Do you think the economy will recover in 2021? These stocks would be big winners

Investors embarked on a wild ride in 2020. Shares were initially hit hard due to the COVID-19 pandemic, but later recovered as the year progressed. The actions apparently defied gravity, or at least were able to look beyond the significant economic difficulties that the pandemic was creating.

The new year brings the promise of a vaccine, which we hope should allow life to return to normal and trigger an economic recovery in time. Three Motley Fool employees believe AerCap Holdings (NYSE: AER), Ford Motor (NYSE: F)and Carnival (NYSE: CCL) (NYSE: CUK) they are actions that are worth buying for the economic recovery.

The best way to invest in travel recovery

Lou Whiteman (AerCap): Airlines were hit hard during the pandemic, and stocks that depend on airlines for revenue fell along with airlines. AerCap, which is in the business of buying planes and renting them back to airlines, was among the victims. The company’s stock lost nearly 75% of its value during the early days of the pandemic, as investors feared that the highly leveraged business would be forced into bankruptcy by airlines that could not pay their bills.

These investors underestimated the strength of AerCap’s balance sheet. The company was forced to assume more than $ 1 billion in charges to reduce the value of its aircraft portfolio and to postpone more than $ 350 million in lease payments to hard-hit customers. But AerCap still has more than $ 11 billion in total liquidity at the end of the September quarter, and $ 25 billion in unencumbered assets to borrow if things get worse.

With the arrival of the vaccine, things shouldn’t get any worse from here. Airlines will need years to rebuild their balance sheets, but with each passing month we should see demand for travel increase slightly as the vaccine becomes more widespread. Even if it is not enough to ensure that airlines are profitable in 2021, it should be enough to allow them to pay their bills, which means that AerCap will see business return to normal even before travel returns to pre-levels pandemic.

AER vs. market data by YCharts

At a minimum, airlines that have contracted billions in debt to survive the pandemic are likely to be more focused on renting planes after the crisis, rather than buying them and putting the additional debt on their balance sheets. However, AerCap’s shares continue to lag behind the broader markets, and as of this writing US Global Jets stock exchange traded fund (ETF) of the airline so far.

The market got it wrong. If you believe that the demand for travel will return – and I do – AerCap is expected to rise significantly in the coming quarters.

Why Ford could be next year’s automotive growth story

John Rosevear (Ford Motor): I know that the idea of ​​investing in Ford may seem a little silly to growth-minded investors who are still dizzy with their Tesla earnings last year. But bear with me here, because there are two good reasons why Ford could be a market champion surprise in 2021.

First, with the big automakers, stock prices tend to keep up with sales – and car sales tend to jump at the beginning of the economic recovery. The post-COVID recovery will not be exactly the same as a typical post-recession recovery, but the recovery in consumer and business confidence is expected to boost sales of cars, trucks and SUVs in 2021.

Second, Ford’s shares outperformed most other automakers during the last recovery (2010-2011) because Oval Azul had good, fresh products arriving at their retailers’ showrooms just when buyers were returning – and while rivals were struggling to catch up. This may be true this time too.

Ford’s all-new 2021 F-150 pickup truck, the new Bronco Sport SUV and (speaking of Tesla) the new Mustang Mach-E electric have just started shipping to dealerships. The timing couldn’t be better: the F-150 is Ford’s bestseller, and the other two are the type of vehicle that brings curious consumers to showrooms.

There is more to come in 2021, including the much-anticipated new Bronco, an updated version of Ford’s large Expedition SUV and a small new pickup truck that can be called the Maverick. A little further, we expect new electric versions of the F-150 and the huge Transit commercial van, as well as a brand new Mustang (non-electric).

Ford’s stock has declined in recent years because its product portfolio was growing a lot. It did not help that Ford cut its dividends early in the pandemic, when the outlook looked bleak. But now, Ford’s product pipeline looks strong, just as the end of the pandemic is approaching. If the next few quarters go well, the dividend could be reinstated next year. This all bodes well for Ford’s actions in 2021.

Buy cruises before they return to normal

Rich Smith (Carnival): Coronavirus devastated the United States cruise industry, which spent 75% of the year confined to a port under “navigation ban” orders issued by the Centers for Disease Control (CDC). Even the arrival of a “structure” for “conditional navigation” at the end of October did not end the suffering of the sector because, so far, no one is leaving the United States

At the end of 2020, the shares of Carnival – the largest company in the sector – are still 53% below where they were a year ago. But all of that could change in 2021.

Now, here and there, cruise lines are preparing to take “simulated trips” without passengers to earn CDC certificates that will allow them to return to business. In anticipation of this, cruise lines are beginning to schedule at least short cruises, like the 18 trips from Canada to Alaska that Carnival is planning to begin in May 2021.

Not by chance, May (or June or July) are the months most cited as the period when most Americans who want to be vaccinated against the coronavirus will have been vaccinated, reducing the health risks of a cruise. If all goes well, in the second half of the year things should start to return to normal for the carnival.

How will it be “back to normal”? Let’s assume that in 2022, for example, Carnival will be able to do something close to the level of business it enjoyed in 2019. That would mean $ 21 billion or more in revenue and $ 3 billion in profits. With a recent market capitalization of $ 24 billion, Carnival would be valued at just eight times the profit – roughly half the average price / earnings ratio of the shares over the past 10 years, according to data from S&P Global Market Intelligence.

In other words, I see the potential of Carnival stock for approximately Double price next year, as investors start to expect what they can gain in 2022. I think that could make Carnival Corporation’s shares a big winner in 2021.