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Dana Blankenhorn

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Whether you’re conservative or aggressive, this list of 2021’s best biotech and biopharmaceutical stocks has at least a few options to fit your investing needs.

Biotech stocks have been all the rage in 2020 as a number of companies have aspired to correct the COVID-19 pandemic.

But then, biotech and biopharmaceutical companies been all the rage for much of the past few decades.

The trend started within just a couple of months 40 years ago this fall. StatNews, which covers the industry, cites four events within two months as vital:

First came 1980’s Nobel Prize for Chemistry. Half went to Paul Berg at Stanford for his then-controversial work on recombinant deoxyribonucleic acid (DNA). The prize effectively conferred a blessing.
Second was the initial public offering of Genentech, the first true biotech stock, which proved there was money to be made int his field.
Then came the Stevenson-Wydler Innovation Act, encouraging federal labs to share and promote research with commercial potential.
Finally came U.S. Patent No. 4237224, given to Stanford, which developed a basic method for recombining genes.

Modern biotech begins with DNA, first discovered in the 1950s, and the chemical interactions it induces to create life. Biochemists today work to design drugs that inhibit or activate enzymes driving biological processes.

Many of the largest drug companies are now being reorganized around these opportunities, whether through internal research, buyouts and/or partnerships. Giant, pure biotech stocks have emerged to pursue them, too. Scientists with promising research also have launched companies sometimes worth billions of dollars before they even have a treatment on the market.

Here, we’ll look at 14 of the best biotech and biopharma stocks to buy for 2021. We’ll divide these opportunities into three buckets: 1.) Big Pharma stocks that are undergoing (or have undergone) shifts to become more biotech-minded; 2.) large pure-play biotech companies; and 3.) “emerging” biotech stocks, some of which have a specific focus on COVID-19.

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Sanofi

Market value: $128.2 billion
Dividend yield: 3.3%
Type: Big Pharma/biopharma
Specialty: Oncology and multiple sclerosis

Sanofi (SNY, $51.01) is being transformed under CEO Paul Hudson, who took command in September 2019. Hudson is selling passive investments and becoming an aggressive acquirer of other drug companies.

Charmaine Chan, a senior analyst at Cambiar Investors in Denver, says Sanofi was ahead of today’s opportunities, initiating broad partnerships with Regeneron Pharmaceuticals (REGN) and Alnylam Pharmaceuticals (ALNY) several years ago. The result were drugs like Dupixent (for rashes and other allergic reactions), which should eventually be worth $12 billion annually – good for “super-blockbuster” status.

Back in May, Hudson detailed a plan to sell off about $13 billion worth of REGN shares it received for its investment. It used some of those proceeds to buy Principia Biopharma, which makes drugs to treat multiple sclerosis (MS). At the end of June, it still had more than $19 billion in cash to pursue acquisitions. A continued M&A focus could turn this pharmaceutical firm into one of the best biotech stocks for 2021.

Analysts such as UBS’s Laura Sutcliffe are focused on Libtayo, which uses the body’s own immune system to treat cancer. Sutcliffe says Libtayo, which currently is only approved for use against skin cancer, can become a major player. “Sanofi has bigger ambitions” to position it “as a backbone agent for future novel combinations.”

“We like Sanofi’s diverse range of businesses, which included branded pharmaceuticals, generics, vaccines and consumer healthcare products,” says Argus Research’s John Eade (Buy), though he does warn about expiring patents for its diabetes drug Lantus, as well as Plavix, which prevents blood clots. Still, “Over the next few quarters, we expect revenue from continuing operations to benefit from recent acquisitions, as well as from increasing sales of multiple sclerosis products and Dupixent.”

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Pfizer

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Market value: $214.7 billion
Dividend yield: 3.9%
Type: Big Pharma/biopharma
Specialty: Vaccines and immunosuppressants

Since becoming CEO of Pfizer (PFE, $38.62) in 2018, Albert Bourla has been steering Pfizer away from a “patent cliff” – the loss of patent protection on older drugs. Specifically, Pfizer has had to deal with patent expirations on blockbuster drugs such as Viagra and Lipitor.

Bourla is trying to unlock value in several ways. For one, its generic drugs has been combined with generics from Mylan’s (MYL) Upjohn unit into a new company called Viatris. The company also had more than $22 billion in cash at the end of June, which it can use to buy new drugs (and whole companies developing those drugs).

But currently in the spotlight is the company’s COVID-19 vaccine, which it’s developing and producing with BioNTech (BNTX). Pfizer recently released early data, saying that its “vaccine candidate was found to be more than 90% effective in preventing COVID-19 in participants without evidence of prior SARS-CoV-2 infection in the first interim efficacy analysis.”

