These Two Sectors Are Set To Outperform In 2021

Every weekend I run a series of stock screens from my Fidelity brokerage account. Each screen is designed to identify potential recommendations for one of my publications or for my own personal portfolio.

One of the screens I run is income-oriented, which I use to identify potential investments for my Utility Forecaster newsletter. However, I don’t restrict this screen to just the sectors we cover in Utility Forecaster. I want to see what the best current income opportunities look like across all sectors.

I have specific criteria for the screens, such as a minimum 4% annual yield requirement. Further, the stocks must be optionable, because I always want to boost that yield up into the 8%+ range by selling covered calls. I have various other criteria based on valuation, volume, analyst ratings, etc. This also is just a first level screen. After identifying the first cut of companies, I run them all through a second screen that narrows the first list down by 80% to 90%.

Of course sectors are cyclical, and you will see some moving into favor as others move out of favor. That was a trend I noticed in this week’s screen. The first level screen identified 111 companies. Among those, 42 were in the financial sector and 26 were in real estate. Both of these sectors have significantly underperformed the S&P 500 this year, but if this screen is any indication, look for both sectors to have a big year in 2021.

The Top 15 companies on my first-level weekend income screen are listed in the table below.

Note that I wouldn’t recommend purchasing all of these companies even if they did pass the criteria of my second level screen, because this list provides insufficient diversification. If you have a need in your portfolio for a financial or real estate company, this would be a good place to start.

Further, it’s a strong signal that analysts see the outlook for these sectors as particularly promising. Thus, it could be a good strategy to add a financial or real estate investment trust (REIT) mutual fund or exchange traded fund (ETF) to your portfolio for 2021.

Importantly, that particular screen identified at least two potential companies in every S&P 500 sector. If I were building an income portfolio from scratch, I would seek to include companies from every sector. But no other sector came close to matching the representation of the REITs and the financials. For example, the third-highest represented sector was utilities with nine companies on the list. Utilities have also underperformed this year, but my screen implies that there is a lot more bullishness with the REITs and financials.

Editor’s Note: We’re in the midst of dramatic political, economic and social changes. A deadly pandemic is raging around the world and on January 20, the United States is getting a new president.

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