The Best Stocks to Buy in 2021 (for Singapore investors)

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I came across this article on Forbes recently on the Best stocks to buy in 2021.

It was written for US investors, but very interesting nonetheless.

So I figured let’s do the same thing, but from the perspective of a Singapore investor!

Basics: Which are the best sectors to buy?

We’ve talked a lot about how 2021 will be the year that investors need to sift through the post-COVID carnage, and figure out what thrives and what dies in this “new normal”. And invest in the ones where it’s not already priced into the stock.

I’ve set out a table below that communicates this concept.

They’re split by how well they’re doing now (during COVID phase), and how well they’re likely to do post-COVID.

Now I get the world is not black and white, and not all industries are binary.

For example real estate may have logistics spaces that are doing really well, while retail and hospitality are in a world of pain. 

But I’ve tried to simplify and classify them based on stock prices today. If you disagree just let me know in the comments!

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Invert, always invert – What are the worst stocks to buy in 2021?

When you face a hard problem, always invert it.

To answer what are the best stocks to buy in 2021, let’s first ask what are the worst stocks to buy in 2021.

This will be the bottom tier of the table above (orange and red).

Red Zone

These are stocks that are doing poorly now, and will do poorly post COVID. In the absence of external support, there will be real insolvency risk:

  • Airlines
  • Department Stores
  • Hotels

The common theme for these stocks is that the core industry dynamics are not good even pre-COVID. 

For airlines it’s the lack of pricing power in what is essentially a commodity product (it’s OPEC without the price fixing ability). Airtravel will also take years to recover.

For department stores the business model is in structural decline because of eCommerce and changing consumer patterns.

And hotels have structural supply issues from COVID and the rise of AirBnb/Booking.com (moving power to the platforms rather than operators).

Orange Zone

These are stocks that are doing well now but will do poorly post COVID. The biggest one I can think of are:

  • Work from home beneficiaries (eg. Zoom, Peloton)
  • Consumer defensives (eg. Supermarkets)
  • Glove/Mask makers

These stocks are doing very well now, but they’re being priced as though COVID will last for years.

I’m not so sure about that, and once the vaccine starts kicking in in 2021, we could see valuations take a hit.

We’ll want to avoid this sector short term, until some of the excess blows away.

Best industries to buy in 2021?

Which brings us to the best stocks to buy in 2021.

Green zone are the stocks that are doing not so good now, but should do well post COVID:

  • F&B
  • Consumer discretionary
  • Financials
  • Energy
  • Real Estate
  • Industrials

Yellow zone are the stocks that are doing well now, but should continue to do okay post COVID:

  • Tech
  • Healthcare
  • New Energy 

I see the most opportunity in the Green and Yellow Zone, and it is where I will focus most of my investing in 2021.

I spent much of 2020 buying up the Green zone stocks because they were selling at dirt cheap valuations.

After the reflation trade the past 2 months, the whole green zone has become a lot more expensive.

So for now, I’m focussing more on the yellow zone, which has been neglected slightly in this reflation euphoria.

But really, market sentiment is very fickle, and changes on a dime.

So I would stay nimble in 2021, and alternate between Green and Yellow Zone stocks based on the market mood. Whatever is out of favour at the moment, is what I would accumulate.

BTW – we share commentary on the COVID crisis every weekend, so please sign up for our mailing list, its absolutely free.

It’s a weekly newsletter that goes out every Sunday, and rounds up the week’s posts so you never miss anything.

Don’t forget also to join our Telegram Channel!

Best stocks to buy in 2021

So the next stage is to identify actual stocks. Now the full list is in the FH Stock Watch, so do check it out if you’re keen. You can check out my full portfolio there as well (updated weekly). 

But for this article I will share some general views, and I hope you will find it useful in your investment journey.

Singapore Stocks

Singapore’s market is mainly concentrated among the banks, real estate plays, and the GLCs (Temasek linked entities).

Sure there are some small cap plays, but those have low liquidity and very high volatility (possibly manipulation as well?) so do know what you’re doing if you venture there.

Green Zone stocks for me in Singapore are:

  • Financials
    • UOB, DBS, OCBC
  • Real Estate
    • CapitaLand, REITs (CICT, MCT etc)
  • Industrials
    • ST Engineering (but has rallied quite a lot).

The banks have rallied a lot the past 2 months, so I would probably stay away short term. I already have big positions there from this year, so there’s no immediate rush for me to add.

I love real estate. I think high quality real estate is going to do very well in the coming years because of low interest rates and fiat devaluation. Short term rentals will be tricky though, especially when all those office leases come due in 2021. But hey – the more they drop, the more I’m going to add.

