Many stocks generated explosive good points in 2020, whilst companies closed down and unemployment charges climbed all through the pandemic. Tech stocks specifically attracted numerous bulls, as they had been well-insulated from these headwinds and benefited from stay-at-home tendencies.
As a brand new 12 months begins, traders are most likely searching for a brand new batch of breakout stocks that would generate comparable returns this 12 months. At the moment I am going to spotlight three of these potential winners: Baidu (NASDAQ:BIDU), Intel (NASDAQ:INTC), and Sea Restricted (NYSE:SE).
Baidu’s stock tread water all through most of 2020 because the Chinese language search big’s advert income declined 12 months over 12 months for six straight quarters. It blamed that slowdown on macro headwinds, together with the sluggish progress of the Chinese language financial system and the pandemic, and competitors from different platforms. It beforehand offset these declines with the expansion of its video platform iQiyi, however even iQiyi steadily misplaced its momentum.
However over the previous two months, Baidu’s stock out of the blue surged greater than 70%. That rally was sparked by a number of main developments. First, Baidu’s quarterly income rose 12 months over 12 months for the primary time in three quarters. Its income rose simply 1% in the course of the third quarter, however its steering for 4% progress within the fourth quarter indicated its promoting enterprise was lastly recovering.
Baidu additionally agreed to purchase JOYY‘s YY Reside streaming platform to diversify its enterprise away from search-based advertisements, and it not too long ago partnered with the Chinese language automaker Geely to develop electrical automobiles. These tailwinds, together with the current revelation that Baidu would not be added to the rising funding blacklist within the U.S., propelled the stock to its highest ranges since mid-2018.
However even after that rally, Baidu’s stock nonetheless trades at simply 19 occasions ahead earnings and fewer than two occasions subsequent 12 months’s gross sales. Subsequently, Baidu’s stock might nonetheless have numerous room to run this 12 months, particularly if its core promoting enterprise returns to progress and it continues to develop its ecosystem of cloud, AI, and driverless companies.
Intel’s stock declined practically 20% in 2020 because the chipmaker struggled with chip shortages and delays. It fell behind Taiwan Semiconductor Manufacturing within the “course of race” to create smaller and extra power-efficient chips, it ceded market share to Superior Micro Gadgets within the PC market, and massive prospects like Microsoft and Apple began creating their very own silicon to exchange Intel’s chips.
As an alternative of aggressively fixing these points, CEO Bob Swan, the previous CFO who took the helm in early 2019, centered on divesting Intel’s non-core companies, chopping prices, and repurchasing shares to spice up the corporate’s earnings. However Swan’s lack of engineering expertise nervous traders, particularly since AMD and NVIDIA are each led by seasoned engineers.
That is why Intel’s stock not too long ago surged to its highest ranges in over a 12 months after the corporate changed Swan with former VMware CEO Pat Gelsinger. Gelsinger, who holds a grasp’s diploma in electrical engineering, beforehand served as Intel’s chief know-how officer, and was truly the architect of the unique Intel 80486 processor.
Gelsinger’s arrival, together with experiences that Intel would outsource the manufacturing of a few of its chips to TSMC, generated recent hope that Intel would resolve its R&D and manufacturing points this 12 months. If that occurs, Intel’s stock — which trades at simply 11 occasions ahead earnings — might hit recent highs.
3. Sea Restricted
Shares of Sea soared practically 400% in 2020 because the Singapore-based tech firm dazzled traders with its strong income progress. Its income rose 163% in fiscal 2019, then jumped one other 101% 12 months over 12 months to $2.81 billion within the first 9 months of 2020.
Sea’s gaming unit, Garena, locked in avid gamers with its hit battle royale sport Free Fireplace, the highest-grossing cellular sport in Southeast Asia and Latin America. Garena’s income backed the enlargement of its e-commerce platform Shopee, which surpassed Alibaba‘s Lazada as Southeast Asia’s high on-line market final 12 months.
Sea stays unprofitable, but it surely generated a constructive adjusted EBITDA within the first 9 months of the 12 months as Garena’s income offset Shopee’s losses. Analysts anticipate Sea’s income to rise 78% this 12 months and 46% subsequent 12 months, for its adjusted EBITDA to stay constructive, and for its internet losses to slender in fiscal 2021.
It might sound silly to name Sea a breakout stock after its huge good points in 2020, however I imagine it might soar a lot larger, for 2 causes. First, Garena will doubtless continue to grow as Shopee good points extra customers, reduces its loss per order, and helps the expansion of its SeaMoney fintech companies.
Second, Sea trades at lower than 16 occasions subsequent 12 months’s gross sales. Many tech corporations that generate slower progress nonetheless commerce at a lot larger price-to-sales ratios than Sea — which suggests its stock continues to be neglected by many growth-oriented traders. If they begin paying extra consideration, its stock might simply hit new highs in 2021.