2020 was a year of extremes. U.S. stocks closed at record highs on Thursday, before an extended holiday weekend. Utility stocks led the way higher this week, as the S&P 500 logged a 16.3% gain for the year.
While trading volume was relatively low, the week started off on the right foot. President Trump signed the latest economic relief plan and annual Federal budget on Sunday.
Looking ahead to the new year, valuations appear lofty against the backdrop for uncertain economic growth. Two potential areas of interest for 2021 are Dividend stocks and Multinational companies.
Stocks with dividend yields above 2.5% offer value in a low interest rate environment. They provide a cushion should indexes decline from record levels. Multinationals also make sense, as the U.S. Dollar Index (DXY) is at its lowest level in three years.
It may no longer be the top news story in the financial press, but the coronavirus pandemic is still with us.
AstraZeneca’s (AZN) vaccine received emergency approval in the U.K. on Wednesday. However, a faster-spreading variant of the disease which was first reported in the U.K., has been detected in the U.S. and more than 30 other countries.
The reported case count crossed 20 million in the U.S. this week. The story of the first quarter will be the race to implement vaccines against the spread of COVID-19.
If the pandemic continues to persist, it could hamper the positive trajectory of the economic recovery in 2021.
What to Expect Next Week
In political news, the Georgia Senate runoff election will be on Tuesday. Elsewhere, Micron (MU) and Walgreens Boots (WBA) will be among the first names to report quarterly results in 2021.
On the economic front, Friday’s December jobs report calls for the addition of 112,000 non-farm payrolls and the headline unemployment rate to remain at 6.7%.
Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 2021.
As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.
One such Healthcare name is worth a closer look and is our Stock of the Week.
Stock of the Week: Viatris (VTRS)
The company sells both branded and generic drugs, including names like Lipitor, Viagra and Xanax. The business was created in November, by merging Mylan and with the Upjohn unit of Pfizer (PFE).
The stock gained more than 5% this week. We believe this momentum can continue in the early months of 2021. Here’s why:
One financial benefit of the recent merger is that management has targeted $250 to $300 million of annual cost savings, by closing redundant operations. Viatris will pass these savings directly to investors. Management expects to initiate a quarterly dividend in the first quarter of 2021.
The company is budgeting about $1 billion a year in payouts. This is equal to 25% of expected free cash flow and would indicate a yield approaching 5%. Another tailwind for the business is that about 70% of revenue is generated outside of the U.S.
Insiders have voiced their interest in the shares. A member of the Board of Directors bought about $490,000 worth in December. There are several reasons why insiders may sell a stock, but they usually only buy when they are upbeat about the near-term outlook.
Wall Street agrees that Viatris is attractively valued. The average price target of eight active analysts tracked by TipRanks is $22.29, which represents 18.9% upside potential.
In addition, it’s worth noting that the company carries a Smart Score of 10/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, the Smart Score indicates that the shares have seen improving sentiment from investors (both professional and individuals) and financial bloggers.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.