Some analysts remain in the Hold camp, worried that Pfizer is already pricing in a good-case vaccine scenario.

However, William Blair analyst David Tuong is more optimistic. He has a price target of $55 on Pfizer, based in part on the COVID-19 vaccine. But also, Pfizer will get $12 billion in the Viatris spin-off, he writes, and will retain such drugs as Ibrance, Eliquis, Vyndaqel, Xtandi and Xeljanz, as well as its own research in oncology, immunology, rare diseases and vaccines.

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GlaxoSmithKline

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Market value: $96.1 billion
Dividend yield: 5.3%
Type: Big Pharma/biopharma
Specialty: Vaccines and immunology

GlaxoSmithKline (GSK, $38.30), well-known for its vaccines as well as respiratory drug Advair, is another transformation story – this one underway since CEO Emma Walmsley took over in April 2017.

Walmsley’s plan includes spinning out consumer products like Sensodyne toothpaste, Advil pain reliever and Centrum vitamins in a joint deal with Pfizer, although that has been delayed. GSK is also divesting other assets, such as a joint spin-off with Pfizer, although that has been delayed. The company also continues to divest other assets, such as plants in Poland and Canada.

Given its vaccine work, it’s no surprise GSK is working on a COVID-19 vaccine with Sanofi, which Walmsley recently said will be sold at no profit. The companies are prepared to deliver 200 million doses should its vaccine gain approval.

The company’s top immunology drug, Nucala, is used in some cases of asthma and was recently approved for treating a rare blood disorder called hypereosinophilic syndrome, or HES. The drug works by preventing a protein from binding to white blood cells.

Argus Research’s Eade (Buy) calls GSK’s price a buying opportunity and has a 12-month price target of $50 on the stock. He also calls out an attractive high dividend yield and says GSK shares trade below industry averages.

UBS’s Sutcliffe also sees GSK as a Buy. “The HIV business experienced a recent flattening of US sales, but new products mean the franchise has now returned to modest growth,” she writes. “Launch of a new injectable should further boost growth and we see mid-single-digit HIV sales CAGR through 2023.”

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AbbVie

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Market value: $174.9 billion
Dividend yield: 5.3%
Type: Big Pharma/biopharma
Specialty: Oncology and Immunology

Biopharmaceutical firm AbbVie (ABBV, $99.04) is what companies like Pfizer, Sanofi and GlaxoSmithKline are arguably trying to become.

Since splitting from Abbott Laboratories (ABT) in 2013, AbbVie’s value has risen 184% and its dividend has more than tripled. That has come on strength of new drugs in oncology and immunology. Its best-known drug is Humira, an immunosuppressant used to treat arthritis.

Humira’s patents expire in 2023, but AbbVie is advertising two new drugs, Skyrizi and Rinvoq, for the same markets. Its acquisition of Allergan, completed in 2020, also gives AbbVie new markets in plastic surgery, neurology, eye care and women’s health.

UBS analyst Navin Jacob (Buy) noted a number of positives from AbbVie’s most recent quarter and call with management, including a faster-than-expected recovery in its Aesthetics division (facial injectibles, plastics, etc.), a big beat on Rinvoq revenues and a 10% dividend increase, among others.

Argus Research also calls AbbVie a Buy. They see Allergan diversifying AbbVie’s revenue, and say the company’s “substantial cash flow” supports both the dividend and investments in new drugs.

Indeed, AbbVie is one of a handful of dividend growth stocks that delivered double-digit payout increases this year, effectively ensuring another year of membership in the Dividend Aristocrats: stocks that have raised their payouts annually for at least 25 consecutive years. That makes ABBV one of the best biotech stocks to buy for investors seeking out income in 2021 and beyond.

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Merck

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Market value: $205.2 billion
Dividend yield: 3.0%
Type: Big Pharma/biopharma
Specialty: Oncology and Immunology

Biopharmaceutical Merck (MRK, $81.09) sells Keytruda, the best-known immunology drug used to treat cancer. Former President Jimmy Carter took Keytruda when it was still an experimental treatment. The drug, which inhibits the action of an enzyme called PD-1, registered sales of $11 billion in 2019.

Analysts expect that figure to double over the next five years.

Like Pfizer and GlaxoSmithKline, Merck is also spinning-off a slow-growing unit. In this case, it’s the company’s women’s health division, which makes the HPV vaccine Gardasil. This arm does about $6.5 billion in annual sales.

Meanwhile, Merck is expanding its breast cancer presence via a collaboration with Seattle Genetics (SGEN) on two of its assets: ladiratuzumab vedotin and Tuksya.

Bristol-Myers Squibb (BMY), which is pushing a combination of Opdivo and Yervoy, is a strong competitor to Keytruda. Nonetheless, 17 of the 22 analysts covering the stock rate it a Buy or Strong Buy; the remaining five say you should still hold on to shares if you own them.

