7 Hot Sectors To Ride For The Rest Of 2021

Just a month into the new year, we’re already seeing patterns emerge as investors try to find the hottest stocks to ride for the rest of the year.

To help understand what some of the hottest sectors to ride in 2021 are, I’ve recruited some of my InvestorPlace contributors. They’ve recently covered seven different sectors, industries and themes that are already red-hot and only expected to get hotter as 2021 plays out.

In 2020, the top-performing S&P 500 sectors were information technology, up 43.9%, followed by consumer discretionary, up 33.3%, and communication services, up 23.6%.

Only three sectors finished in negative territory: financial services (-1.7%), real estate (-2.2%), and energy (-33.7%).

Who will be the winners in 2021? We’ll have to wait and see.

In the meantime, the seven sectors my colleagues have identified are as follows:

• Cryptocurrencies
• Electric Vehicles
• Hydrogen/Clean Energy
• SPACs
• Marijuana
• 5G
• Space

For each of the seven, they’ve identified several stocks within the hottest sectors that should be able to perform well for the remainder of 2021 and beyond. I will provide my particular favorite.

Hot Sectors to Ride for the Rest of 2021: Cryptocurrencies

InvestorPlace’s Luke Lango is high on cryptocurrencies in 2021.

He believes that cryptocurrencies' core purpose is to allow financial transactions to occur anywhere in the world without the need for middlemen such as banks, increasing the cost of doing business.

“Through the blockchain -- a decentralized public ledger of transactions that anyone can view, is consistent across the whole network, and is unable to be edited and/or updated unless the whole network agrees with the update -- cryptocurrencies are able to conduct and verify financial transactions without needing any central oversight,” Lango wrote in late December.

But which cryptocurrency to buy? For my money, look no further than Bitcoin (CCC:BTC).

With the demand for bitcoin continuing to accelerate and the supply limited to 21 million, this particular cryptocurrency has the best chance of retaining its status of a store of value.

In fact, the Bank of Singapore, the private banking arm of Oversea Chinese Banking (OTCMKTS:OVCHY) believes that bitcoin could partially replace gold as a store of value. This won’t happen, the bank argues, until investors are convinced bitcoin is stored by trustworthy institutions and the liquidity is improved to reduce volatility.

While the former is entirely possible, given the finite nature of the 21 million bitcoins, I’m not sure how the latter issue gets resolved in the near term. Despite the questions facing institutional acceptance, 2021 should continue to see bitcoin move higher.

 Electric Vehicles

While the oil sector probably doesn’t want to hear it, electric vehicles (EVs) came of age in 2020.

Sure, a lot has to go right for EVs to reach a tipping point over internal combustion engines (ICE). Still, the number of EV startups that went public last year via a special purpose acquisition company (SPAC) merger suggests investors believe the tide is turning.

InvestorPlace contributor Bret Kenwell discussed the seven EV stocks to buy in 2021 in early December.

“Just like when any industry comes to life -- like cannabis a few years ago or tech a few decades ago -- there will be the winners and there will be the losers,” Kenwell wrote in December.

“I’m not saying that the industry is bound to suffer catastrophic losses, like the two groups I just mentioned eventually did, but just that not every stock is going to be a winner down the road.”

My colleague’s got some interesting names in his list of seven recommendations.

Tesla (NASDAQ:TSLA) tops the list of choices. It’s the 800-pound gorilla and deservedly so. Elon Musk and company essentially created the industry buzz that exists today. Without Tesla, we might not be here, talking up electrics.

Another name on Kenwell’s list is Ford (NYSE:F). I recently stated that I thought a merger between Ford and Tesla could still happen, despite the fact that Tesla’s market capitalization is almost 19 times Ford’s.

For my money, Chinese EV maker Nio (NYSE:NIO) is the EV stock I believe will have the best run in 2021. As Kenwell stated, Nio’s had an amazing year from a delivery perspective.

I don’t see that changing in 2021.

Hydrogen/Clean Energy

Following on the heels of electric vehicles, InvestorPlace contributor Lou Carlozo believes that hydrogen stocks will have their coming out party in 2021.

