New year, same old overpriced stocks. If you are a value investor, the current market may be a nightmare for you. However, there are some hot stocks out there that are trading at a discount. These are the names you should explore.
This list is meant to give you a starting point for powering your portfolio with breakout stocks in 2021. Before we get into it, though, it’s important to note that we will only be discussing listed entities. There are several interesting plays out there on the pink sheets. But, you have a certain sense of stability when investing in a company on a major index.
With that in mind, let’s explore five hot stocks that have the potential to break out this year:
- Adobe (NASDAQ:ADBE)
- American Electric Power (NASDAQ:AEP)
- FedEx (NYSE:FDX)
- Advanced Micro Devices (NASDAQ:AMD)
- Cardinal Health (NYSE:CAH)
Hot Stocks Ready to Break Out: Adobe (ADBE)
A strong performer for quite some time, Adobe is probably one of the less-exciting options available in the tech space. A software company, it’s subdivided into three segments through which it conducts business. One focuses on digital media content creation, the other on marketing solutions and the remaining segment on publishing legacy products. Out of the last 12 quarters, the tech giant has beat expectations almost every time.
That’s a pretty good track record. And the markets have taken notice. Consequently, ADBE stock has outperformed the S&P 500 by some 400% and its sector by 269% in the last five years. During the same period, the technology sector has outperformed the market by 131%.
Right now, shares of ADBE stock are trading at 46.32 times trailing price-to-earnings versus a five year average of 30.95. However, like Zacks points out, “As a large-cap company, ADBE’s shareholders are exposed to the least amount of risk.” That makes it one of the better hot stocks to invest in.
American Electric Power (AEP)
American Electric Power is one of the biggest U.S. electric energy companies, with over 5 million customers spread across states like Arkansas, Kentucky, Louisiana, Ohio, Michigan, Texas, Virginia, West Virginia and more.
Despite the novel coronavirus pandemic, the company reported third-quarter 2020 earnings of $749 million or $1.51 per share, compared with $734 million or $1.49 per share in Q3 of the prior year. Out of the last six quarters, AEP reported just one negative earnings surprise. That kind of consistent record is why, out of the 19 analysts tracked by Seeking Alpha, 13 have a bullish view on AEP stock. They give it an average price target of $93.44 per share, an 18.6% upside from the current price.
Although the company doesn’t figure on many lists, I believe AEP stock is a consistent performer. Plus, its current GAAP trailing price-earnings is at a nearly 20% discount to the 5-year historical average. For this pick of the hot stocks, shares should break upward as the general trajectory of the economy improves.
FedEx (FDX)
Industrial stocks took a real hammering due to the pandemic. However, with vaccines rolling out, several names have breakout potential. One of these hot stocks is FedEx, a pick that has faced strong resistance in the high $200s, now at around $256 per share.
However, a breakout is highly likely for FDX stock as we move ahead in the new year. Thanks to the pandemic, online shopping soared in the early months of the outbreak. The stay-at-home trend will decrease as the economy steadies, but the company is still projected to grow sales at 15% in fiscal 2021. Plus, even though the growth in e-commerce will slow, the increase in digital shopping is a secular trend.
In December, FedEx shares slid after it reported its fiscal Q2 earnings. Higher operating costs left Wall Street wanting more. But that said, the earnings per share (EPS) figure of $4.83 still managed to beat analyst expectations by a little over 20%.
Out of 29 analysts covering the stock on Seeking Alpha, 20 are bullish on FDX and eight are neutral. Plus, the average 12-month price target of $325.58 per share implies an over 26% upside. However, I lean more towards the bull case, which is closer to $380 a pop.
Advanced Micro Devices (AMD)
Our next pick of the hot stocks is one of the winners of the pandemic. While some companies struggled due to Covid-19, Advanced Micro Devices posted excellent numbers throughout the year, stringing together three consecutive quarters of positive earnings surprises and fending off stiff competition from Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) in the semiconductor world.
The majority of the firm’s sales are in the computer market via central processing units (CPUs) and graphics processing units (GPUs). Moreover, this year’s major catalyst will be the sales of next-generation consoles such as Sony’s (NYSE:SNE) PlayStation 5 and Microsoft’s (NASDAQ:MSFT) Xbox Series X and Series S. Supply shortages for these machines affected the bottom line in 2020. However, the company was still able to profit from their launches.
For the quarter, CEO Dr. Lisa Su noted that “Overall demand has been high in 2020 and exceeded our plans” and that CPU and GPU shortages will mainly affect gaming hardware and the low-end of the PC market.
Overall, analysts are still bullish on AMD stock, despite the short-term slowdown in sales. Out of 37 analysts covering the stock, 2o are bullish on the company. On top of that, their average 12-month price target of $99.11 currently implies a 10.3% upside.
Cardinal Health (CAH)
Last on my list of hot stocks, Cardinal Health isn’t usually considered one of the must-have pharmaceutical stocks. However, it really should be because of its track record. The company distributes branded and generic pharmaceuticals to various health facilities, clinics, pharmacies and the like.
The healthcare sector is on fire at the moment. That’s because Covid-19 is a short-term tailwind for those businesses and CAH stock is a net beneficiary of that. Out of its past 12 quarters, the company reported 11 positive earnings surprises. Sales have grown at an average of 5.6% in the last three years and are expected to increase 5.3% and 4.5% in fiscal 2021 and 2022, respectively.
Despite such an amazing record, though, CAH’s current trailing price-earnings of 8.76 is at a 35.8% discount to the 5-year historical average. On Seeking Alpha, analysts have given the stock a 12-month price target of $62.94 a pop, implying a 21% upside.
At the time of this writing, CAH stock has support around the $52 mark and it’s trading close to that. I expect a bounce back from that upward.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.