Argus Research’s David Toung notes that Merck has two COVID-19 vaccine candidates ready for clinical trial, along with an antiviral, developed in collaboration with Ridgeback Biotherapeutics, that can be taken as a pill. While the pandemic slowed sales on some drugs, Keytruda has been joined by two other cancer drugs, Lenvima and Lynparza, in the product line. As “physician offices reopen, elective surgeries resume, and pet owners return to veterinary offices,” he expects results to steadily improve.

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Regeneron Pharmaceuticals

Market value: $60.4 billion
Dividend yield: N/A
Type: Large biotech
Specialty: Monoclonal antibodies

Regeneron Pharmaceuticals (REGN, $566.43), responsible for drugs such as macular degeneration Eylea and arthritis treatment Kevzara, has made headlines in 2020 for the monoclonal antibody cocktail REGN-CoV2, which was used to treat President Donald Trump’s COVID-19 infection.

It also is responsible for an impressive system for drug discovery. Velocisuite is a collection of techniques, based on mouse DNA models, that lets researchers quickly test drug compounds.

Regeneron also has collaborated on a number of drugs, including the aforementioned Libtayo and Dupixent, for instance, as well as Kevzara. As part of Sanofi’s exit from owning Regeneron, the two companies have restructured their collaborations on Kevzara and Praluent, a drug to treat high cholesterol that Regeneron feels will break even in 2020.

While clearly REGN-CoV2 has boosted the stock, the company itself has enjoyed double-digit revenue growth on average over the past few years. And it could continue to serve investors well as one of the best biotech stocks for 2021.

Canaccord Genuity analyst John Newman has a Buy rating and $700 price target on shares. He writes that “We are encouraged by REGN-COV2 data and see a strong need in the seronegative patient population. We also believe that the drug can be used at a lower dose, extending dosing capacity.”

Credit Suisse analysts have a $725 price target on shares, saying they also believe the company could get excellent results from the drug at lower dosages. They also don’t see LY-CoV555, a similar compound from Eli Lilly (LLY), as a threat. “We do not see this as a zero-sum game,” the analysts add.

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Amgen

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Market value: $138.2 billion
Dividend yield: 2.7%
Type: Large biotech
Specialty: Oncology and heart disease

Amgen (AMGN, $237.36) was founded in 1980, just months before the Berg Nobel prize. It is known for drugs like Enbrel to treat severe arthritis, Prolia to treat osteoporosis, and Neulasta, used against the side-effects of chemotherapy. Amgen also bought Otezla, an immunosuppressant used against psoriasis, from Celgene for $13.4 billion in 2019 as Bristol-Myers Squibb was buying Celgene itself.

Amgen isn’t without its risks. For instance, Amgen’s sotorasib – which inhibits the production of KRAS, a protein that drives cell division – recently completed a Phase 2 study in patients with lung cancer. While Amgen called the results positive, some analysts questioned that conclusion.

Nonetheless, at Credit Suisse, a team of analysts sees Amgen building a “novel oncology program” with its KRAS inhibitor.

Meanwhile, the Phase 3 study of omecamtiv mecarbil, Amgen’s new drug to treat heart failure, failed to meet its secondary endpoint of reducing deaths from subsequent heart failure, causing some analysts to downgrade the stock.

That has analysts split between buying and holding the stock, though over the past three months, Amgen has picked up more Buys (11) than Holds (10).

CFRA’s Kevin Huang notes that while the “commercial opportunity will be much more limited than previously expected … we did not assign much value to omecamtiv mecarbil,” and thus he maintained his Buy rating. “On the positive side of things, AMGN provided a positive update two days ago on sotorasib (i.e. AMG 510) for the treatment of non-small cell lung cancer.”

William Blair (Market Perform) notes that “over the longer term, the company’s growing oncology pipeline has the potential to provide meaningful revenue growth.”

Patient investors are at least being paid to wait, with a 2.7% dividend that’s well above the market average.

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Alexion Pharmaceuticals

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Market value: $28.0 billion
Dividend yield: N/A
Type: Large biotech
Specialty: Rare diseases

Alexion Pharmaceuticals (ALXN, $127.76) works on rare nerve and blood diseases such as myasthenia gravis, amyotrophic lateral sclerosis (ALS) and Guillain-Barre syndrome, where there are government incentives that ensure proven drugs can be made profitably.

Alexion has been effective in getting people with these conditions to take its drugs. Within 18 months of getting approval for Ultomiris – a treatment for a blood disease called paroxysmal nocturnal hemoglobinuria, which tears red blood cells apart – 70% of sufferers in the U.S. were using it. The drug, which inhibits a protein found in the C5 gene, is also under consideration as a treatment for myasthenia gravis, a neuromuscular disease, and neuromyelitis optica spectrum disorder, which inflames the optic nerve.