“When Congress approved its $900 billion relief bill connected to the novel coronavirus on Dec. 21, it included a nice little provision to extend clean energy tax credits. All hail the mighty H, as in hydrogen stocks!” Carlozo wrote on January 6.

“The extension bodes incredibly well for companies producing hydrogen fuel and fuel cells for alternative energy vehicles. Once President-elect Joe Biden takes office, it’s an odds-on bet those credits will be further renewed and even expanded as his administration tackles climate change and renewable energy development head on.”

I couldn’t agree more. Joe Biden is going to take hydrogen and clean energy stocks to places Donald Trump never could. But which to buy?

Of Carlozo’s seven picks, I like Plug Power (NASDAQ:PLUG) for greater overall potential. As a bit of a side bet for more conservative investors, I like his choice of Cummins (NYSE:CMI), who make commercial generators to keep large installations powered up 24/7.

As for Plug Power, Carlozo points out that 10 out of 11 analysts have a buy rating on its stock, thanks in large part to its rising quarterly gross billings.

I like Plug Power because it’s focused on reaching its once-audacious goal of $1 billion in annual revenue by 2024. With strong backing from Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and South Korean conglomerate SK Group, I believe the odds of success relative to some of its peers are: excellent.

SPACs

When 2020 began, I would have bet you all the money in Bill Gates’ bank account that SPACs wouldn’t have been one of the top stories of the year in the markets. Not even close.

And yet, here we are one month into 2021, and they remain hotter than a pistol after a banner year.

In 2020, there were 248 initial public offerings by SPACs that raised more than $83 billion in investor capital. Year to date through January 25, there have already been 67 SPACs raising $19.2 billion. If they keep up the pace, we could see more than 500 by the time 2021 is done.

InvestorPlace’s Mark Hake recommended five SPAC mergers in early December worth investing in and three potential mergers rumored to be undergoing serious discussions.

Of the eight names Mark mentioned, I’m most intrigued by the rumor -- that turned into fact -- that Perella Weinberg Partners was talking with FinTech Acquisition Corp IV (NASDAQ:FTIV) about a possible merger.

FTIV had raised $200 million in September 2020 that it would use to combine with one or more technology-focused financial services firms. It’s not so much the people behind the SPAC that I’m interested in -- although that is one of my seven IPO tips to pick the next big SPAC -- as much as Perella Weinberg.

Perella Weinberg was founded by investment banking veterans Joseph Perella, Peter Weinberg and Terry Meguid in 2006. Although Perella’s been involved in some big deals in recent years, it was his involvement in the $25-billion acquisition of RJR Nabisco in the 1980s that caught my interest.

Why go public now after 14 years as a privately-owned company? Industry insiders believe that the investment bankers had been plotting expansion plans for some time. The SPAC merger enables those plans to come to reality sooner rather than later.

Expect to hear more stories like this one in 2021.

Marijuana

Was 2020 the year investors finally began to believe in the marijuana growth story? InvestorPlace’s Muslim Farooque thinks so. He believes that several marijuana stocks will carry the momentum they had in 2020 well into 2021.

Thanks to legalization in Arizona, Mississippi, Montana, New Jersey and South Dakota, the wider acceptance predicted by industry insiders several years ago is finally starting to materialize.

You would think this would bode well for multi-state operators such as Green Thumb Industries (OTCMKTS:GTBIF). You would be right. Farooque included Green Thumb in his list of seven marijuana stocks.

But for me, Aphria’s (NASDAQ:APHA) merger with Tilray (NASDAQ:TLRY), which puts it in the big leagues of global cannabis producers in terms of revenues and profits, makes it an easy pick to do well over the rest of 2021.

Aphria reported record Q2 2021 results on Jan. 14 that were better than analyst expectations on both the top and bottom-line. In fact, it made a one-cent profit on an adjusted basis in the second quarter, considerably higher than its 19-cent loss a year earlier and four cents clear of the 3-cent loss analysts were expecting.

