2020 has shaped up as an excellent year but it’s time to move on and think about 2021. Market leaders in one year often underperform in the following year as investors close out top performers and seek lower risk opportunities. These plays often come with stocks that have posted meager returns but are well-positioned for breakouts and sustained uptrends. Let’s look at three blue chip stocks that meet these criteria in an attempt to get a leg up on the competition.
COVID-19 recovery plays are sitting at the top of this list for obvious reasons but lesser known opportunities are developing as well. The broad market also ignored defensive and household plays through most of the year, instead chasing the hottest momentum stocks, initial public offerings, and special purpose acquisition companies (SPACs). These laggards could shine in 2021 because perennially strong performers rarely have two ‘off years’ in a row.
Dow component Visa Inc. (V) has benefited from the accelerated shift into digital payments triggered by the pandemic and is viewed as a major beneficiary. However, the company depends on payment volume to book profits, exposing price action to broad economic forces. It’s gained about 12% year-to date but has been stuck at the February high for more than three months. Fortunately, price action is now grinding through the last stages of a breakout pattern.
Pepsico Inc. (PEP) rose 23% in 2019 but has struggled in 2020, posting a mediocre 7% return despite an impressive 2.78% annual dividend yield. That’s still a big deal for non-U.S. traders because contracts for difference (CFDs) pay out dividends, just like shares. The stock rallied back to the February 2020 high above 147 in November and has now completed the last stage of a cup and handle pattern that will generate a measured move target in the 190s after a breakout.
Dow component McDonald’s Corp. (MCD) topped out in August 2019, well before the pandemic hit world headlines. It failed a breakout above 2019 resistance in October 2020 and turned sharply lower, slumping to a three-month low. The stock has posted a meager 8% year-to-date return but that should improve in 2021, with the pandemic running its course and a bullish 18-month pattern that could complete a breakout in the first quarter.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.