In this article, we discuss the 10 best stocks of 2021.
The past ten months have been characterized by the post-pandemic economic recovery. A rebound in demand for travel as restrictions are lifted — the United States Travel Association recently welcomed non-US citizens to the country for the first time in eighteen months — and the repopulation of casinos, theatres, and restaurants has helped the stock market to record highs. Even industries like biopharma and software, which rallied during the pandemic, have continued their gains as the recovery accelerates.
The US GDP grew at a record 6.7% annualized rate between June and September this year. Stock market volumes were through the roof as retail investors, regarded as a pandemic-era market anomaly, continued to pour into equities. The increase in demand for semiconductor chips, electric vehicles, oil, and other commodities like steel, combined with supply chain issues, helped push prices, offsetting some of the blowback of the pandemic lockdowns. Even pharma firms kept pace with the new economy, announcing research into COVID-19 pills.
Several of these trends are expected to continue into the new year and investors should design their portfolios around these growth catalysts. Some of the best performing stocks of 2021 include NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), among others discussed in detail below.
Our Methodology
We picked some of the best-performing stocks of 2021 based on their year-to-date gains.
Analyst ratings and the hedge fund sentiment around each stock was also considered to provide readers with some context for their investment decisions.
The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Best Stocks of 2021
10. The ONE Group Hospitality, Inc. (NASDAQ:STKS)
Number of Hedge Fund Holders: 6
Year-To-Date Gain: 317%
The ONE Group Hospitality, Inc. (NASDAQ:STKS) owns and runs restaurants around the world that operate under the STK and Kona Grill brands. The stock has performed well this year because of the increased turnout at restaurants and eateries following almost twelve months of lockdown. In the first quarter, the operating profit margin of the firm was 18.8%. This figure jumped to a record high of 22.6% in the second quarter.
Piper Sandler analyst Nicole Miller Regan recently upgraded The ONE Group Hospitality, Inc. (NASDAQ:STKS) stock to Overweight from Neutral and raised the price target to $17 from $12, underlining that the firm had the potential for accelerated global expansion in the coming months.
At the end of the second quarter of 2021, 6 hedge funds in the database of Insider Monkey held stakes worth $4 million in The ONE Group Hospitality, Inc. (NASDAQ:STKS), down from 8 the preceding quarter worth $2 million.
Just like NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), The ONE Group Hospitality, Inc. (NASDAQ:STKS) is one of the stocks that hedge funds are buying.
9. Red Rock Resorts, Inc. (NASDAQ:RRR)
Number of Hedge Fund Holders: 26
Year-To-Date Gain: 99.6%
In addition to restaurants, another sector that has bounced back after a torrid 2020 is the casino and resorts business. Red Rock Resorts, Inc. (NASDAQ:RRR), a gambling and entertainment business based in Vegas, is one such firm. In September, the Nevada Gaming Control board reported that the monthly gaming win for August had crossed $1.17 billion, up 57% year-on-year but also 22% above pre-pandemic levels. Red Rock Resorts is a direct beneficiary of this boom, recently beating market predictions on earning per share by $0.27.
Deutsche Bank analyst Carlo Santarelli has a Buy rating on Red Rock Resorts, Inc. (NASDAQ:RRR) stock with a price target of $60. The analyst said in an investor note recently that the margins of the firm remained “elevated”.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $658 million in Red Rock Resorts, Inc. (NASDAQ:RRR), down from 28 the preceding quarter worth $607 million.
In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Red Rock Resorts, Inc. (NASDAQ:RRR) was one of them. Here is what the fund said:
“The shares of Red Rock Resorts, Inc., a real estate gaming, development, and management company that generates 100% of its cash flow in the Las Vegas Locals market continued to perform well in the most recent quarter. We remain optimistic about the long-term prospects for the company given the quality of its 100% owned real estate assets, the attractive and expanding Las Vegas Locals market (strong population growth), and the company’s impressive growth and free cash flow prospects. We believe the shares could appreciate by approximately 50% in the next few years.”
8. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 32
Year-To-Date Gain: 118%
Nucor Corporation (NYSE:NUE) has benefited from the increase in iron prices over the past few months as the economy roars back into life following a muted 2020. As US President Biden approves a multi-trillion dollar infrastructure overhaul plan, the stock has room to climb further because of the increased government spending on rebuilding roads, bridges, and other projects that require a lot of iron and steel.
Nucor Corporation (NYSE:NUE) will have to navigate labor shortages amid heightened demand if it can realize the gains of the post-pandemic recovery. The firm has purchased a coil processing facility and pledged $100 million to build a melt shop recently in pursuit of this goal.
At the end of the second quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $196 million in Nucor Corporation (NYSE:NUE), up from 25 in the preceding quarter worth $191 million.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE:NUE) was one of them. Here is what the fund said:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.
The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
7. Moderna, Inc. (NASDAQ:MRNA)
Number of Hedge Fund Holders: 37
Year-To-Date Gain: 134%
Several drugmakers that market the COVID-19 vaccine have enjoyed a good start to the year and are still going strong as vaccinations continue. However, Moderna, Inc. (NASDAQ:MRNA) stands out as one of the more incredible success stories of the pharma industry during the virus crisis. The company, using cutting edge genetic sequencing, was able to develop the COVID-19 vaccine in just two days at the turn of the year, giving the stock a huge boost almost overnight.
