3 Top Blue-Chip Stocks for Strong Gains in 2021: Alphabet, Microsoft, and Visa
January 21, 2021 at 10:16 AM EST
Blue chip companies are known for their product power, financial resiliency, and balance sheet strength, which allow them to churn out steady profits even during an economic slump. For these reasons, we think Alphabet (GOOGL), Microsoft (MSFT) and Visa (V), which have all capitalized on emerging consumer and business trends during the pandemic to deliver significant earnings, have plenty of upside this year.
2021 has been dubbed the year of recovery. Widespread coronavirus vaccine deployment and the reopening of the industrial and commercial sectors around the world have cued the onset of an economic revival, with the S&P 500 index rising 2.6% year-to-date. In addition to rising consumer spending owing to reduced social distancing restrictions, the next U.S. fiscal stimulus package is expected to amp the nation’s GDP substantially. Analysts expect the severity of the pandemic to dissipate by the third quarter, as major countries worldwide vaccinate large proportions of their populations.
Blue-chip companies, which were the best performers in 2020, still have plenty of room to grow this year. These companies delivered impressive financials last year, due primarily to their pandemic-proof business models. Sound balance sheets and fundamental strength allowed them to withstand even the initial days of complete pandemic lockdown with ease. Because remote lifestyles are expected to continue even with an economic recovery, blue-chip technology stocks are expected to continue to gain in the coming months.
Companies such as Alphabet, Inc. (GOOGL), Microsoft Corporation (MSFT), and Visa, Inc. (V) have capitalized on remote lifestyles by improving their cloud services platforms and contactless payments systems. We expect these stocks to deliver solid returns this year.
Alphabet, Inc. (GOOGL)
GOOGL has long been one of the largest companies in the world, with ‘Google’ search engine one of the most used platforms globally. With a market capitalization of $1.71 trillion, GOOGL is the third-largest company in the U.S. It is a member of the elite FAANG group, which represent the most popular stocks in the tech sector and is currently ranked #11 in the Fortune 500 list.
While the pandemic’s tailwind helped the company increase its market share, GOOGL’s advertising revenues declined due to the accompanying economic slump. With most businesses cutting their costs to survive the slump, marketing and advertising spending declined significantly during the initial days of the pandemic.
However, GOOGL’s other operational segments, such as YouTube and Google Play Store, offset the decline in advertising business. Also, GOOGL cloud gained traction over the past year, with its free storage benefits some of the best in the market. GOOGL’s non-GAAP revenues have increased 14% year-over-year to $46.17 billion in the third quarter ended September 30, 2020. Its non-GAAP operating income has risen 22.2% from the same period last year to $11.21 billion, while its non-GAAP net income has grown 59.1% from the year-ago value to $11.25 billion. Its non-GAAP EPS has increased 62.1% from the prior-year quarter to $16.40.
On January 15th, GOOGL partnered with Nokia to jointly develop cloud-native 5G core solutions for communication service providers and enterprise customers. 5G and cloud communications platforms are expected to drive the international markets in coming years, thereby allowing both companies to capitalize on emerging industry-disrupting trends.
A consensus EPS estimate of $13.76 for the current quarter ending March 31,2021 represents a 39.4% improvement year-over-year. GOOGL has an impressive earnings history as well; it beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $48.60 billion for the ongoing quarter represents an 18.1% improvement from the year-ago value. Moreover, analysts expect GOOGL’s EPS and revenue to increase by 19.1% and 21.2%, respectively, in fiscal 2021.
GOOGL gained more than 80% to hit its 52-week high of $1843.83 in December, since hitting its 52-week low of 1008.87 in March 2020. Analysts expect GOOGL to hit $1942.21, representing an 8.8% potential gain.
How does GOOGL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
B for Peer Grade
A for Overall POWR Rating.
The stock is also ranked #2 of 69 stocks in the Internet industry.
