Stock ideas for 2021

Here are 3 screens from the Fidelity.com Stock Screener.

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The S&P 500 is up just over 2% thus far this year, as of late January, with growth stocks slightly outpacing value stocks.1 Much of the gains for stocks made in recent months (and since the onset of the pandemic) have hinged on historic government support. A big market driver now will likely be the new US administration’s proposed $1.9 trillion plan, among other factors. Needless to say, there's a lot for investors to evaluate in today’s market.

If part of your investing plan is to periodically evaluate new ideas—and the new year can be a good time to evaluate your portfolio, if you haven’t done so recently—you might consider a stock screener to search the market for opportunities to ensure having a diversified portfolio that aligns with your goals.

Here are 3 stock screens using Fidelity's Stock Screener, plus top results for each.

Looking for value in an expensive market

Even though the S&P 500 is at new all-time highs, trading above 3,850 in late January, it continues to trade at a significant premium relative to its long-term price-to-earnings average. But much of the broad market gains have been made by a handful of the largest companies. Consequently, you may be able to look under the surface to search for value.

One of the most popular value filters on Fidelity.com is price-to-earnings (P/E). The top 10 results of a screen of US-based common stocks with a market cap of at least $4.38 billion and a P/E ratio of 11.98 or lower (sorted by lowest P/E), as of January 28, 2021:

  • NRG Energy (NRG)
  • Enstar Group (ESGR)
  • Bio-Rad Laboratories (BIO)
  • Unum Group (UNM)
  • Manulife Financial Group (MFC)
  • Aflac (AFL)
  • Qurate Retail (QRTEA)
  • First Horizon (FHN)
  • Allstate (ALL)
  • Royalty Pharma (RPRX)

If you want to add the insights of professional analysts, you might consider adding the Equity Summary Score (ESS) from StarMine from Refinitiv. Here is that list, sorted by highest ESS:

  • Canadian Imperial Bank of Commerce (CM)
  • Bank of Montreal (BMO)
  • Enstar (ESGR)
  • Toronto-Dominion Bank (TD)
  • Fidelity National Financial (FNF)
  • The Bank of Nova Scotia (BNS)
  • Royal Bank of Canada (RY)
  • Albertson (ACI)
  • Allstate (ALL)
  • Jefferies (JEF)

Whenever you run a screen, it’s important to evaluate the quality of your results. When screening for stocks using value as a primary objective, it’s important to consider why a stock may appear expensive or cheap based on certain valuation metrics. For example, some stock prices may be inflated if investors anticipate a rapid recovery from the COVID-19 economy.

This screener list is dominated by financial services companies, which are not immune to the adverse impacts of a worsening in the pandemic, among other risk factors. It's important to do additional research to evaluate screen results. You might consider looking at a multiyear price chart to see if these companies were exhibiting trends before the crisis that might help explain why their value appears as it does (e.g., is there a long-term price drop that is causing the stock's P/E to appear relatively attractive).

Tailoring preset independent expert screens

P/E is primarily used to compare a stock with another comparable stock and/or versus its own history. While that can provide useful information, an investor may prefer to determine the intrinsic value of a stock.

On Fidelity.com, there is an expert screen from third-party research firm ISS-EVA that looks for attractively valued stocks in relation to their intrinsic value within their sector. This screen is based on the widely known "value at a reasonable price" methodology. It looks at a firm's ability to earn and increase economic profit, which measures profit after deducting the cost of all capital. The screen adjusts for risk and excludes stocks trading under $5 a share, as well as those with minimal trading volume.

As of January 28, 2021, the top 10 results of this screen, sorted by the highest ISS-EVA score of common stocks with a market cap of at least $4.38 billion, were:

  • J.M. Smucker (SJM)
  • First American Financial (FAF)
  • Gaming and Leisure Properties (GLPI)
  • Agco (AGCO)
  • AutoNation (AN)
  • AmerisourceBergen (ABC)
  • Arena Pharmaceutical (ARNA)
  • Domino’s Pizza (DPZ)
  • Hill-Rom Holdings (HRC)
  • CDK Global (CDK)

Of course, even if you have determined the intrinsic value of a stock, that may not account for how the investment might perform as economic conditions change. And even though this is an expert screen, you still might want to include additional screening filters. Adding in ESS may provide a qualitative aspect that the intrinsic value criteria isn't capturing. Here is that list, sorted by highest ESS:

  • AutoNation (AN)
  • Agco (AGCO)
  • Emcor (EME)
  • Jones Lang LaSalle (JLL)
  • First American Financial (FAF)
  • Gaming and Leisure Properties (GLPI)
  • AmerisourceBergen (ABC)
  • Domino’s Pizza (DPZ)
  • J.M. Smucker (SJM)
  • Hill-Rom Holdings (HRC)

Looking for income

Interest rates continue to hover near historic lows around the world. For example, the US 10-year yield is at 1.04%, as of late January. One of the most common screening characteristics on Fidelity.com is dividend yield. The full results of a screen of common stocks with a market cap of at least $4.38 billion, a dividend yield of 4.55% or higher, and an ESS of 9.1 or higher (sorted by dividend yield), as of January 28, 2021, were:

  • Canadian Imperial Bank of Commerce (CM)
  • The Bank of Nova Scotia (BNS)
  • Manulife Financial (MFC)
  • VICI Properties (VICI)

As always, you should take a closer look into the screen results you are getting from your search filters. The screen above is a short list comprised of financial companies as well as a hospitality company. The hospitality company is of particular note, given that the hotel industry has been hit particularly hard by the COVID-19 pandemic.

Dig deeper

With any stock screen strategy, more research is needed to determine if any of these investments are right for you. You should fully understand the risks involved, and each investing opportunity should be considered within the context of a well-diversified investment strategy that conforms to your specific time horizon, objectives, and risk parameters. You should always be aware of the heightened risk of having a poorly diversified portfolio, particularly in these volatile and uncertain times.

Given the lingering effects of the pandemic, you may need to adjust how you normally use screeners and other strategies.

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1. Source: Fidelity.com, as of January 28, 2021.
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