FINANCE, INVESTMENTS

What to invest in 2021

Ivan Kladov, co-founder of the investment company Aravana Capital Management, shared his expert assessment of the prospects for the financial market: «Do not expect 2021 to be as good in terms of profitability as 2020 (even despite the coronavirus pandemic). However, there are many companies on the market that can seriously improve their financial and operational indicators in the coming year. For the most part, the fact is that we can see the record profitability only after a significant correction – in fact, what happened in 2020. The current year has not yet made it possible to buy at good prices, but there are still three quarters ahead!

Renewable Energy Outlook

It is worth noting the renewable energy sector, which a large number of investors and analysts are hoping for. The fact is that the newly elected President of the United States, Joe Biden, may introduce tax breaks or other exemptions for companies from this industry. In addition, the sector itself is far from possible peaks, because the trend for renewable energy began only in the last decade. Therefore, companies from this industry definitely have a future. There is general skepticism about the effectiveness of such companies, their ability to reach a break even point without government subsidies, but this will not prevent them from gaining capitalization against the background of the general hype. So it makes sense to look closely at highly volatile securities in order to revive the dynamics of the entire portfolio. There is no need to dive into this sector 100%, but up to 10–20% you may well go.

Let’s take an example of a green energy company, which will have explosive growth in 2021:

NextEra Energy is one of the largest US energy companies. Includes the following subsidiaries Florida Power & Light (FPL), NextEra Energy Resources (NEER), NextEra Energy Partners (NEP) and NextEra Energy Services. Together with its subsidiaries, the company is the world’s largest wind and solar power generator. In addition to wind and solar energy, NextEra Energy uses natural gas, nuclear and oil-fired installations.

The main competitors of NextEra Energy are also major energy companies such as: Exelon Corp, Southern Co and Duke Energy Corp. It should be noted that #NEE outperforms its competitors in terms of capitalization more than twice.

TTM Revenue: $ 18.2B (-5.3% YoY)

TTM Operating Profit: $ 4.9B (-4% YoY)

Net Income: $ 3.9B (+ 5% YoY)

Earnings per share last quarter: $ 0.66, better than $ 0.65 forecast

The products of energy companies are characterized by low elasticity of demand. Therefore, this sector can be considered resistant to various crises.

Distribution of revenue by business segment:

  • FPL — 63.49%
  • NextEra Energy Resources — 29.36%
  • Gulf Power — 7.15%
  • EPS forecast for the current quarter: $0.36

The company is strong and has a steady growing trend. The last purchase was at 68-70 and it was possible to enter for almost a whole month. Now the deal looks much worse and here I would not take it, although I believe that the paper will reach 82/83. Why not, because the stop will have to be placed behind the previous low, and this gives approximately equal profitability at equal risk, which seems to me not entirely interesting.

Recently, the renewable energy sector has been in high demand from investors. Especially against the backdrop of Joe Biden’s victory in the US presidential election. Therefore NextEra Energy is a sustainable company with growth potential. However, it should be noted that due to the specifics of energy sources, the fourth quarter for the company is usually characterized by lower profit. This is due to the fact that solar panels receive less energy during the winter. Thus, #NEE is truly a company with growth potential.

American Robingood strategies

As many may have noticed, 2020 has shown how American investors love unprofitable companies that have a unique product or provide a unique service. After all, the percentage of unprofitable companies on IPOs over the past year has practically grown to the level of the 2000s, when the technology market was extremely overvalued. It is impossible to say with certainty when this trend will end. However, some of the young tech companies can really be a good investment. Even in spite of the current revaluation by the market. In this case, the comparison with the 2000s is not accidental, the level of insanity is practically the same. The amount of free money is off the charts, yields on classic instruments such as bonds are minimal, which leads to the fact that everyone wants to buy shares. And yes, of course, all newbies, or as it is now customary to say the Robinhoods (from the word – Robinhood is an American retail broker without commissions on deals on stocks) crave in excess of returns, in their opinion, + 10/20/30% per week is the norm. They basically rock unprofitable companies.

To view the statistics of Robinhood’s positions for a particular stock you can use the robintrack.net website.

To view the ticker for a specific American stock, simply enter its ticker at the end of the address.https://robintrack.net/symbol/TSLA

Commodity sector growth

I would also like to point out separately the raw materials sector, which is now starting to grow at a rather serious pace. The reason for this was the growth of almost all Commodities, from platinum to oil. Due to limited supply and an ongoing pandemic, commodity prices may also rise after a slight correction.

Here, however, you need to be careful, because there is a correction ahead in the Commodities market. This is facilitated by the growth / reversal of the dollar index. The current commodity spurt was largely helped by the dollar index, which weakened by almost 15% over the past year, which pushed the prices of goods denominated in dollars up. Now, after the correction, it will be possible to enter Commodities again, but it’s better not to rush.

Financial sector growth dynamics

Another sector that is already showing fabulous dynamics this year will be the financial sector, in which the regulator, represented by the CFTC, has lifted the restriction on share buybacks that have been in effect since 2008.

It is easy to assume that the delayed accumulated appetite and large amount of cheap money will show themselves in all their glory, and the “ugly duckling of last year” will spread its wings and become a wonderful swan. I recommend taking note of this sector».

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