In October, Alexion had seven more treatments for rare diseases in clinical trial and planned to begin trials on five more. Meanwhile, thanks to its successes, trailing 12-month revenues are more than double what the company earned in 2015. Net income is much more erratic but in general is trending in the right direction (higher).

Credit Suisse analysts attended Alexion’s Investor Day, where managers predicted revenue of $9 billion to $10 billion in 2025, against around $5.8 billion in 2020. The company said it plans to launch 10 new drugs by 2023, and buy back $3 billion in stock. “We continue to believe that shares offer attractive value at current prices,” the bank concluded.

CFRA’s Kevin Huang maintains a Strong Buy rating on the biotech stock. “We maintain our Strong Buy opinion as we believe that shares are still significantly undervalued because investors and analysts are generally not yet convinced that ALXN can achieve its long-term target,” he says.

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Vertex Pharmaceuticals

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Market value: $58.6 billion
Dividend yield: N/A
Type: Large biotech
Specialty: Cystic fibrosis

Vertex Pharmaceuticals (VRTX, $225.52) is best known for treating cystic fibrosis (CF) with drugs such as Symdeko, Orkambi, Kalydeco and Trikafta.

Shares in this biotech stock are currently recovering from a nasty 25% drop in the wake of a significant setback. The company stopped development of lung drug VX-814, after a Phase 2 study showed it caused unusually high levels of liver enzymes. The move illustrates the big risks in biotech, namely the unpredictability of clinical trials.

The failure of VX-814 increased concerns of some analysts over the company’s pipeline of new drugs. However, Paul Matteis, managing director for biotechnology research at Stifel Research in Boston, noted that development of a “structurally distinct” backup compound is underway. He continues to maintain a Buy rating on the stock with a price target of $309, representing 37% upside from here.

The new compound, VX-864, targets the same disorder, but in a different way. A Phase 2 study is underway, with data expected in the first half of 2021. JPMorgan Chase analyst Cory Kasimov told clients the new drug is more potent than the older drug. If the new compound works, Vertex is very undervalued. If not, the company will be under pressure to buy other compounds or sell out.

This uncertainty over its ability to expand into other fields makes Vertex among the riskiest of these biotech stocks … but given the recent negative action in its price, VRTX also has high potential in the event of a rebound.

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Incyte

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Market value: $18.1 billion
Dividend yield: N/A
Type: Large biotech
Specialty: Cancer

Incyte (INCY, $82.53) makes kinase inhibitors, which block a type of enzyme that helps control certain body functions. One reason to believe in Incyte is a management team stuffed with oncology experts, including CEO Herve Hoppenot, formerly president of Novartis’ (NVS) oncology unit.

Revenues are highly dependent upon Jakafi, a drug used in chemotherapy whose patents expire in late 2027. Incyte also makes Iclusig, which is used to treat leukemia. In addition to having targeted therapies and immunological drugs against cancer, Incyte’s pipeline includes drugs for autoimmune diseases like dermatitis.

Its latest approved drug is Monjuvi, a lymphoma treatment. Credit Suisse analysts (Neutral) were encouraged by progress on Monjuvi after a conference call with management and a doctor from the Memorial Sloan Kettering Cancer Center. Combined with Celgene’s Revlimid, it allows for control of some forms of B-cell lymphoma.

Cambiar Investors’ Chan says the key to success with Jakafi is to find new diseases for it to treat and new ways to administer it. Jakafi can be injected for blood diseases but taken orally to treat skin diseases. This “de-risks development,” getting many uses from a single compound.

“We continue to see steady growth of Jakafi in approved indications, and believe studies in the ongoing lifecycle management could provide upside to current peak sales and offer the potential to extend Jakafi exclusivity,” says William Blair’s Matt Phipps, who rates the stock at Outperform (equivalent of Buy).

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Illumina

Market value: $45.1 billion
Dividend yield: N/A
Type: Large biotech
Specialty: Testing

Illumina (ILMN, $308.86), which produces gene-based testing systems, illustrates how the boom in the drug business is helping related businesses.

In June, Illumina’s COVIDSeq became the first COVID-19 test to win the FDA’s Emergency Use Authorization. It has since expanded in the testing space, announcing in September an $8 billion cash-and-stock deal to acquire Grail, which offers a multi-cancer screening test called Galleri. This startup was backed by Amazon.com (AMZN) founder Jeff Bezos and Microsoft (MSFT) co-founder.

That purchase gives Illumina even more long-term potential – but it has clouded the waters in the near-term, giving analysts some pause.