Wolfe Research analyst Andrew Galler recently initiated coverage of Moderna, Inc. (NASDAQ:MRNA) stock with an Outperform rating and a price target of $304. Reports of the development of COVID-19 pills have also helped pharma stocks in recent weeks.
At the end of the second quarter of 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $5.7 billion in Moderna, Inc. (NASDAQ:MRNA), down from 39 in the preceding quarter worth $1.6 billion.
In its Q2 2021 investor letter, Baillie Gifford, an asset management firm, highlighted a few stocks and Moderna, Inc. (NASDAQ:MRNA) was one of them. Here is what the fund said:
“Among the top contributors to Fund performance in the second quarter was Moderna. Moderna has just reported its first profitable quarter in the company’s history – net income for the most recent quarter was $1.2 billion. It reported revenue of $1.9 billion, an impressive increase compared to $8 million a year ago, driven by the sales of its Covid-19 vaccine. Moderna is expecting to deliver up to 1 billion vaccine doses in 2021 and is in discussions to increase global supply to governments around the world. Our long-term focus remains on the transformational potential of Moderna’s technology and its ability to address different diseases.”
6. SoFi Technologies, Inc. (NASDAQ:SOFI)
Number of Hedge Fund Holders: 39
Year-To-Date Gain: 82%
In tandem with the incredible rally in cryptocurrencies this year, fintech stocks have jumped as well. SoFi Technologies, Inc. (NASDAQ:SOFI), which owns and runs an online financial services platform, debuted on the market in June this year and jumped more than 12% at the end of the first day of trading. The stock has since jumped further on the back of reports that the company will soon receive bank charter approval.
On October 11, investment advisory Morgan Stanley initiated coverage of SoFi Technologies, Inc. (NASDAQ:SOFI) with an Overweight rating and a price target of $25, backing the firm to be a “powerful revenue growth story” in the fintech market despite tough competition.
At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in SoFi Technologies, Inc. (NASDAQ:SOFI).
In addition to NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Devon Energy Corporation (NYSE:DVN), SoFi Technologies, Inc. (NASDAQ:SOFI) is one of the stocks that is on the radar of institutional investors.
In its Q2 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and SoFi Technologies, Inc. (NASDAQ: SOFI) was one of them. Here is what the fund said:
“We invested in SoFi Technologies, Inc., an online consumer finance company or “neobank,” through a SPAC-PIPE transaction. The company was founded in 2011 to refinance student loans into lower interest rates and has since expanded into other financial services, such as bank accounts, debit and credit cards, brokerage, and cryptocurrency trading. We believe that SoFi now has the broadest product suite of any neobank in the U.S., and we view the core lending segment as a differentiated product line that few other neobanks offer. With most competitors targeting un-banked and under-banked individuals, we believe SoFi’s focus on a higher-income demographic coupled with its wide range of products positions it to be one of the leading digital banks. The company’s product breadth enables it to serve customers throughout their lives, such as offering student loan refinancing for new graduates or brokerage accounts when those graduates accumulate savings. SoFi seeks to cross-sell products to existing customers, driving higher customer engagement and retention. SoFi also owns a technology platform called Galileo that is used to power many other neobanks. We believe Galileo gives SoFi attractive exposure to the broader universe of fast-growing consumer FinTech companies. Over time, we expect SoFi to continue adding members and cross-selling additional services, which should drive improving unit economics and earnings growth.”
5. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 50
Year-To-Date Gain: 179%
One of the best-performing industries this year has been the energy sector, specially the oil and gas segment. Devon Energy Corporation (NYSE:DVN), an integrated oil and gas firm, has benefited from the increase in demand for oil in the post-pandemic economy, as well as the soaring oil prices as OPEC discusses production increases. Truist analyst Neal Dingmann has a Buy rating on the stock with a price target of $60.
Devon Energy Corporation (NYSE:DVN) stock has climbed further in the past few days after OPEC announced that it would be sticking to a plan to only increase oil output by 400,000 barrels per day, much below high demand, through December. This effectively means that oil prices will remain high in the near-future.
Among the hedge funds being tracked by Insider Monkey, Wyoming-based investment firm Adage Capital Management is a leading shareholder in Devon Energy Corporation (NYSE:DVN) with 7.5 million shares worth more than $219 million.
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:
“After a rough start to the year our two biggest energy holdings – WPX Energy rebounded materially in the last six months though energy was still our biggest detractor for the year. I’ve previously written about deciding earlier this year to direct new capital towards better businesses versus adding more to the energy sector, but given the material optionality at WPX, we opted to maintain a material exposure. Recently WPX announced an all stock merger with a larger competitor – Devon Energy – which will leave the new company with plenty of cash flow at lower oil prices, less leverage, and material upside to higher commodity prices.”
4. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 55
Year-To-Date Gain: 129%
Ford Motor Company (NYSE:F), the Michigan-based automaker, has pivoted to electric vehicles this year, announcing the flagship all-electric F-150 truck and several other EV models. The stock has been given a further boost by the recent approval of the American Jobs Plan of US President Biden that will increase federal tax credits for EV makers who use union labor to $12,500 from $7,500, incentivizing the production of more EVs.
Ford Motor Company (NYSE:F) has also enjoyed increased interest from the retail investor community that has discussed the new EV models and business strategy of the company at length on internet platforms like Reddit, improving the visibility of the firm to young investors.
At the end of the second quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $2.10 billion in Ford Motor Company (NYSE:F), up from 49 in the preceding quarter worth $2.19 billion.
In its Q1 2020 investor letter, Greenlight Capital Fund, an asset management firm, highlighted a few stocks and Ford Motor Company (NYSE:F) was one of them. Here is what the fund said:
“General Motors (GM) was a disappointment. The damage from last year’s strike consumed most of the cash flow GM would have otherwise generated in 2019. We had expected a strong bounce back in earnings and cash flow in 2020, but the annual guidance, while meeting Wall Street expectations, was worse than we expected. Further, the cash burned during the strike needed to be re-earned in order to protect GM’s investment grade rating. Pre-crisis, there would have been, at best, a minimal share repurchase late in the year. At the analyst day, our hopes that 2020 would finally be the year were dashed. We sold our stock. Over our five-year holding period, we made a 9.6% IRR on GM. In the difficult environment, its most comparable peer, Ford, lost about half its value.”
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 60
Year-To-Date Gain: 74%
No list about the best-performing stocks of the year would be complete without discussing Tesla, Inc. (NASDAQ:TSLA), the California-based EV maker that has crossed $1 trillion in market capitalization. Wedbush analyst Daniel Ives recently raised the price target on the stock to $1,800 from $1,500 and kept an Outperform rating, noting the expected rise in demand for EVs through next year and potential deals of the firm with ride-hailing and leasing services.
On November 8, PepsiCo, one of the largest beverage firms in the world, announced that it would be taking the first deliveries of Tesla, Inc. (NASDAQ:TSLA) trucks for operations. PepsiCo had ordered 100 Tesla trucks as part of a plan to lower the carbon footprint of the company.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Tesla, Inc. (NASDAQ:TSLA) with 23 million shares worth more than $16 billion.
Here is what Baron Partners Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2021 investor letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
2. Atlassian Corporation Plc (NASDAQ: TEAM)
Number of Hedge Fund Holders: 64
Year-To-Date Gain: 83%
Atlassian Corporation Plc (NASDAQ: TEAM) operates as an application software firm. Even though most work-from-home stocks have not performed well in the post-pandemic economy, companies like Atlassian have enjoyed a bull run as remote working becomes practical and feasible for businesses. Oppenheimer analyst Ittai Kidron recently raised the price target on the stock to $500 from $420 and kept an Outperform rating on the shares.
Atlassian Corporation Plc (NASDAQ: TEAM) recently posted earnings for the first fiscal quarter, reporting earnings per share of $0.46, beating estimates by $0.06. The revenue over the period was $614 million, up 33% year-on-year.
At the end of the second quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $4.1 billion in Atlassian Corporation Plc (NASDAQ: TEAM), down from 67 the preceding quarter worth $3.9 billion.
Here is what Baron Opportunity Fund has to say about Atlassian Corporation Plc (NASDAQ: TEAM) in its Q2 2021 investor letter:
“Atlassian Corporation Plc is a software leader that makes tools that are used by thousands of teams worldwide, thus its ticker TEAM. Atlassian’s tools “help teams collaborate, build, and create together” (quote from Atlassian’s website), with an emphasis on designing, developing, and maintaining software, including JIRA for team planning and project management, Confluence for team content creation and sharing, HipChat for team messaging and communications, Bitbucket for team software code sharing and management, and JIRA Service Desk for team services and support use cases. Atlassian is the recognized market leader for information technology team planning and project management software, and has extended its product offering into tangential areas, such as those listed above. The company is in the midst of transitioning its business model to the cloud, which will help it drive faster product innovation, more seamlessly integrate its product families, and raise the effective price realization for its suite of products. Atlassian is run by its two visionary founders, has strong competitive advantages, and we think it should be able to grow revenue over 25% for many years with best-in-class free cash flow margins.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 86
Year-To-Date Gain: 136%
No other industry has benefited as much from the increase in demand for goods in the post-pandemic economy as the semiconductor sector. Chip prices have skyrocketed due to supply chain issues and increase in demand for chips by EV makers, crypto miners, mobile and laptop manufacturers, and other industries. NVIDIA Corporation (NASDAQ:NVDA), which makes and sells these chips, has posted market-beating earnings through this period.
With chip demand likely to exceed supply well into the next year and even beyond, the prices of chips will remain high and NVIDIA Corporation (NASDAQ:NVDA) can expect a steady stream of revenue in the coming months.
At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $9 billion in NVIDIA Corporation (NASDAQ:NVDA), up from 80 the preceding quarter worth $6 billion.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
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Disclosure. None. 10 Best Stocks of 2021 is originally published on Insider Monkey.
