These 4 Great Stocks of 2021 Have More Room To Run
Market gyrations are normal and this is when we must keep the big picture in sight.
The markets have been on a roller coaster ride of late, with increasing concerns that the delta variant could do more damage than previously envisaged. But it’s still worth noting that the S&P 500, Dow Jones, Nasdaq Composite and Russell 2000 are all substantially up this year. And the numbers coming out of ISM, the Commerce Department, the BEA and others are all overwhelmingly positive, increasing confidence in a strong recovery.
So whether or not there’s a tapering around the corner, there must be some good opportunities out there. With all that in mind, I’ve picked a few stocks that look like great investments. So without further ado, let’s jump straight into them-
Arrow Electronics, Inc. ARW
Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products with over 150,000 customers (original equipment manufacturers, contract manufacturers, value added resellers and commercial users) that are catered to through 300 sales facilities and 45 distribution centers in over 80 countries. Around 60% of its revenues are generated internationally.
Almost half of the company’s sales typically comes from semiconductors. So any disruption in semiconductor supply is a concern for Arrow. However, the recent supply chain constraints are mostly related to the divergence of available semiconductors to computing and related markets instead of auto, a market where demand has picked up dramatically.
Semiconductor production remains quite robust overall. This kind of disruption is therefore less negative for distributors than for the end markets using the devices.
On the other hand, the pandemic-induced race toward digitization and cloud adoption is a huge positive for the company, as is the increased IoT adoption. Arrow has taken the acquisition route to cater to these new segments that should greatly expand its served markets. Therefore, it is extremely well positioned to deliver secular growth.
Analysts currently expect the company to generate 74.3% EPS growth this year. However, investors are clearly undervaluing this growth because the stock trades at a PEG of 0.35.
Year-to-date appreciation in the share price is just 22.2%, which could be because it is at 90% of its 52-week high, but is not justified given its growth potential. Its P/E based on 2021 earnings is just 8.8X and P/E based on 2022 earnings is just 8.3X. So this could really be a cheap way to play the semiconductor and broader technology market.
The Zacks Rank #2 stock has a Value Score of A and Growth Score of B. It belongs to the Electronics - Parts Distribution industry, which is in the top 2% of 250+ Zacks-classified industries.
Affiliated Managers Group, Inc. AMG
Affiliated Managers Group is an asset management company providing investment management services to mutual funds, institutional clients and high net worth individuals in the United States. Its affiliates manage more than 500 investment products across the international and emerging markets equities, domestic equities, alternative and fixed income categories.
It also distributes investment products to retail and institutional clients directly and through intermediaries. As of Jun 30, 2021, Affiliated Managers had total Assets Under Management (AUM) of $755.7 billion.
The company has recently increased focus on the fast-growing ESG segment, which along with private markets, specialty fixed income and U.S. equity strategies were its strongest drivers in the last quarter.
In July, it signed a deal to acquire a majority stake in Parnassus Investments, the largest pure-play ESG-dedicated fund manager in the U.S. With the acquisition, AMG affiliates will now manage over $80 billion in AUM in dedicated ESG strategies and over $600 billion in strategies integrating ESG factors into the investment process. It is expected to add around $70 million to its adjusted EBITDA and $1.30 per share to its economic earnings in 2022.
Management particularly called out the favorable transaction environment, AMG's strong competitive position and the increasing demand for its partnership solutions from the highest-quality independent firms around the world as the biggest positives going forward.
The Zacks Rank #2 stock with Value Score of A and Growth Score of B, belongs to the Financial - Investment Management industry (top 29%). It has returned 64.2% year to date and yet it is still about 11% off its 52-week high.
Moreover, it is cheap in terms of 2021 and 2022 earnings (P/E of 9.8X and 8.4X, respectively) and also in terms of its earnings growth potential (PEG of 0.65X). The company is expected to grow its earnings by 27.3% this year.
Volkswagen AG VWAGY
Volkswagen, one of Europe’s largest automakers, manufactures and sells automobiles primarily in Europe, North America, South America and the Asia-Pacific. Its four segments include Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. With nine independent brands, it is able to offer a unique range of models from the extremely efficient 3-litre car to the great sporting tradition of Bentley.
The company is also taking steps to become a major player in the emerging EV space with its all-electric vehicles growing 165% over 2020 levels. Growth rates should sustain through the rest of the year on the back of new models coming to market. It is also tapping the strong demand for plug-in hybrid drive (PHEV), which generated thrice the volumes of the prior year.
In the first half of 2021, Volkswagen saw particularly strong demand for its premium Audi and Porsche models. Volkswagen Financial Services also did extremely well. The volume increases, improved mix, better pricing and effective raw material hedges were also positive for earnings.
The semiconductor shortage continues to impact the company and could continue to do so through next year and into 2023. While management believes the shortage could worsen in the current quarter, their overall expectations for the year have actually improved. The biggest concern is in China, where it is losing share even as it sees significant gains in Europe and North America.
The Zacks Rank #2 stock has a Value Score of A and a Growth Score of B. It belongs to the Automotive - Foreign industry (top 34%).
The company is expected to grow its earnings by 77.4% this year, but this is not reflected in its valuation. The price to earnings growth ratio is 0.81, which being below 1, indicates that the growth potential is not fully valued.
Additionally, its price to forward earnings (P/E) multiples of 9.6X for 2021 and 9.0X for 2022 are also very low. It’s true that the 62.4% year-to-date return is pretty awesome, but since this is still around 30% off its 52-week high, there’s really no reason why it should not rise further.
Lincoln National Corp. LNC
Lincoln National Corp. is a diversified life insurance and investment management company. Operating under the name of Lincoln Financial Group, it operates through a number of subsidiaries.
With more than 1,300 wholesalers and 99,000 producers choosing to sell a Lincoln product over the past 24 months, the company has a strong distribution franchise. Its largest segment is Life Insurance, contributing 42% of revenues, followed by Annuities (25%), The Group Protection segment (26%) and Retirement Plan Services (7%).
A well-diversified and low-risk product profile (80% of total sales without a long-term guarantee) has improved the company’s risk profile in the life insurance business. Another major growth driver is the recently-acquired group benefits business of Liberty Mutual, which has positioned the company as a Group Benefits market leader by increasing its Large Case presence and Disability expertise. While some pandemic-related and consequently, higher claim concern remain, the company should benefit from its own financial discipline and decision to rationalize non-core assets.
The shares currently carry a Zacks Rank #2, Value Score A and Growth Score B. They belong to the Insurance - Life Insurance industry (top 39%). They’ve had quite a decent run this year, appreciating nearly 35% and are currently just 8% off their 52-week high. However, considering that they represent EPS growth of 131.8% this year, the shares look grossly undervalued (P/E based on this year’s earnings of 6.6X, P/E based on next year’s earnings of 6.1X and PEG of 0.16X).
Year-to-Date Price Performance
Image Source: Zacks Investment Research
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