CFRA analysts (Hold), for instance, note that Illumina plans to combine its genomics and Next Generation Sequencing (NGS) platforms with Grail’s detection platforms, and that the company says the NGS oncology market is expected to grow rapidly, by 27% annually, to $75 billion by 2035. But they remain mixed on the deal and cut their price target by $86 per share to $282.

Canaccord Genuity analyst Max Masucci similarly cut his price target on ILMN shares, from $350 per share to $300. “We believe it will be two years before we can evaluate the value generation potential in the deal,” he says.

But recent quarterly results have analysts nudging their price targets higher and thinking better of the biotech stock.

“Commentary on activity and the outlook for more instrument placements were encouraging,” writes Cowen analyst Douglas Schenkel (Outperform), who raised his price target from $320 per share to $350. “Momentum is building across key applications heading into 2021.”

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CRISPR Therapeutics

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Market value: $18.1 billion
Dividend yield: N/A
Type: Emerging biotech
Specialty: Gene editing

Cambiar Investors’ Charmaine Chan says investors have switched their attention from cash flow to growth, favoring more “emerging” biotech stocks. Investors prefer drugs that treat diseases in a new way, “rather than a portfolio of drugs that uses more ‘established’ technology with smaller peak sales potential.”

We’ll start our look at emerging plays with CRISPR Therapeutics (CRSP, $82.53). CRISPR is one of several companies founded to commercialize the gene editing technique CRISPR-Cas9, for which Emmanuelle Charpentier of the Max Planck Institute and Jennifer Doudna of UC-Berkeley won the 2020 Nobel Prize for Chemistry. CRISPR itself was co-founded by Charpentier, Shaun Foy and Rodger Novak, who is president and chairman.

CRISPR currently has a treatment for sickle cell disease, as well as three anti-cancer compounds, in early-stage studies. It has six more compounds in the research stage.

Like other early-stage companies, CRISPR’s stock can be highly volatile based on the results of drug trials. The shares recently fell 10% after a patient died during the Phase 1 study of its CTX110, a treatment for B-cell lymphoma also targeted by Incyte’s Monjuvi.

“We believe CRISPR continues to execute, and we view dosing in six clinical trials positively as it shows the rapid development of the company’s pipeline and technology,” writes William Blair analyst Raju Prasad, who rates CRSP at Outperform. “The anticipated data readout from CTX001 (for sickle cell disease) presents a near-term catalyst for the company and, if positive, could result in significant upside. In addition, 2021 is setting up to be a catalyst-rich year for the company with data readouts across its immuno-oncology pipeline and the initiation of a Phase I/II trial with ViaCyte for the treatment of diabetes Type I.”

He adds that the company “Could be a potential takeout candidate” given the optionality of the CRISPR-Cas9 platform and potential cost-effectiveness.

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BioNTech

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Market value: $25.5 billion
Type: Emerging biotech
Dividend yield: N/A
Specialty: COVID-19

As mentioned earlier, Germany-based BioNTech (BNTX, $106.00) is one of several biotech stocks trying to bring a COVID-19 vaccine to the market. Its collaboration with Pfizer has so far yielded success, and the drug’s early data from Phase 3 trials has many analysts optimistic about an approval.

If an Emergency Use Authorization is granted, BioNTech and Pfizer would share a $1.95 billion prize for 100 million doses, which could be expanded to 500 million.

Before the pandemic began, BionTech was considered a niche player, focused on cancer treatments. However, CEO Ugur Sahin had been working on messenger RNA technology for a quarter-century, alongside his wife, Ozlem Tureci, who is chief medical officer. They were able to organize trials in Shanghai when the virus was spreading in China, and they identified four vaccine candidates for a Germany trial.

BioNTech also used an existing relationship to Pfizer’s head of research and development, Kathrin Jansen, to come up with a manufacturing agreement.

One risk is that BNTX, which is already one of the best biotech stocks of 2020 thanks to a tripling in its shares, has “outkicked its coverage.” The stock is well past its average price target of $85.80 per share, based on analysts tracked by S&P Global Market Intelligence. However, several analysts are rushing to upgrade their PTs: Berenberg’s Zhiqiang Shu (Buy) now sees shares hitting $126, Arlinda Lee raised her price target to $115, and Merrill Lynch’s Tazeen Ahmad moved his PT from $100 per share to $128.

Past its COVID-19 vaccine, Cambiar Investors’ Chan believes BNTX can “be a one-stop shop” for mRNA, cell and gene therapies, complete with diagnostic and manufacturing. “We were impressed” by how quickly the vaccine has moved toward its late-stage trial, and the results of early stage trials.

“BNTX expertly executed on both development and partnership fronts, showcasing their mRNA expertise,” she says.

