Bellwether stocks are considered to be leading indicators about the direction of the overall economy, a specific sector, or the broader market. They are predictive stocks in that investors can use the company’s earnings reports to gauge economic strength or weakness.
The traditional definition of bellwether stocks brings to mind established, blue-chip companies. They are the home of mature brands with consumer loyalty. These may be stocks that aren’t associated with exceptional growth; some may be dividend stocks.
But there’s something different about normal this time around. If it’s true (and I think it is) that the old rules no longer apply, investors need to change the way they think about bellwether stocks. Plus, let’s face it, many stocks that we might consider to be bellwether stocks have already had a bit of a vaccine rally. That means that the easy gains are gone.
With that in mind, we’ve put together this special presentation that highlights seven of what may be termed the new bellwether stocks. These are stocks that investors should be paying attention to as the economy continues to reopen.
One quality of many of these stocks is that they are either negative for 2021 or underperforming the broader market. And that means that they are likely to have a strong upside as the economy grows.
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- Coca-Cola
- Disney
- Apple
- NextEra Energy
- The Chef’s Warehouse
- Zillow Group
- DocuSign
#1 - Coca-Cola (NYSE:KO)
The first stock on the list is a traditional bellwether stock. Coca-Cola (NYSE:KO) has managed to navigate the pandemic fairly well. Full-year 2020 revenue of $33.05 billion was only down about 9% year-over-year (YOY). And earnings per share of $2.11 for the full year were virtually identical to the $2.15 the company posted in 2019.
Bullish investors might note that KO stock is up 25% in the last 12 months. But the stock is essentially flat in 2021 and 12% below its pre-pandemic high. It seems likely that Coca-Cola can make up that gap as live entertainment and sporting events begin to reopen.
The company is also in the process of getting leaner in terms of its brand portfolio. Management expects to cut the number of brands from 400 to 200. This will allow the company to put more emphasis on its core brands which should result in better earnings and free cash flow (FCF).
In addition to anticipation of higher revenues and earnings, Coca-Cola is part of the exclusive Dividend King club having delivered 59 consecutive years of dividend growth. Over the last three years, the quarterly dividend has grown over 10% and now pays $1.68 per share for the full year.
About Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.
Read More - Current Price
- $63.01
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.36 (14.8% Upside)
#2 - Disney (NYSE:DIS)
Disney (NYSE:DIS) has been one of my “I told you so” stocks. Throughout the pandemic, I pounded the table to tell investors to hold on to Disney and wait for the economy to come back. During the pandemic, the company’s new streaming service, Disney +, did the heavy lifting in terms of revenue.
However little by little, the company’s theme park and hospitality business is coming back. In fact, Disneyland in California will soon be open on at least a limited basis.
In fairness, many investors recognized that the pandemic selloff for Disney was overdone. In the last 12 months, the stock is up 100% in the last 12 months but has slowed down in 2021 with a gain of just 5%.
It may take a little while for the company’s engine to fire on all cylinders. However, this is the time for investors to get on the Disney train, because it’s about to leave the station.
About Walt Disney
The Walt Disney Company operates as an entertainment company worldwide. It operates through three segments: Entertainment, Sports, and Experiences. The company produces and distributes film and television video streaming content under the ABC Television Network, Disney, Freeform, FX, Fox, National Geographic, and Star brand television channels, as well as ABC television stations and A+E television networks; and produces original content under the ABC Signature, Disney Branded Television, FX Productions, Lucasfilm, Marvel, National Geographic Studios, Pixar, Searchlight Pictures, Twentieth Century Studios, 20th Television, and Walt Disney Pictures banners.
Read More - Current Price
- $114.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $123.83 (8.4% Upside)
#3 - Apple (NASDAQ:AAPL)
Despite a four-for-one stock split and the launch of another generation of its iPhone, the iPhone 12, Apple (NASDAQ:AAPL) stock is down for the year. Right now, AAPL stock is only down about 4% but not long ago it was in the unusual position of being one of the Dogs of the Dow.
However, it’s one of those times when it’s important to understand why a stock is sliding. In the case of Apple, it really has more to do with an overall reevaluation and repricing of the entire tech sector. The growth drivers that Apple has enjoyed over the past several years are still in place.
And those drivers go well beyond the company’s iconic iPhone. Wearables and Services are becoming a core of the company’s business. For example, the Apple Watch has defied some early naysayers to become a core part of a consumer’s journey to connected fitness. And that’s part of the new normal that’s not likely to go away.
Stock # 5 on this list will surprise you
To be fair, AAPL stock is up over 100% in the last 12 months. But with the stock split making the stock more accessible for retail investors, it’s safe to assume that it’s still a good time to get in on Apple stock.
About Apple
Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
Read More - Current Price
- $229.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $235.25 (2.7% Upside)
#4 - NextEra Energy (NYSE:NEE)
So far, I’ve looked at companies that could still be considered some of the old economy stocks. But the transition away from traditional energy sources has been going on for years. And that’s why savvy investors are looking at NextEra Energy (NYSE:NEE).
NextEra gives investors exposure to traditional energy sources as well as the renewable energy sector that is expected to reach a valuation of over $2 billion by 2025. And this combination of old and new is what makes NEE a bellwether stock.
NextEra Energy is one of the largest electric power companies in North America. And the consistent revenue it earns from that business is a key to its recent inclusion in the Dividend Aristocrats club after posting 25 consecutive years of dividend growth.
