In this article we will take a look at the 10 best rebound stocks to buy now. You can skip our comprehensive analysis of the economic recovery and go directly to the 5 Best Rebound Stocks to Buy Now.
The unprecedented economic turmoil of 2020 looks set to be over and the stock market is slowly recovering to pre-pandemic highs. The vaccine rollout in the United States and Europe also points to signs of a turnaround for many industries that stand to benefit from the easing of restrictions. Investors who held on to their stocks through the lows of the lockdown and did not panic can expect record gains. According to investment bank Morgan Stanley, 2021 is expected to be a bull year for the stock market as it returns to normal after an uneven 2020.
The early signs of the recovery have been steadily pouring in over the past few months. In December, the S&P 500 Index showed a 68% return to normal compared to the low of March 2020. Technology stocks that dominate the market, like Facebook, Inc. (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), and Amazon.com, Inc. (NASDAQ: AMZN) were driving this recovery, partly due to the changes in consumer spending habits during COVID-19. Brookings estimates that US-based consumers spent $12.5 trillion on goods in 2020.
Market Predictions for 2021
According to management consultancy McKinsey, more than 50% of US consumers will spend extra money to treat themselves as lockdown eases. The industries which can expect to benefit from this trend include the live entertainment firms, parks and recreation businesses, oil companies, airlines, restaurants, and retail outlets. As stimulus cheques are released by the US government, these spending trends are likely to continue throughout the quarter, boosting much-needed revenues of many of these industry sectors that struggled during the pandemic.
The rebound potential of these stocks has attracted the attention of investors who held onto their shares through the bear market, as well as new investors looking to make quick bucks. An average person can expect to see at least 14 bear markets during a period of 50 years, and with every bear market, a bullish trend follows. However, Morgan Stanley has cautioned that the bull only lasts for a short period of time and investments should be made at exactly the right time in order to reap maximum benefits from these highs and lows.
Soaring valuations and meme stocks have stoked market volatility in the past few months and left investors scratching their heads about bullish trends. There is even some evidence to suggest that a tech bubble is dominating the stock market. The recent initial public offering of Coinbase Global, Inc. (NASDAQ: COIN) lends credence to this claim. However, by investing in rebound stocks, there is some hope for investors out there who are looking for stable gains amid the chaos in the services and technology sectors.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Photo by Yiorgos Ntrahas on Unsplash
With this context in mind, here is our list of 10 best rebound stocks to buy now.
10. Caterpillar Inc. (NYSE: CAT)
Number of Hedge Fund Holders: 53
Caterpillar Inc. (NYSE: CAT) is an Illinois-based firm that develops and sells machinery, engines, financial products, and insurance. The company operates through a global dealer network and is the biggest construction equipment manufacturer in the world. The construction-related products that the company makes include asphalt pavers, compactors, cold planers, pipelayers, road reclaimers, telehandlers, and utility vehicles. It was founded in 1925 and is placed tenth on our list of 10 best rebound stocks to buy now.
Caterpillar is expected to benefit from the recently announced plan of President Biden that envisions the spending of hundreds of billions of dollars for the modernization of American infrastructure. Earlier this month, financial advisory firm Evercore maintained an Outperform rating on CAT stock citing a mid-year hike in prices of company products.
At the end of the fourth quarter of 2020, 53 hedge funds in the database of Insider Monkey held stakes worth $4 billion in the firm, up from 41 in the preceding quarter worth $3 billion.
9. Restaurant Brands International Inc. (NYSE: QSR)
Number of Hedge Fund Holders: 39
Restaurant Brands International Inc. (NYSE: QSR) is a Canada-based multinational fast food holding company. The famous brands that the company owns and operates include Tim Hortons, Burger King, and Popeyes. The products that the restaurants of the firm offer include coffee, tea, espresso-based hot and cold drinks, donuts, cookies, and pastries, among others. The firm has thousands of outlets under operation in more than 100 countries. It was founded in 1954 and is ranked ninth on our list of 10 best rebound stocks to buy now.
The firm is expected to bounce back from the pandemic economy as dine-in restaurants open around the world with the rollout of the coronavirus vaccine. On February 11, the company declared a quarterly dividend of $0.53 per share, up almost 2% compared to the previous quarter.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Pershing Square held the most shares in the firm – 25 million – worth more than $1.5 billion. Pelham Capital was 2nd with more than 3 million shares worth almost $189 million.
Pershing Square Holdings, in their Q4 2020 investor letter, mentioned Restaurant Brands International Inc. (NYSE: QSR). Here is what Pershing Square Holdings has to say about Restaurant Brands International Inc. in their Q4 2020 investor letter:
“QSR’s franchised business m
odel is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company nimbly navigated difficult market conditions in 2020 by assisting franchisees, while maintaining its long-term growth potential.