But like with most smaller biotechs, handle BNTX with care. Steve Azoury, owner of Azoury Financial in Troy, Michigan, says the company’s future is closely tied to the vaccine. He recommends speculators put no more than 20% of assets into COVID-19 vaccine players, with BioNTech being among the most volatile.

Novavax

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Market value: $6.1 billion
Dividend yield: N/A
Specialty: COVID-19
Type: Emerging biotech

Novavax (NVAX, $96.90), as the name might suggest, specializes in vaccines. Novavax’s vaccine candidate, called NVX-CoV2373, is boosted with an adjuvant called Matrix-M, which makes it possible to vaccinate more people with less of the drug.

NVAX stock has exploded in 2020 thanks to its work with COVID-19, with shares – which started the year around $4 – up a whopping 2,300-plus percent year-to-date. And yet its current share price is only about half of what it was worth in August, showing the potential roller coaster you sign up for when investing in biotech stocks.

However, Novavax has been down this road before, and it has failed. Its ResVax vaccine failed two trials. The first (in 2016) resulted in layoffs, the second (in 2019) in a 1-for-20 reverse stock split.

Early trials of the new compound, conducted in South Africa, were promising. But that was true for ResVax as well. As CEO Stanley Erck because a TV regular talking up Novavax’ work, critics in July noted his and three other officials’ stock options were suddenly worth $100 million, with no drug in sight.

But a few pros think this time really might be different.

B. Riley analysts note that a Phase 3 study is progressing “ahead of plan” in part thanks to a second wave of daily news cases. They also view Pfizer and BioNTech’s success as favorable to the likelihood of technical success for Novavax’s program, “which is contrary to NVAX’s equity weakness (of late) and in part also driven by investor confusion” regarding the company’s financials.

And while only a handful of analysts cover the stock, the five tracked by S&P Global Intelligence on average expect NVAX to more than double from here, to $202.80 per share. Two say it’s a Strong Buy, two more say it’s a Buy, and one disagrees with a Strong Sell recommendation.

Author: Dana Blankenhorn

Source: Kiplinger: 14 Best Biotech Stocks for a Blockbuster 2021

Where do you invest for a world without the coronavirus? Start with these five stocks to buy.

There will come a day where the novel coronavirus pandemic no longer exists. Eventually, vaccines, treatments and other containment measures will work. Knowing that, where should your money go? What are the best stocks to buy right now?

You could stay with what worked during the pandemic. There have been changes to lifestyles and workstyles that feel permanent. Solutions to inefficiency that spent a decade waiting for trial have been used and succeeded.

You can also go with what the pandemic has crushed. Travel, leisure, cruising — stocks to buy could include anything involving going somewhere and seeing new people. People who need people have been the most unlucky in the pandemic world. That will change.

Market leadership is going to change as the pandemic fades away. Who will be the new leaders, and how do you take advantage now?

That’s what my five recommendations are all about. For your consideration, I offer two companies that benefit from some change proving permanent, two that benefit if we can get back to normal and one that seems to win either way.

Here are five stocks to buy with a post-pandemic world in mind:

Stocks to Buy: Procter & Gamble (PG)

Source: Jonathan Weiss / Shutterstock.com

Procter & Gamble clobbered earnings estimates for its September quarter, but the stock barely budged. It has been a big pandemic winner, but can that continue?

Sales were up 9%, and net income was up 19%, compared with a year earlier. The numbers easily beat analyst estimates. This is after the packaged goods company reported net income of $4.3 billion, $1.63 per share fully diluted, on sales of $19.3 billion.

But there are reasons, beyond the pandemic, to love this stock.

P&G has been reorganizing for years, focusing on key brands like Tide, Crest, Gillette and Old Spice. During the last decade it dumped 100 brands, including CoverGirl makeup. It also cut costs and focused on efficiency in its supply chain.

The payoff is now coming. If you could sum up today’s company in one word, it’s cleaning. Brands like Mr. Clean, Dawn, Comet and Febreze have gone through some short-term rationing during the pandemic. Personal cleaning product sales were up 30% for the quarter.

P&G management now intends to give gains back to shareholders. It plans to spend $2 billion per quarter on dividends and almost as much buying back stock during fiscal 2021.

But Procter & Gamble stock isn’t for everyone. If you’re looking for fat gains, look elsewhere. If you’re looking for steady income and have a long-term view, it deserves a place in your portfolio.

United Parcel Service (UPS)

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Remember the days when analysts thought Amazon (NASDAQ:AMZN) would kill shipping companies like UPS? Instead, the Covid-19 pandemic, and the resulting rise in online shopping, is stretching delivery services to their limits.

This has done wonders for UPS stock, which has broken out of a five-year trading range. Shares are up 46% for the year.

