2020 has been a superb year for tech stocks, with the Nasdaq 100 index rising more than 40%. Many top plays got little or no coverage at the start of the year, just before investors woke up to a worldwide pandemic. That catalyst produced all sorts of winners and losers, but state-of-the-art digital technology soared to the top of everyone's buy list, with Zoom Video Communications, Inc. (ZM), DocuSign, Inc. (DOCU), and Peloton Interactive, Inc. (PTON) attracting huge interest.
- 2021 should return tech leadership to more traditional plays.
- Uber Technologies, Inc. (UBER), Twitter, Inc. (TWTR), and Visa Inc. (V) could all post superior annual returns next year.
- Visa could lead the Dow Jones Industrial Average in 2021.
It's wise to expect more traditional tech trading opportunities in 2021, with the planet slowly returning to normalcy, or at least the "new normal." Stocks that still have a few hurdles to jump could become the year's biggest winners, especially if they performed better than expected in 2020. With that in mind, let's look at three tech stocks to watch in 2021, with an eye on uncovering the biggest winners.
A catalyst is an event or other news that propels the price of a security dramatically up or down. A catalyst can be almost anything: an earnings report, an analyst revision, a new product announcement, a piece of legislation, a lawsuit, the outbreak of war, or an offer to buy a company.
Uber Technologies, Inc. has posted an excellent 75% return so far in 2020 and is trading at an all-time high, but the ride-share company isn't close to reaching its revenue potential because customers are hesitant to book rides due to fears of infection. The massively successful UberEats delivery service has picked up some of the slack, but the balance sheet is still dripping with red ink, awaiting the return of full passenger loads.
The stock completed a round trip into the July 2019 high at $47.08 after a California ballot initiative gave the go-ahead for contracted drivers, triggering a breakout that has now stalled in the $50s. Sellers could turn at this level in coming weeks, as the second wave's impact forces investors to rethink exposure. But better times are ahead, with vaccines rounding the planet in the first half of 2021, raising the odds that Uber posts the profit it is now predicting for the second half of the year.
Twitter, Inc. shook off political headwinds in 2020, avoiding the intense scrutiny faced by rival Facebook, Inc. (FB). Of course, the stock has grossly underperformed other social media plays for years and has less to lose if the industry is saddled with draconian regulations. In addition, CEO Jack Dorsey and company are finally engaged in the renovation needed to increase profits, including a new advertising system set to come online in 2021.
The company came public in the mid-$40s in 2013 and posted an all-time high at $74.73 a few weeks later. The subsequent downtrend bottomed out in the mid-teens in 2016, yielding two support tests, followed by a rally wave that stalled at the IPO opening print in 2018. The stock finally mounted that barrier in 2020 and has just tested new support successfully, establishing a trading floor that should support low-risk entries.
2020 ended the debate about Dow component Visa Inc.'s qualifications as a "big tech" play, with the pandemic triggering huge forward progress in the digital payments industry. Unfortunately, the stock is highly dependent on total payment volume, which has suffered due to high unemployment rates and the collapse of travel revenue. Both headwinds should dissipate in 2021, allowing the financial giant to outperform this year's modest 11% return.
The perennially strong performer topped out at $214 in February 2020 and fell 80 points into March's 52-week low. It completed a round trip into that peak in September and reversed, posting a higher low in October. The stock returned to resistance once again in November and has spent the past seven weeks grinding through the final stage of a cup and handle or symmetrical triangle pattern – take your pick. A breakout shows excellent upside potential, perhaps to the $300 level.
Red ink is business jargon describing a financial loss. When accountants make physical entries into a financial ledger, red ink is used to show a negative number. Black ink is used to show that a number is positive or profitable.
The Bottom Line
These tech stocks should be watched in 2021 due to their unique stories and impressive upside potential.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.