We often forget about this simple principle, but the stock market is always ahead of the economy. Therefore, when things look bad (high unemployment rate, the world economy slowing down, etc.), the stock market can go up. In fact, investors anticipate the impact of a vaccine along with all that “free money” being printed or borrowed at ultra low interest rates. Therefore, the market goes up while we pile up bad macro environment news.
What will happen this year? Economic news is going to improve, and likely stocks will go sideways or even decline. Why is that? Because all the good that could happen in 2021 is pretty much priced into the market now. What can you do about it? Nothing.
The tricky part is that if the economy grows accordingly to expectations, not much will happen. However, surprising news (both good and bad) could happen too! The underlying force of having so much liquidity in the stock markets will likely support another year of growth. However, I wouldn’t be surprised if we have a “no return year” in 2021. I predict dividend growth investing will get all its appeal back in this more challenging investment environment.
Last year was quite a roller coster! If there is one single piece of wisdom you must remember from 2020 it is this: stay invested. If you stayed invested since December 2014 your portfolio is now clearly in better shape now with the US market having doubled in value and the Canadian market being up 50%.
What will 2021 bring us as investors? More dividends! Today, I will share with you two stocks that are amongst my Top Picks for 2021. The selection methodology of those companies is explained in this article:
- Market cap: 39B
- Yield: 2.36%
- Revenue growth (5yr, annualized): 1.67%
- EPS growth rate ((5yr, annualized): -18.25%
- Dividend growth rate (5yr, annualized): 7.89%
Sysco has been featured in the Mike’s Buy list for a while and was recently taken off after a strong performance in November. As vaccines are coming in 2021, many hope that we will get back to normal life faster than expected. I’m no epidemiology expert, but I can certainly see how Sysco will benefit from this situation over the long haul.
Sysco is the dominant player in the highly fragmented business of food distribution. Even better, this market is fragmented in the U.S. with over 10,000 small food distributors across the country. This offers SYY a great opportunity to acquire and integrate smaller players. Not all food distributors can go through the pandemic without getting hurt. Sysco has the balance sheet to cruise through this challenging period and emerge from it stronger than ever.
The company has been helping restaurants find other ways to survive during the partial lockdowns. SYY has also improved its digital services and focus on cutting down costs to improve liquidity. It’s cash payout ratio for the last quarter (September 30th, 2020) was around 50%. Stats show that many households are now tired of cooking and are looking for take-out options. Sysco’s weekly sales have been constantly improving since April.
I expect a slowdown during this winter as the vaccines have not been distributed across North America yet. This should hurt smaller players and open the doors for Sysco to grab additional market share. It may take up to two years, but sales will be back to growth and Sysco will continue to dominate the food distribution industry.
- Market cap: 120B
- Yield: 1.84%
- Revenue growth (5yr, annualized): 5.58%
- EPS growth rate ((5yr, annualized): 8.11%
- Dividend growth rate (5yr, annualized): 11.32%
I can’t get enough of BlackRock! Back in 2013 when we created our 25K and 100K DSR portfolios, BLK was among the first companies identified as a great candidate. At that time, I didn’t have any personal money available to add BLK in my portfolio. When I quit my job in late 2017, BLK shares prices were getting close to $500. I ignored it thinking it was pricey. In other words, I didn’t follow my own advice of buying stocks you believe in whenever you can. I’ve kicked myself for a while as BLK almost reached $600 in 2018. I finally got lucky and had the opportunity to grab BLK around $400 during the small 2018 market crash. Today, the stock is trading above $700 and I would buy it in a heartbeat.
BlackRock counts on several growth vectors. Of course, you may think of them as the largest ETF creator with their iShares series. While their ETF business is thriving and this trend is not about to end, BLK is offering a lot more than the most popular investment vehicles.
Going forward, a lot of money is to be made through wealth management. Many individuals have amassed a significant amount of wealth and they are looking for more than a simple investment solution. They are looking to meet with a knowledgeable advisor that will take care not only of their money but will plan their overall financial future. BlackRock supports those advisors with a complete platform called Aladdin. This platform is more than a simple portfolio management tool. It is a goldmine of financial data combined with artificial intelligence to help portfolio managers, advisors and institutional clients to optimize their investment decisions. In a world where retirement planning becomes the responsibility of everyone, such a tool is priceless. Aladdin is still at its early days of growth as it is being used by only 20% of portfolio managers, 23% of U.S. pensions and 17% of the top 250 insurers.
Find out about 6 companies that will crush 2021
Each year, I compile a list of 20+ stocks that are expected to do better than the market. Back in December of 2019 we just finished an amazing year with double-digit returns. Then, the pandemic crushed the market (down 30%) and the flood of new money combined with strong growth from tech, consumer staples and gold brought the market back up by double-digits. Staying invested has been the key factor to the many who had success with their portfolio in 2020.
You can download 6 of my top 20 for 2021 right here:
Disclaimer: I hold shares of BLK.