Credit goes to Amazon, which chose to focus on grabbing market share during the pandemic, instead of investing in delivery capacity. Unlike rival FedEx, UPS chose not to feud with Amazon. Amazon’s move played right into UPS’ hands. The company increased capital spending during 2019, to almost $6.4 billion. It was able to make money on that spending during the pandemic.

Not everyone is sold on this continuing. Analyst Wolf Richter said consumers expecting stimulus checks and rent forbearance could cut back quickly if they don’t get money soon. Ocean containers were sold out for October sailing, and shippers are paying higher rates.

Much of this is catch-up traffic. Freight volumes plunged at the start of the year and remained below 2018 levels in September. While current spending on durable goods is at a $1.7 trillion rate, it’s normally $1.5 trillion, and fell to $1.2 trillion early in the year.

UPS investors face two big questions going into next year. How much of the online boom will remain intact after the pandemic, and how much capacity will Amazon’s own capital spending take from the market? When considering this question, know that the coronavirus vaccine, especially a longer rollout, could boost shippers like UPS.

At its current price, UPS is fully valued. A price-earnings ratio of 34 times is high for a slow growth company, and the dividend now yields just 2.3%. But the rise of Amazon and online shopping, and the fall of the U.S. Postal Service, all provide tailwinds for the stock.

Stocks to Buy: Starbucks (SBUX)

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Starbucks was one of the pandemic’s biggest losers, but it may be one of the first losers to recover.

It is now a stock that aging investors can buy and hold, letting time work its magic. Shares are up only 8% per year over the last five, but the dividend has doubled. It will grow another 10% next month, to 45 cents per share.

Starbucks, in short, is becoming like another American icon, Coca-Cola (NYSE:KO). Its Robert Woodruff is Howard Schultz. He wasn’t Starbucks’ founder, but he got the company through its toughest crises. He created the corporate culture, he made the company a leader in automation, he started its move into China. Current CEO Kevin Johnson can now just focus on managing the business.

Until the pandemic, Johnson’s approach was delivering sales that grew about 10% per year, a reliable stream of earnings. The dividend announcement is important. It represents management’s certainty that those good old days can return.

Starbucks’ credibility lets it, in essence, borrow money from its customers, who pre-pay for drinks with the mobile app. It’s a social barometer, so its test of a vegan sandwich is news.

InvestorPlace’s Mark Hake recently wrote that Starbucks could rise 20% after earnings, assuming it meets analyst expectations, especially on same-store sales.

You can buy it here, or you can gamble that it misses the mark and buy it later. Either way know what you’re buying, a steady dividend payer, a slow growth representation of the American ideal.

Disney (DIS)

Source: spiderman777 / Shutterstock.com

When the pandemic hit, Disney was launching a gamble on streaming, and getting huge profits from its theme parks.

The pandemic shut the parks, accelerated cord-cutting and forced the company to focus on streaming. The June quarter saw revenues down 42%, from $20 billion to just over $11 billion. Park revenues were down 85%, movies down 55%. A rare quarterly loss, $2.61 per share, came in August. Another loss is expected when the company next reports Nov. 12.

But the stock remains strong. In fact, most analysts still rate it a buy. Why? They believe Disney pulled off streaming, its biggest risk going into 2020. The other businesses can soon turn around.

During the September quarter, Disney slowly began reopening resorts. But 28,000 workers were laid off at the end of the quarter. Fans and former cast members may protest, but the company’s hands are tied.

Then there’s the movie business. Disney moved its summer tentpoles Mulan and Hamilton into customer living rooms through Disney+ streaming. The latter was offered to spur subscriptions, the former sold as a pay-per-view event. Investors and analysts will want to know in November how that’s going, because pay-per-view is the future. Importantly, we know Disney+ had 60.5 million paying customers at the end of June. Will that rapid success continue?

Despite the stock rising on its latest reorganization, Disney has a crisis on its hands. Each time it moves a tentpole movie to streaming, as with the coming Pixar film Soul, it is accepting pennies where there once were dollars. Analysts also expect the theme parks to come roaring back next year.

But the Disney that’s emerging from the pandemic is very different from the one that went in. The company has caught the coronavirus, and it’s going to be a long haul.

Stocks to Buy: Qualcomm (QCOM)

Source: Michael Vi / Shutterstock.com

Qualcomm has been very, very good to me. It looked like a winner coming into the pandemic and it looks like it will remain a winner after. That is why it is one of the best stocks to buy now.

It didn’t take a genius to see Qualcomm rising. Its legal troubles are now behind it, and 5G means more equipment sales, thus more modem sales. The only question is whether buying more makes sense.

While CEO Steve Mollenkopf beat Apple (NASDAQ:AAPL) in court on his policy of tying patent rights to chips, Cupertino is still vowing revenge. Apple has bought what was left of Intel’s (NASDAQ:INTC) modem business. As with processors, it plans to be its own supplier.