Industrials wise, a lot of the GLCs are less competitive these days. The Singtel, Keppel, Sembcorp, they’re okay investments, but not necessarily amazing buys. The only one I really like in this space is ST Engineering, but it’s rallied a lot since the March lows.

China/HK

Let’s face it, as a Singapore investor you ignore the China market at your own peril. 

In time to come, China’s economy will dominate the APAC region. There’s just massive growth potential there.

Green/Yellow Zone stocks for me are:

  • Tech
    • Tencent, Alibaba, Meituan, JD
  • Healthcare
    • JD Health
  • Financials
    • CCB, ICBC, BOC, ABC, Ping An
  • Consumer Discretionary
    • Xiaomi, Nio, BYD, Geely, Moutai

Personally, I like all 4 of the sectors mentioned.

Big Tech is one of my favourite ways to play the China exposure. Their existing old-world industries aren’t as developed as in the west, which leaves lots of opportunity for tech. The latest Anti-Trust regulation has created a mini sell-off in this space (esp Alibaba), opening up opportunities.

Healthcare will have massive growth in the coming years, but frankly it’s tough to differentiate the good companies from the bad, unless you have extensive market knowledge.

Financials in China is just a leap of faith. Either you believe in the CCP, or you don’t. If you’re a believer, you can buy their Big 4 Banks and enjoy a 6% yield while you wait for the rebound. If you’re not a believer, don’t touch them because no one knows the true value of their loan book. 

Consumer Discretionary is another area where I see massive growth. Short term could be tricky, but if you take a broader view the Chinese middle class is just going to explode. Very tough to pick the consumer brands that will last though, because the market evolves so quick. One way might be to just buy Alibaba/JD.

US/Europe

And finally we come to the West. 

Green/Yellow Zone stocks for me are:

  • Energy
    • Exxon Mobil/Shell
  • Tech
    • FAANG, Cloudflare, Shopify, Square
  • Consumer Discretionary
    • Shake Shack, LVMH, BMW

I’m pretty bullish on oil. I actually think the better way to play the COVID reopening is not the airlines but oil. Short term, oil demand is directly proportionate to global transportation levels (because your car and plane still runs on oil). And capex cuts mean that near term oil supply is not going up. Oh and OPEC can decide to cut supply any time to create an oil squeeze. 

That said – there is a big oil supply backlog that will take a year or two to clear, so this is more of a midterm holding. And don’t hold it too long, because I think the oil industry goes on structural decline from here as the world transitions to clean(er) energy.

Tech again is another no brainer. COVID is years of digital transformation rolled into a few months, and the world is never going back to pre-COVID. As an investor, you want to be invested in areas that are growing, and Tech is one of those. What Google/Facebook did to print media and advertising, will eventually be replicated across many industries. With low interest rates locked in at least until 2023, that’s another powerful tailwind for Tech. 

One outcome from COVID is that the rich/middle class now have more money than they did pre-COVID. Business in certain sectors are booming, and all the liquidity and stimulus is creating a lot of excess in the markets. And without travel there’s very few places to spend that money. Consumer discretionary is one of those that could benefit in the midterm. There are many ways to play this though, so some research will be required.

Closing Thoughts

This article was a simple taste of what I think 2021 will be about.

Sifting through industries and companies, and trying to figure out what the post-COVID world will look like.

Again, I think the only historical parallel to COVID’s impact is WWI/WWII.

And back then, people were euphoric on V-day as well. They expected that after the war, everything would go back to the way it was before the war.

But then, as now, it turned out to be completely untrue.

The war completely changed the world, and the pre-war world was never coming back. 

The post-war economies took years to recover, and the UK never regained its status as global superpower.

I think the same thing happens this time around. The only question is what changes, and what stays the same.

As always, this article is written on 8 Jan 2020 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.


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6 COMMENTS

  1. With vaccines rolling out, para- medical manufacturers will boom. E.g glove makers and PPE suits maker. These vaccines must be injected by medical ppl donning PPE and gloves. I believe gloves like syringes must be disposed everytime and every person change. Imagine having to vaccinate for almost whole world population. Each person expends a set of gloves?

  2. Hello Financial horse, another great article by you. My only thought is whether should there even be any sector inside theses 2 region of your table.

    “Good” & “Good” ==> now & post COVID ==> Tech

    “Poor” & “Poor” ==> now & post COVID ==> airline, hotel

    My personal thought is that there should be no industries inside these 02 x region of your table.

    If there is really going to be anything inside the good & good sector, the share price will likely be sky high making it too risky/ not worth to buy and/or offer very poor dividend.

    If there is really going to be anything inside the poor & poor sector, the share price is likely too low until you will wonder whether will it go bust OR it might just get delist.

    Cheers

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