In this report, we pick five stocks – Peloton, Taylor Wimpey, Rolls-Royce, Spirit Airlines, and Plug Power – and look at why we think they’re worth keeping an eye on in 2021.

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As 2020 draws to a close the drama isn’t quite over. A Brexit trade deal is yet to be agreed between the UK and the EU and a new strain of Covid-19 is threatening to derail the economic recovery as fresh restrictions are implemented over the Christmas period. At this stage, it is not expected that the new strain will be resistant to the vaccine and, as such, looking into 2021 we could see some companies in the most beleaguered sectors such as travel and leisure begin to rebound.

The UK’s departure from the EU also has implications for markets with a trade deal being seen as key to minimising any economic fallout from Brexit. Whatever happens, both Central Banks may be forced to act to shore up the economy to deal with the immediate aftermath, whether this comes in the form of further interest rate cuts or more asset purchase stimulus.

An announcement of a $900 billion stimulus package by the US government was music to the ears of many investors. As we have seen throughout 2020, monetary and fiscal support has driven markets to new highs after their sharp decline back in March. The message that interest rates will remain low throughout 2021 could continue to provide favourable conditions for investors in equities as alternatives, such as cash or bonds, become less attractive.

We also see the inauguration of a new President in the US shortly after the New Year which could well shape the trajectory of the stock market in a different direction. Particularly in focus will be any potential change in the relationship between the US and China which had been the cause of much stock market volatility in the past.

Given the unprecedented conditions we have faced, many analysts are polarised on opinion and this can be seen in the variation of broker ratings and price targets across stocks. Of course, the situation is dynamic and things could change fairly dramatically at a moment’s notice but we have picked out five stocks that are worth keeping an eye on next year.

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Peloton (PTON)

PTON candle chart

Source: eToro, daily timeframe

  • Peloton has just announced the acquisition of Precor, a US-based fitness manufacturer for $420 million in an all-cash deal. Off the back of the announcement, shares surged 15% to hit an all time high.
  • The deal gives Peloton access to Precor’s manufacturing infrastructure to deal with its demand and reduce wait times on delivery for Peloton bikes.
  • Peloton will also look to diversify its offering into gyms, health clubs, hotels, serviced apartments, and corporate facilities.
  • Whilst some may argue that the vaccine may have capped the immediate demand potential for Peloton, it’s clear that we are not completely out of the woods yet with Covid-19 given resurgences in Europe. We also may see some changes stick such as people continue to work out at home to not take the risk of an increased chance of infection in public gyms.
  • Analysts are leaning more towards buy or hold on this stock than sell and it is worth noting that the only broker giving the stock sell rating has a price target of $33, the next lowest price target is $105.
  • In their last release the company’s earnings made a huge shift from loss to profit and we could see this continue into 2021.
  • Next earnings release: Q4 2020, Friday 5th February (estimated).

PTON - analyst consensus

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Taylor Wimpey (TW.L)

Taylor Wimpey candle chart

Source: eToro, daily timeframe

  • The health of the UK housing market is heavily associated with Brexit. A no-deal scenario could hurt house prices and, as such, create tighter margins for builders. Conversely, an 11th hour Brexit deal could see UK housebuilders, like Taylor Wimpey rally.
  • If there is a no-deal it doesn’t mean the housebuilder play is dead and buried. No deal by the deadline doesn’t necessarily mean no deal ever, the UK and EU may well continue to negotiate and WTO terms could be used in the interim. As such a dip in housebuilders could represent a buying opportunity even if there is no agreement.
  • A no-deal scenario would likely be accompanied by lower interest rates for longer and possibly more stimulus. This helps those looking to buy homes and as such could soften the blow of lower house prices for the builders.
  • From a technical perspective, Taylor Wimpey has traded in a range over the past month with 170p serving as a fairly consistent resistance level and 150p as support. Whether or not we have a deal by the end of December may well be the catalyst for a breakout to the upside or downside.
  • Next earnings release: Full year 2020 results, Tuesday 2nd March.

TW.L analyst consensus

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Rolls-Royce (RR.L)

RR.L candle chart

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  • If we were to question which stock out there was shouting the loudest for a vaccine, Rolls-Royce was certainly a contender. Civil aerospace is the biggest part of its business and with planes grounded worldwide, their share price was decimated. If world travel begins to get back on track in 2021, the current price may look like a bargain.
  • This does not come without risks, as we mentioned previously, the pandemic is not over just yet. New restrictions are cropping up which keeps stopping the recovery in its tracks, however, if we look at the fact Rolls-Royce was trading at 700p earlier this year and over 1000p in 2019, the risk/reward parameters are attractive for some investors. Even if the share price were to double from here, it would still be 68% lower than its 2020 highs.
  • On the day the Pfizer vaccine news was announced (9th November 2020, circled), Rolls-Royce produced an intraday move of over 100%, although it did end up closing lower than this for a gain of 50% it does show the share price reacting positively to progress in fighting the pandemic.
  • Rolls-Royce does have cash flow issues to contend with, but an overall economic recovery, as well as some success with their diversification into nuclear reactors, could well see them turn around their fortunes in 2021.
  • Next earnings release: Full year 2020 results, Thursday 11th March. 

Rolls Royce analyst consensus

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Spirit Airlines (SAVE)

Spirit Airlines candle chart

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  • The success of airlines in 2021 of course hinges on the trajectory of the pandemic. Despite this, the airline industry received a boost as a $900 billion stimulus package was agreed in the US, including $15 billion in aid for airlines.
  • This will help all US airlines, including Spirit, bring back furloughed workers and also assist in riding out cash burn as demand is low. Even before the stimulus package was announced, Spirits cash reserves were reported to be strong enough to see them through at least one year given the current conditions.
  • Spirit stands out as the majority of their routes are domestic US flights or to Latin America. Overall these regions have experienced less severe lockdowns and restrictions than elsewhere. It has been noted that many Americans are opting for ‘stay-cations’ rather than travelling abroad which plays into Spirit’s hands. Earlier this month Spirit said they expect their flights to be 70% full in Q4.
  • Spirit is less heavily discounted than some of its European counterparts, down 39% year to date in comparison with 76% for IAG or 45% for easyJet but importantly Spirit does not have Brexit risk to contend with.
  • Next earnings release: Q4 2020, Friday 5th February (estimated).

SAVE analyst consensus

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Plug Power (PLUG)

Plug Power candle chart

Source: eToro, hourly timeframe

  • We only have to glance at the share prices of electric vehicle manufacturers to see how greener technology has exploded with investors in 2020. Plug Power, who is engaged in developing hydrogen fuel cell systems, is certainly one to watch as the popularity of green energy continues to pick up pace.
  • Plug Power recently announced that their hydrogen fuel cell solutions are expanding into Walmart’s e-commerce applications and this will continue into 2021. Their products are already used in other areas of Walmart’s business.
  • Its recent surge was off the back of a Morgan Stanley price upgrade on 21st December. In fact, 36% of analysts have increased their price targets for Plug Power over the last month and the average price target rose by 32% in the same period.
  • Plug Power will be looking to expand its technology into the on-road vehicle arena in 2021 and also begin building green hydrogen plants
  • Next earnings release: Q4 2020, Friday 5th March (estimated)

PLUG analyst consensus

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All data sourced from Bloomberg valid as of 22/12/2020. Charts sourced from eToro platform 22/12/2020. All trading carries risk. Only risk capital you can afford to lose.

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