NYSE:RTX) to become one of the world’s largest aerospace and defense companies.
While it won’t have a full 12-month track record until April, this representative for the month of October has risen 43.5% YTD, suggesting 2021 could deliver an excellent performance.
In the trailing 12 months, Otis has a free cash flow of $1.47 billion and an enterprise value of about $33 billion. That makes for an FCF yield of 5.2%, so it’s reasonably priced.
What’s more, the company’s third-quarter results demonstrate that it’s holding its own during the pandemic. Top-line organic sales fell 1.2% in Q3 2020 to $3.3 billion while its operating profit grew 7% on an adjusted non-GAAP basis. Also, operating margins increased 120 basis points to 15.4%.
In November, Toronto-based portfolio manager Christine Poole made OTIS stock one of her three top picks on BNN Bloomberg’s Market Call, suggesting that its 17% global elevator market share makes it an excellent long-term investment with an excellent balance between sales and service, at 57% and 43% respectively.
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That makes it worthy of this best stocks to buy list for 2021. Can you say recurring revenue?
NextEra Energy (NEE)
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Recently, I recommended this Florida-based utility company because of its renewable energy business, NextEra Energy Resources, which generates almost 40% of overall earnings. I maintain that NEE stock is one of the best stocks to buy for 2021, representing the month of November on this list.
NEE stock is a thing of beauty if consistent returns are your thing. YTD, it’s up about 20%. Over the past three-, five- and 10-year periods, it has annualized total returns of 25.1%, 26.8% and 20.5%, respectively. Let’s say it’s crushing its peers over any of those periods.
NextEra’s free cash flow in the trailing 12-months is $2.1 billion, while its enterprise value is $190 billion, for an FCF yield of -3.2%. So, it’s certainly not cheap.
But InvestorPlace’s Mark Hake made an interesting observation on Nov. 25 when he suggested that NextEra would buy another utility with its strong share price. As Hake would agree, that’s Capital Allocation 101.
NextEra made overtures to Duke Energy (NYSE:DUK) and Evergy (NYSE:EVRG). Both rejected the offers. However, I’m sure something will shake out soon enough. Like Hake said, a bid might come with more cash.
What I do know for certain is that NextEra is one of North America’s best-run utilities.
Dollar General (DG)
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Representing the final month of the year is Dollar General, the dollar-store discount chain with 17,000 locations in 46 states. It’s having another strong year, up almost 37% YTD. Combine that with a 10-year annualized total return of 20.8%, and you’ve got one heck of a long-term investment.
As for trailing 12-month free cash flow, it has $3.1 billion, along with an enterprise value of nearly $64 billion. Right now, its FCF yield is 5.9%.
On Nov. 14, the company announced the opening of its 17,000th store in Fountain, Colorado. As a nice gesture to the community, Dollar General donated $17,000 to one of the local schools. In the company’s press release heralding the occasion, CEO Todd Vasos said:
“Since our founding more than 80 years ago, we have remained focused on helping customers save time and money.”
In my book, helping customers save time and money are the hallmarks of any successful business.
Back in November, I also recommended Dollar General as one of three stocks of relative values compared to Nio (NYSE:NIO), the Chinese electric vehicle maker. And while I like Nio long-term, it isn’t a name to buy for the short-term at current prices. DG stock is much more down-to-earth.
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As long as working folk need to save money, Dollar General’s business remains a solid bet. In turn, that makes it one of the best stocks to buy going into the uncertainty of 2021.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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