2020 bordered on the paradoxical on Wall Street. It was understandable that while the tangible economy was down in the dumps because of the pandemic, shares of digitally focused businesses would outperform the average. Many of those stocks rose by triple-digit percentages as investors piled into companies that were benefiting from remote work and social distancing. But it remains to be seen how many of them will live up to their newfound sky-high price tags.
Headed into 2021, a dash of contrarian thinking is in order. Going against the grain and investing in less popular businesses requires patience, but it can lead to big payoffs. For those looking to get ahead of the crowd, my top five contrarian stocks for next year are Visa (V -0.23%), Comcast (CMCSA 1.85%), Marvell Technology (MRVL 3.17%), Hasbro (HAS -0.77%), and Skechers (SKX 11.20%).
Visa: A broad-based bet on global recovery
With COVID-19 vaccines starting to become available, many investors think industries like travel, dining, and others that are reliant on in-person interaction are set for a big year. I agree.
But rather than bet on which segments of the economy will come roaring back -- and which ones might have been permanently altered by the pandemic -- I'm starting my economic recovery portfolio with Visa. As the operator of the world's largest payments network, it could see a rapid rebound in revenue growth when consumers start traveling, eating out, and shopping again. After all, 2020 was decent for the company considering the circumstances. During the fiscal year that ended on Sept. 30, its revenue only fell by 5% as the rise in e-commerce transactions failed to fully offset those lost due to the plunge in international travel.
Signs of a rebound are already manifesting. During the autumn, Visa's transaction volume returned to positive territory on a year-over-year basis. And as the company begins to lap its results from the pandemic in the spring of 2021, revenue and net income are set to soar. Visa shares slightly underperformed the broader market, up by 14% in 2020 as of the close of trading Dec. 29 (compared to 16% for the S&P 500 index), but I think the stock will return to its pre-pandemic outperformance in the years ahead, as digital payments are only going to increase in importance around the globe.
Image source: Getty Images.
Comcast: A cheap stock with a lot to gain
The story at Comcast over the last few years has been high-speed internet. The company's cable and landline phone businesses have lost millions of cord-cutting customers as people shifted to using streaming video services and cell phones instead, but it more than offset those losses by signing up new internet subscribers. The steady and highly profitable broadcasting business it holds in its NBCUniversal segment only sweetened the deal. This was the story in 2020 as faster internet service became even more of a necessity for most Americans.
I expect it to keep adding high-speed internet customers in 2021, and its new mobile phone service is picking up lots of subscribers too. (That offering is currently piggybacking on Verizon's (VZ 1.17%) network, but Comcast is purchasing the mobile spectrum it might use for one of its own.)
But the real difference-maker in the next year could be NBCUniversal. The pandemic shuttered the movie theaters where its films would have shown, and all of its Universal Studios theme parks were closed for many weeks. (The California park still is.) As a result, the segment overall didn't fare so well.
Those situations should start to improve in 2021, and the media business has some new tools at its disposal too. Its Peacock streaming service is up and running, providing a new income stream for TV and movie content. And the Beijing resort is scheduled to launch by the summer.
Comcast shares have only just begun to rally in recent months, and in spite of the business's solid performance during these difficult times, shares trade for a modest 17 times trailing 12-month free cash flow (revenue minus cash operating expenses and capital expenditures). I remain a buyer at these levels, anticipating the inevitable improvements in profitability to come.
Marvell Technology: The other data center chip designer
NVIDIA (NVDA 6.18%) has been a favorite of investors this year, thanks to booming sales of its hardware for use in data centers and the launches of new products aimed at scooping up more market share. That stock repeatedly set new all-time highs in 2020.
But NVIDIA isn't alone in its efforts to capture new data center business. Marvell Technology has been pretty busy lately as well.
Marvell specializes in chips that manage the flow of large amounts of data. It completed its takeover of 5G mobile specialist Avera at the tail end of 2019, and is following that up with the purchase of networking equipment outfit Inphi (IPHI). The combined company's portfolio of chips will address the needs of a wide range of modern computing use cases, from data centers to connected and autonomous vehicles. During its fiscal 2021 third quarter, which ended Oct. 31, Marvell's revenue jumped 13% year over year -- an acceleration given that it reported just a single-digit percentage increase for the first nine months of the fiscal year.
That faster pace of growth looks sustainable as the company's customers continue their efforts to resume normal operations next year and demand for new high-end computing continues to rise. The addition of Inphi will also help; that acquisition is expected to boost Marvell's profit margins.
Don't get me wrong, I'm still an NVIDIA fan for the long haul, but Marvell is a little-known chip-engineering name poised to pick up momentum in 2021. And because it's trading at a discount compared to NVIDIA, I think this semiconductor stock could be a big winner in the years ahead.
Hasbro: New content production nearing monetization
Hasbro offered shareholders a mixed bag of results in 2020. Sales of its toys and games were strong as families stocked up on at-home entertainment options. But the company's acquisition of Entertainment One at the end of 2019 proved ill-timed. With production of entertainment content on hold for many months because of the necessity of social distancing, eOne has been a serious drag on Hasbro thus far.
That could be about to change in dramatic fashion, though. Production of Entertainment One's films and television series (the most famous in its catalog is the children's show Peppa Pig) is underway again, and the company expects revenue generation to resume during the first half of 2021. Paired with its steady toy-making operation, the newly integrated entertainment empire that is Hasbro is poised to set sail. Even during a tough first three quarters of 2020, the company's free cash flow was up 34% year over year, so eOne returning to profitability could keep the momentum going. That's not to mention the new opportunities Hasbro has now that it's got its own studio production company. It plans to use more of its toy franchises as the basis for TV series and films in the years ahead.
Hasbro stock is still trading more than 20% below its all-time high, and at a reasonable 20 times trailing 12-month free cash flow. With a return to growth in sight, now looks like the time to start buying this entertainment and play leader again.
Skechers: A fast-growing international style company
Skechers took a serious hit from the global economic lockdowns of this spring: Its sales fell 42% year over year in the second quarter. But during the summer and early autumn, the company reported a big rebound, and sales climbed back to nearly even with where they were a year prior. Its direct-to-consumer e-commerce segment -- which delivered triple-digit percentage revenue growth -- certainly helped, but international markets are where this shoe company really shines.
In the U.S., all other shoe companies play second fiddle to Nike (NKE 0.19%), and Skechers in particular is still viewed as a "value shoe" by many consumers. Nike is without a doubt the sneaker king in the rest of the world too, but in foreign markets, Skechers doesn't carry the same knock-off stigma. Rather, it has built itself into a sought-after brand, especially in large emerging markets like China, where sales are back in growth mode again. Perhaps the fact that some two-thirds of its revenue comes from overseas markets -- where its sales are growing quickly among its young fan base -- helps explain why Skechers frequently gets overlooked by many U.S. investors.
Still trading nearly 20% below its peak, this stock looks likely to be another 2021 rebound story as consumer spending recovers. And armed with over $700 million in net cash and equivalents (after subtracting long-term debt), Skechers is poised to continue its expansion in emerging markets. It doesn't have the same star power that Nike does, but Skechers trades for a fraction of the valuation and remains a growth name in its own right. I remain a patient shareholder here, as I think there's ample growth opportunity for Skechers in the next decade.