The company has a renewable energy division NextEra Energy Resources. This division stands to benefit from the Biden administration’s recently revealed $2 trillion infrastructure plan that will ramp up talk about a “Green New Deal.”
NEE stock is up 39% in the last 12 months. However, the growth has stalled out in 2021, posting only a 2% gain year-to-date. This gives investors reason to expect plenty of upside as the economy reopens.
About NextEra Energy
NextEra Energy, Inc, through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear,natural gas, and other clean energy. It also develops, constructs, and operates long-term contracted assets that consists of clean energy solutions, such as renewable generation facilities, battery storage projects, and electric transmission facilities; sells energy commodities; and owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets.
Read More - Current Price
- $76.87
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $86.54 (12.6% Upside)
#5 - The Chef’s Warehouse (NASDAQ:CHEF)
The restaurant industry was one of the hardest-hit sectors during the pandemic. However, many of the traditional restaurant stocks have already bounced back to pre-pandemic levels. That makes me a little hesitant to call them “bellwether” stocks.
That’s why I’m looking at The Chef’s Warehouse (NASDAQ:CHEF). The company supplies restaurants with the equipment and ingredients they need to thrive. But it’s not just restaurants. The company supplies its products to menu-driven companies such as country clubs, hotels, and caterers. These were businesses that were largely dormant as gatherings were limited.
As these businesses continue to reopen with increasing capacity, I would look at CHEF stock to show growth. Granted, it’s up 238% in the last 12 months.
But that growth has slowed in the last month. That recent dip may be just what the stock needed. It was beginning to look very overvalued. The recent selloff is giving investors a more attractive price point. And the stock is still about 30% below its all-time high.
About Chefs' Warehouse
The Chefs' Warehouse, Inc, together with its subsidiaries, distributes specialty food and center-of-the-plate products in the United States, the Middle East, and Canada. The company's product portfolio includes specialty food products, such as artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate, and pastry products; and center-of-the-plate products consisting of custom cut beef, seafood, and hormone-free poultry, as well as broadline food products comprising cooking oils, butter, eggs, milk, and flour.
Read More - Current Price
- $43.96
- Consensus Rating
- Buy
- Ratings Breakdown
- 4 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $50.50 (14.9% Upside)
#6 - Zillow Group (NASDAQ:ZG)
2020 was a great year for Zillow Group (NASDAQ:ZG). The stock climbed a whopping 352%. But 2021 has been a different story for ZG stock. Since closing at a high of $203.79 in mid-February, the stock has dropped 33% as the housing market seems to be cooling.
The housing market was one of the strengths of the pandemic economy. Does 2021 have more growth in store for the sector? That seems to be a topic of some debate. In some areas it appears that sellers are beginning to get the upper hand.
But that only means that prospective buyers are going to have to be more nimble and efficient in their home search. And Zillow puts the information that buyers need in the palm of their hands.
And analysts are still bullish on the stock. The consensus price target of 22 analysts suggests that the stock has over 20% upside from its current level.
About Zillow Group
Zillow Group, Inc operates real estate brands in mobile applications and Websites in the United States. The company offers premier agent and rentals marketplaces, new construction marketplaces, advertising, display advertising, and business technology solutions, as well as dotloop and floor plans. It also provides mortgage originations and the sale of mortgages, and advertising to mortgage lenders and other mortgage professionals; and title and escrow services.
Read More - Current Price
- $75.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $68.18 (9.1% Downside)
#7 - DocuSign (NASDAQ:DOCU)
The last stock on the list is a stock that perfectly fits the idea of a new bellwether stock. DocuSign (NASDAQ:DOCU)is a leader in the e-signature sector. The company was already helping consumers and businesses be more efficient in the way they got business done remotely.
And although the ability to handle things such as mortgage closings remotely is going to continue after the pandemic for convenience, not because of public health concerns. DocuSign is also expanding its cybersecurity services. This not only helps the company market its services to a wider range of businesses, but it will also help to make its services stickier to current customers.
DOCU stock is up 146% in the last 12 months. However, the stock is down 7% in 2021 as part of the tech sector recalibration. This helps give the stock room to grow. Analysts give the company a price target of $270.39. That’s a 30% gain from its current level.
About DocuSign
DocuSign, Inc provides electronic signature solution in the United States and internationally. The company provides e-signature solution that enables sending and signing of agreements on various devices; Contract Lifecycle Management (CLM), which automates workflows across the entire agreement process; Document Generation streamlines the process of generating new, custom agreements; and Gen for Salesforce, which allows sales representatives to automatically generate agreements with a few clicks from within Salesforce.
Read More - Current Price
- $78.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $63.40 (19.6% Downside)
The Covid-19 pandemic has made many stocks expensive. Many stocks are trading well above what any fundamental metric suggests. And many bellwether sectors such as airlines, hotels, and even restaurants have already received a nice boost in anticipation of increased revenue. While it’s fair to suggest that these stocks may have more room to grow, it’s equally fair to point out that the upside may be limited.
This makes it difficult to use classical metrics to find bellwether stocks. The stocks in this presentation give you the benefit of growth that isn’t already priced into their stocks.
Although they are not some of the names you might expect, they are stocks that are worth keeping your eye on. Because as the economy reopens, these are likely the stocks that will grow alongside it.
And in some cases, these stocks offer a nice dividend to support the shift to value stocks.
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