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What Are the Best Stocks to Buy for 2021?

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Overall, 2020 will likely go down as one of the most memorable years in history. This year, the longest bull market in history ended due to the COVID-19 pandemic. While we had the fastest 30 percent decline ever in the S&P 500, the recovery was equally swift. We're at the end of 2020 and it's time for investors to start planning for 2021. Let's look at some of the best stocks for 2021.

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The valuation gap between growth and value stocks widened in 2020. Investors poured money into tech stocks and expected an increase in the pace of digitization. Electric vehicle stocks also rallied as markets repriced them for an all-electric future.

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Should investors start planning for 2021?

Right now is probably be the best time to reposition your portfolio for 2021. Many times, stocks move towards the end of the year as investors rebalance their portfolios for the upcoming year. Which factors could impact U.S. stock markets in 2021?  

Which factors could impact the stock markets in 2021?

Three main factors will likely impact the stock markets in 2021.

  • Joe Biden’s economic policies: While President Trump hasn’t yet conceded, in all likelihood, Joe Biden will be inaugurated as the 46th U.S. president in January 2021. Biden’s economic policies, especially on his proposed tax hikes, would have a major impact on stock markets in 2021. Biden intends to reverse some of Trump’s tax cuts that were incidentally a key driver of stock markets during his tenure.
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  • COVID-19 vaccine: Currently, markets expect that a credible COVID-19 vaccine will be available soon in the market. We'll have to see how confident people are about venturing out even after getting the vaccine.
  • Trade relations: The relations between the U.S. and China deteriorated under Trump. He also went ahead with tariffs on countries that have been strategic partners. Biden’s approach to trade policies and his stance on U.S.-China relations will likely impact the stock markets in 2021.
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What are the best stocks for 2021?

Recently, Alibaba stock has been under pressure due to regulatory changes in China. The stock has also underperformed its U.S.-listed tech peers in 2020. Markets seem to be getting too pessimistic about Alibaba. The stock might see a valuation rerating next year as the dust over regulatory issues settles down.

President-elect Joe Biden is expected to push for renewable energy. While solar stocks have rallied this year, we could see more upside in 2021. First Solar and NextEra Energy Partners could be good renewable energy stocks to buy for 2021.

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Best value stocks to buy for 2021

Since the news of Pfizer’s COVID-19 vaccine candidate has come out, we have seen a sector rotation from growth to value stocks. The shift could continue in 2021. The following value stocks could be good buys for 2021.

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Warren Buffett's Berkshire Hathaway underperformed badly in 2019. The company has also struggled in 2020. However, Buffett could increase the buybacks like he did in the third quarter of 2020. Buybacks could support Berkshire Hathaway stock in 2021.

Industrials have underperformed under Trump’s presidency partially due to the tariffs that increased costs for U.S. businesses. Since Biden is expected to be relatively soft on China, at least when it comes to tariffs, industrials could benefit. Also, as global growth recovers in 2021, companies like Caterpillar could be good buys.

Energy stocks could also be good buys for 2021 after the sharp fall in 2020. While prices of many commodities have recovered and risen to pre-pandemic levels, energy prices are still sagging. If the global economic recovery continues in 2021 and OPEC continues with its supply discipline, energy stocks like BP, Shell, Suncor, and ExxonMobil could deliver good returns in 2021.

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