These Two Special Situation Stocks Could Soar in 2021
Over Thanksgiving weekend, I started working on my lists of the best stocks to buy for 2021. I divided them into three categories: Growth, Income, and Special Situations.
In the coming weeks, I will share the Growth and Income lists with readers of Personal Finance. Some of those names are already in that publication’s portfolios of the same name. Those that are not will be added to them.
However, we do not have a Special Situations portfolio for Personal Finance. Perhaps we should since some of those opportunities offer the most upside potential. Below are two stocks that have recently broken out of their respective trading ranges and are poised to move higher next year due to circumstances unique to them.
You’ve probably seen the talking duck commercials extolling the virtues of Aflac (NYSE: AFL). The company sells supplemental life, health, and disability insurance policies.
The coronavirus pandemic put a dent in Aflac’s sales this year. As the unemployment rate shot above 10%, demand for supplemental insurance coverage waned. It is difficult to pay the premiums on supplemental insurance policies when there isn’t even enough money to cover the rent.
That trend should soon reverse. During the past three weeks, three successful COVID-19 vaccine trial candidates have been confirmed. That bodes well for rising employment as those vaccines begin to be administered early next year. As a result, AFL has broken out of its trading range and is on a strong uptrend.
An added kicker is Aflac’s rapidly growing pet insurance business. During the pandemic, pet adoption surged in the United States. Many pet adoption agencies recommend pet insurance to new pet owners to limit the financial risk of taking responsibility for an animal.
In addition, Aflac will execute a national launch of a Dental and Vision plan in 2021. That should be an easy cross-sell to its existing customers and help win new business away from competitors.
All the pieces are in place for Aflac to surprise the stock market next year. Its operating margins are solid and its underwriting standards are among the highest in the industry.
Nevertheless, Aflac is valued at only nine times forward earnings and 1.5 times sales. Icing on the cake: Aflac’s next quarterly cash dividend payment of 33 cents per share works out to a forward annual dividend yield of 3%.
You may have never heard of Ebix (NSDQ: EBIX), but I’ve been following it for a long time. Six years ago, I recommended it to my readers as a high-tech play on the financial services industry. Ebix designs software solutions for banks, insurers, and credit and debit card issuers.
Over the next two years, EBIX more than doubled in value. That’s when we cashed out, and good thing we did. Since then, EBIX has gradually receded back to where it was six years ago when I first started following it.
I’ve been waiting for EBIX to find a floor and reverse course. It appears that has happened. During the past month, EBIX appreciated from below $20 to more than $30.
Three weeks ago, Ebix released Q3 results that included a 39% jump in revenue over Q2. As a result, the company’s GAAP diluted earnings per share increased to 80 cents compared to 67 cents during the same period in 2019.
More impressive is that Ebix did not repurchase any of its own stock during the quarter. That means all of the increase was due to a true increase in net income and not accounting tricks. I believe Ebix will be able to continue that strong curve into 2021.
The special situation surrounding Ebix is the fact that more than 100% of its “float,” or shares trading in the market, are owned by institutions. That statistical oddity is made possible due to the stock’s very high short float ratio of 33.7%.
What that means is that a lot of speculators guessed wrong about how shares of EBIX would perform this year. As EBIX continues to rally, those short sellers will feel increasing pressure to buy out their short positions creating a classic “short squeeze” in the process.
Jim Pearce just provided you with two “special situation” trading opportunities that could reap big rewards. But if you’re looking for a safer alternative, consider an investment play that’s tapped into a commodity that many industries can’t live without: copper.
The “red metal” is a widely used raw material so sensitive to economic conditions, it’s viewed as a leading indicator. Fiscal and monetary stimulus in early 2021 is likely to boost economic growth and in turn the demand for copper. The price of copper is poised to soar next year and beyond, which is great news for copper producers.
Copper is vital for building construction, power generation and transmission, electronics, industrial machinery, and transportation vehicles. Copper wiring and plumbing are mainstays of heating and cooling systems, appliances, and telecommunications links.
Next year, as the world economy resumes growth, so will demand for copper. For our favorite investment in this crucial commodity, click here now.