Qualcomm is working with Asus (OTCMKTS:ASUUY) on a “gaming” phone. This could be a big win in the new era of “cloud gaming” with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and other Big Tech companies taking more of the processing load.

However, Qualcomm’s problems in the phone business are years away from coming to fruition. The company plans to announce a new Snapdragon processor in December, built on a new core with circuit lines just 5 nanometers apart.

Then there is 5G. While it is being sold by phone companies as a simple upgrade, it’s not. That’s because 5G brings a host of very low and very high frequencies into the cellular mainstream. It’s not all about speed, but new applications that can be built into chips to control factory equipment, home appliances, cars, anything that depends upon measurements and adjustment to measurement. It’s 5G that will make the Machine Internet a reality. Qualcomm is going to be at the center of it.

Before beating Apple, Qualcomm was a law firm posing as a tech company. Its future was defined by its positions in court. That’s no longer the case. Long-term investors can buy now and let time work its magic.

Author: Dana Blankenhorn

Source: Investor Place: 5 Stocks to Buy Now for a Post-Pandemic Era

Buy and hold ROKU as it’ll probably acquired in about a year, once the streaming shake-out starts

If you loaded up on Roku (NASDAQ:ROKU) after I last reported on them on Sept. 9, you’re probably mad at me.

Fresh from a Labor Day break, I called it a screaming buy figuring a suitor was soon to emerge, either an entertainment conglomerate like Walt Disney (NYSE:DIS), a retailing behemoth like Walmart (NYSE:WMT) or one of the Cloud Czars, like Facebook (NASDAQ:FB).

But I didn’t say when — and it’s not going to be now. The shares then were vulnerable to profit-taking, and profits were taken. The ROKU stock price was $170 per share when I wrote about it last month … and shares were below $100 on Oct. 1.

That doesn’t mean my thesis was wrong. Roku opens on Oct. 21 at about $130. Lots of people are pounding the table for it. The latest catalyst is its addition of Apple (NASDAQ:AAPL) TV to the platform.

A little patience is called for.

What’s Going On?

As I noted last month, streaming is an easy hack. There are lots of ways to get streaming content — on your phone or your game machine. Roku has limited control over the space.

What Roku does have is living room market share, more than even mighty Amazon (NASDAQ:AMZN) with its Fire Stick. That’s because Roku is seen as neutral among all the other streaming offerings. Its own service is free. It is the advertising on that service where it stands to make its money.

But Roku is still a small company. It’s next due to report earnings on Nov. 6. Analysts are expecting a small loss, maybe $25 million or 28 cents per share, on revenue of $243 million. What has most excited analysts is that its “platform revenue” from ads, now twice its “player revenue” from selling devices. It is this continuing revenue stream that makes the platform attractive.

Make or Buy?

As cable continues to bleed subscribers and streaming continues to grow, we’re at the upper limits of its hype cycle.
Comcast (NASDAQ:CMCSA), and AT&T (NYSE:T), which control most of the internet connections going into homes and apartments, are rolling out their own streaming offerings. They’re also trying to squeeze every dollar they can in internet revenue. Disney and Netflix (NASDAQ:NFLX) are fighting for paid subscriber market share. Amazon and Alphabet (NASDAQ:GOOGL) are acting like incumbents, secure in the knowledge that it’s their clouds, not the last-mile, that will decide who wins the game.

COMPARE BROKERS

It’s going to become very clear, very soon, that not everyone is going to get through the streaming door. Unlike cable, which costs $150 a month or more and delivers a choice of 50-100 shows at one time, most streaming services cost less than $15 per month and let people choose from among vast libraries of content. Most people will find they don’t need a lot of streaming services. Subscriber counts will rise in the near term as cord cutting continues, but not for long.

It’s then that the losers will look at the Roku platform with envious eyes. With a market cap just shy of $16 billion, Roku is too small to resist a determined suitor. Its best hope is a bidding war among multiple companies. That’s what I expect to happen, likely a year from now.

The Bottom Line on Roku Stock

The most likely first bidder to gobble up Roku stock will be Walmart, which will be selling the box-maker’s service under its own label this Christmas. Walmart has a small streaming operation called Vudu which could use Roku’s platform to gain market share. Roku would make Walmart look like a player in streaming.

Once any company decides it must have Roku, all bets are off on the ROKU stock price. It’s going to be like an NBA franchise, or a Van Gogh painting. Its rarity will make it a pearl of great price.

Markets don’t discriminate between the sinners and the saints. I’m telling you to wait for it.

Author: Dana Blankenhorn

Source: Investor Place: Roku Stock Investors Should Hold on and Wait for Mr. Good Buyer

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