“We are planning to execute on the significant strategic and financial opportunities provided by the addition of SweetWater and, upon the closing of the Tilray business combination, including our over $100 million anticipated pre-tax synergies, to generate significant value for our stakeholders,” Aprhia Chief Executive Officer Irwin Simon said in its press release.

The merger is expected to close sometime between the beginning of March and the end of May.

Trading at just 7.5 times sales compared to 32.1 times sales for Canopy Growth (NYSE:CGC), its Canadian peer, Aphria is the marijuana stock to watch in 2021.

5G

We’ve been hearing about the advent of 5g for several years now, so it’s not surprising that InvestorPlace’s Joel Baglole is high on the next generation of cellular networks. Growth in the industry is skyrocketing.

“According to Allied Market Research, the worldwide 5G tech market will grow to $667.9 billion by 2026. That’s up from $5.5 billion this year for a compound annual growth rate (CAGR) of 122.3%,” Baglole wrote in late November.

 “The massive growth is because 5G will radically influence global communications, cloud computing, the Internet of Things (IOT) and more.”

Joel’s selected a group of stocks that wouldn’t be out of line held by themselves in a seven-stock portfolio. You really can’t go wrong with any of the stocks.

For my money, I continue to like Nvidia (NASDAQ:NVDA) best, followed by Alibaba (NYSE:BABA) out of his seven picks. Here’s why.

Nvidia continues to push the limits for its chips in gaming computers and data centers; those two areas have contributed greatly to its excellent growth. In November, it reported Q3 2021 earnings that beat analyst estimates for both revenues (57% year-over-year growth) and earnings (13% higher than consensus of $2.57 per share).

The only fly in Nvidia’s ointment is its $40 billion acquisition of chip designer Arm, currently owned by Softbank (OTCMKTS:SFTBY). The U.S. Federal Trade Commission (FTC) is taking a hard look at this acquisition. It doesn’t want to approve a deal that will lessen competition. For this reason, it’s possible that Nvidia isn’t successful.

On the bright side, if it does get past the FTC, it should be relatively smoother sailing through European and Chinese regulators.

Even if the Arm deal doesn’t happen, Nvidia’s firing on all cylinders.

Space

Closing out the list of seven hottest sectors to ride for the rest of 2021, it’s only appropriate that we reconnect with InvestorPlace’s Luke Lango, who got things rolling at the beginning by discussing cryptocurrencies.

Luke sees 2021 being an excellent year for space-related businesses in much the same way 2020 was a breakout year for EV stocks.

Innovation and disruption are two words that describe the space industry at the moment. The business of space has captivated serious investors like portfolio manager Catherine Wood, whose company, Ark Investment Management, is all about investing in these types of companies.

As my colleague reminds readers, Wood’s filed documents with the Securities and Exchange Commission (SEC) to launch the ARK Space Exploration ETF, a pure-play actively-managed fund dedicated to space.

“[The ETF] seeks to provide exposure to companies involved in space-related businesses like reusable rockets, satellites, drones, and other orbital and sub-orbital aircrafts. These innovations should transform logistics, observation, agriculture, telecom, drones, and may even put humans on Mars,” Ark Investment Management states in its offering documents.

Of the three stocks Lango recommends, I don’t think there’s any question that Virgin Galactic (NYSE:SPCE) is the play based on its goal to operate commercial space flights.

“Management continues to tout 2021 as the year that they will fly the company’s Chairman, Richard Branson, into space. I think this is totally doable. If that does happen, it will be a huge step forward in Virgin Galactic turning its commercial spaceflight vision into a reality,” Lango stated on January 15.

“Once that space tourism business scales, it could be a multi-billion-dollar revenue business with hundreds of millions of dollars -- and maybe even close to a billion dollars -- in profits. That’s enough growth potential to make SPCE stock a great long-term investment.”

Richard Branson is a visionary like no other. I couldn’t agree more.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Will Ashworth has written about investments full-time since 2008. Publications he’s appeared in include InvestorPlace, The Motley Fool Canada, Investopedia, and Kiplinger. At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.