As the COVID-19 pandemic began, management undertook a series of steps to secure and strengthen the business. The company quickly bolstered safety procedures and shifted marketing spend to highlight the off -premise options available to customers, while supporting its franchisees with fee/cap ex deferrals and liquidity programs. Throughout the year, the company accelerated its digital investments by expanding its delivery footprint, modernizing its drive-thru experience, increasing mobile ordering adoption, and improving its loyalty programs.
While the company’s sales were negatively impacted by the pandemic, comparable sales have already recovered or are well on their way to recovery. Burger King U.S. returned to growth in January; Tim Hortons improved to a high-single-digit decline in Canada during the fourth quarter, and Popeyes U.S. grew 16% in 2020. To accelerate the recovery at Tim Hortons in Canada, the company has committed additional funds to bolster its advertising, and support continued enhancements to its Tim’s Rewards program.
We continue to believe each of Restaurant Brands’ concepts will emerge stronger from this crisis as their business models are competitively advantaged in a socially distant and more budget-conscious consumption environment, and as the company continues to invest in drive-thru, delivery, and digital. We believe QSR’s long-term unit growth opportunity is still intact, and we expect unit growth to return to its mid-single-digit growth rate this year. As investors begin to see the results of these efforts, and underlying sales trends at each of its brands continue to improve, QSR’s share price should more accurately reflect our view of its business fundamentals.”
8. The Boeing Company (NYSE: BA)
Number of Hedge Fund Holders: 55
The Boeing Company (NYSE: BA) is a Washington-based multinational firm that develops and markets airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles. Boeing operates globally and provides leasing and support services for products as well. Boeing was founded in 1916 and comes in at eighth place on our list of 10 best rebound stocks to buy now. The reputation of Boeing was damaged in 2019 after two aircraft made by it crashed that year and the Boeing 737 MAX was grounded. The 2020 pandemic also hit the company.
However, the company has since recovered and the 737 MAX has been allowed to fly again in many countries. The resumption of normal aircraft service is also likely to lead to an increase in orders for Boeing, further boosting the firm. On April 18, a Dubai leasing firm ordered 15 MAX planes lending credence to the post-pandemic recovery for the aviation sector. At the end of the fourth quarter of 2020, 55 hedge funds in the database of Insider Monkey held stakes worth $1.05 billion in the firm, up from 43 in the preceding quarter worth $1.7 billion.
7. Chevron Corporation (NYSE: CVX)
Number of Hedge Fund Holders: 50
Chevron Corporation (NYSE: CVX) is a California-based energy company. The company has stakes in the chemicals and petroleum business as well. It explores and produces crude oil and natural gas. The company is involved in cash management, debt financing, insurance, real estate, and technology-related businesses too. It was formerly known as ChevronTexaco.
The boom in inter-city and inter-country travel as lockdown restrictions ease across the United States is expected to lead to a surge in the demand for oil. Chevron stands to benefit from this boom. The company is also looking to expand in the alternative energy sector. On April 13, the venture capital arm of the firm invested in an offshore wind energy asset.
Out of the hedge funds being tracked by Insider Monkey, Nebraska-based investment firm Berkshire Hathaway held the most shares – 48 million – worth more than $4 billion.
6. Genuine Parts Co. (NYSE: GPC)
Number of Hedge Fund Holders: 25
Genuine Parts Co. (NYSE: GPC) is a Georgia-based firm that distributes automotive and industrial replacement parts. It also sells office products and electronic materials. The company was founded in 1925 by Carlyle Fraser and is headquartered in Atlanta. It has more than 48,000 employees and 2,800 operation centers around the world. The company is also the owner of the NAPA Auto Parts brand. Genuine Parts has a market cap of over $16.9 billion and posted an annual revenue of close to $4 billion in 2020.
The increased sales of the auto industry as normal life resumes after the pandemic is expected to push the share price of the firm to new highs this year. However, financial advisory firm Evercore has cautioned investors that GPC might be negatively affected by a proposed hike in the minimum wage by the US government.
At the end of the fourth quarter of 2020, 25 hedge funds in the database of Insider Monkey held stakes worth $194 million in the firm, up from 23 in the preceding quarter worth $170 million.
In one of their investor letters, Amana Mutual Fund highlighted a few stocks and Genuine Parts Co (NYSE:GPC) is one of them. Here is what Amana Mutual Fund said:
“Genuine Parts presents something of a conundrum. As a supplier of replacement automotive parts, the decline in new car sales would be good. On the other hand, people aren’t driving nearly as much.”
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Disclosure: None. 10 Best Rebound Stocks to Buy Now is originally published on Insider Monkey.
