Growth stocks finally plunged after many months of crushing their value counterparts. With bond yields continuing to race higher, I think it would be wise to look to value and cyclical stocks, which, I believe, are in a better spot to outperform through the rest of the year. With the end of this pandemic likely to happen over the next year or so, we could find ourselves at the start of a cyclical upswing that could profoundly reward investors, as tech and growth did in 2020.
Value and cyclical stocks: The best stocks to own for 2021?
The big growth-to-value rotation was a long time coming. Now that it’s here, investors should look to where the puck could be headed next as we inch closer to the post-pandemic world. Many pundits out there think that we could be in for a discretionary spending boom that could fuel the “roaring ’20s.” While there’s no telling what’s up next for Mr. Market, I think it’s wise to at least consider exposing yourself to the areas of the market that could stand to profit most over the next decade.
Growth had its moment to shine, and now, I think, names like Magna International (TSX:MG)(NYSE:MGA) and CAE (TSX:CAE)(NYSE:CAE) will finally have their time to really shine on the back of the next bull market.
Magna International: A cyclical auto parts maker that’s still cheap
Magna is an auto parts maker that’s been unstoppable of late. The cyclical stock broke out last year thanks in part to the hype surrounding electric vehicles (EVs). Even if the bubble in popular EV stocks were to burst tomorrow, I think Magna would be a name that would mostly be spared. Why? The stock isn’t nearly as expensive as some other EV plays, especially those involved with next-generation technologies that’ll fuel tomorrow’s high-tech EVs.
The auto sector, I think, could be on the cusp of a rare cyclical upswing. I expect Magna will benefit greatly from as traditional automakers like General Motors get up to speed with Tesla on the EV front. At 0.8 times sales and 2.3 times book, Magna is a terrific value and cyclical play to buy ahead of the “roaring ’20s” that could kick in once this pandemic ends.
CAE: An underrated COVID-19 reopening play
CAE creates training services for the civil aviation markets, defence, and healthcare markets. The firm has felt the full force of the COVID-19 impact, as the civil segment exhibited tremendous weakness. CAE’s profits got cut in half, as the demand for its training services waned through its third quarter. While CAE is down and out today, I do expect the company to come roaring back on the other side of this pandemic, as the need for flight simulators increases alongside the demand for new planes. The balance sheet remains on steady footing and is more than enough to get CAE to the light at the end of this very dark tunnel.
The stock trades at 3.5 times book value, which is considerably lower than the industry average of around five.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Magna Int’l.