Microsoft Corporation (MSFT)
MSFT has made its name through innovative software design and user-friendly operating systems. MSFT’s proprietary Windows operating systems are some of the most globally , with more than 30% global market share. MSFT has been one of the biggest gainers in 2020, with its cloud computing platform, Azure, and communications platforms, Skype and Teams, among the most popular services sustaining remote working and learning globally.
On January 14, MSFT partnered with Verily and Broad Institute to quicken technological developments in the field of Biomedicine, through ‘Terra’ platform. Moreover, MSFT plans to launch a digital directory for COVID-19 vaccine deployment, designed to keep track of who has been inoculated through Microsoft Cloud for Healthcare.
Last December , MSFT entered a seven-year partnership with Deutsche Telekom to enhance productivity and facilitate cloud computing services globally.
MSFT’s net sales increased 12% year-over-year to $37.30 billion in the fiscal first quarter ended September 30, 2020. This can be attributed to 40% growth in Azure revenue, a 38% rise in Dynamics 365 revenue and a 21% increase in office 365 commercial revenue. Its net income has risen 30% from the year-ago value to $13.90 billion, while its EPS has grown 32% from the same period last year to $1.82.
Analysts expect MSFT’s EPS to rise 12.9% in the current quarter (ending March 31, 2021) and 10.5% in fiscal 2021. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $175.53 billion for the current year represents a 10.9% improvement year-over-year.
MSFT has gained 21.2% over the past nine months. It is currently trading 3.7% below its 52-week high of $232.86, which it hit on September 2, 2020. Analysts expect MSFT to hit $241.61 soon, representing an 11.6% potential upside.
It is no surprise that MSFT is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, and a “B” for Industry Rank. In the 116-stock Software – Application industry, MSFT is currently ranked #1.
Visa, Inc. (V)
V, one of the largest global financial payments processing companies in the world, has been thriving during the pandemic because the demand for online transactions has increased significantly under lockdown conditions. Customers and merchants around the world have adopted virtual payments. V’s position as the largest commercial payments card network has made it one of the most actively traded stocks in the U.S.
With technological advancements currently underway, most developed countries have become virtually cashless, while developing and underdeveloped parts of the world are witnessing a substantial rise in the digital transactions volume. With many countries currently developing and testing their own digital currencies, V’s industry knowledge as the leading payments processor will be increasingly key in facilitating international transactions in the future.
The company recently released “Visa back to Business Study – 2021 Outlook '', which analyzes emerging trends in the digital payments industry. According to the study, 82% of small businesses have adopted new forms of technology to meet cashless consumer spending needs by the end of 2020. Moreover, a survey conducted by V indicates that contactless payments are here to stay, with only 16% of consumers planning to use pre-pandemic payment methods in 2021.
V’s payments volume had increased 4% year-over-year in the fiscal fourth quarter ended September 30, 2020. Processed transactions have risen 3% from the year-ago value, while data processing revenues grew 4% from the same period last year to $2.88 billion, while revenue from the ‘Other” segment has grown 5% from the prior-year quarter to $361 million. V reported net income of $2.50 billion over this period, representing EPS of $1.12.
The consensus EPS estimate of $5.45 for the current year represents an 8.1% improvement year-over-year. Furthermore, V’s EPS is expected to rise at a rate of 12% per annum over the next five years. V beat the Street’s EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $23.30 billion for fiscal 2021 represents a 6.7% rise year-over-year.
V has gained 19% over the past nine months. The stock hit its 52-week high of $220.39 on December 30. V has an average analyst price target of $235.78, reflecting a potential 16.9% upside.
V’s POWR Ratings reflect this promising outlook. It is rated “Strong Buy” with an “A” for Trade Grade, and Buy & Hold Grade, and a “B” for Industry Rank. It is currently ranked #1 of 47 stocks in the Consumer Financial Services industry.
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GOOGL shares were trading at $1,899.10 per share on Thursday afternoon, up $19.03 (+1.01%). Year-to-date, GOOGL has gained 8.36%, versus a 2.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.3 Top Blue-Chip Stocks for Strong Gains in 2021: Alphabet, Microsoft, and Visa appeared first on StockNews.com