When it comes to investing in the stock market, you always want to beat the broader indexes. The S&P 500 Composite Index has generated annual returns of around 10% in the past five and a half decades, which means you would ideally want to beat these returns over the long-term.
With the equity market trading near record highs, it might be difficult for investors to generate outsized gains. However, if you look closely, you might be able to identify companies that are trading at a discount.
Here, we look at three large-cap stocks that you should buy for market-beating returns in 2021.
The oil industry has been impacted by lower-than-expected demand amid COVID-19. This has meant several companies in the energy sector lost significant market value to trade at a lower multiple in the last year.
Canada’s energy giant Enbridge (TSX:ENB)(NYSE:ENB) saw its stock price decline from $57.32 at the start of 2020 to a multi-year low of $33 in March last year. ENB stock is currently trading at $44.25, which indicates a tasty forward yield of 7.6%.
This means a $5,000 investment in ENB stock will help you generate $375 in annual dividend payments. The energy heavyweight recently increased its dividends by 3% amid a sluggish macro environment which was its 26th consecutive year of dividend growth.
Further, the company expects to increase distributable cash flow between 5% and 7% on an annual basis going forward which will help it support future dividend increases as well. Enbridge has a resilient business model and generates a significant portion of its EBITDA from its regulated assets.
Analysts tracking ENB stock have a 12-month average target price of $51.31 which is 16% above the current trading price. After accounting for its dividend yield annual returns may surge to 23.5%.
The second stock on the list is mining company Barrick Gold (TSX:ABX)(NYSE:GOLD). One of Canada’s largest companies, Barrick Gold owns mines with over 10 years of productive life remaining. The company has also managed to deliver total cash per ounce that is in the lower half of the industry’s cost curve, allowing Barrick to generate sustainable profits.
Barrick aims to produce at least five million ounces of gold each year through 2029. Due to its low cost nature, the company should reduce its all-in anticipating costs from US$1,000 an ounce in 2020 to US$800 an ounce in 2024.
Barrick Gold has also reduced its debt over the years and strengthened its balance sheet making it one of the top picks right now. Analysts tracking Barrick Gold stock have a 12-month average target price of US$32 which is 61% above the current trading price.
One of the top-performing stocks in 2020, Zoom Video (NASDAQ:ZM) has lost significant momentum recently. Investors are concerned over its steep valuation after it rose from $107 per share in February 2020 to a record high of $588 in October. ZM stock is currently trading at $372 right now.
In the last three quarters, the company’s sales were up by a massive 307% year over year at US$1.77 billion. Comparatively, its net income rose by 11 times to US$630.3 million. Zoom now expects sales to rise by 314% in fiscal 2021 while earnings growth is forecast between 726% and 731%.
Analysts tracking Zoom stock have a 12-month average target price of US$466, which is 25% above the current trading price.
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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.
Tom Gardner owns shares of Zoom Video Communications. The Motley Fool owns shares of and recommends Enbridge and Zoom Video Communications. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.