2020 was unlike any other year in our lifetimes, with the once-in-a-century global pandemic, then the just-as-unpredictable stock market recovery and subsequent bull market. After such an unpredictable year, it may seem foolhardy to predict where things may go in 2021.
Yet if one really looks under the hood, some of the forces shaping 2020 were entirely predictable — the digitization of all business, the rise of e-commerce, more advanced cybersecurity, and others. In other words, some of the big, overarching business themes played out exactly as one might have expected, but were only accelerated by the pandemic.
In that light, seeing the big business themes likely to play out over the next year and beyond could yield big-time returns. Here are four major themes that should dominate business headlines next year, bring related stocks along with them.
5G goes mainstream
We’ve been hearing about the benefits of 5G for — well, it seems like ever. However, 2021 could be the year when people actually begin to experience the benefits for real. While 5G handsets have been coming to market over the past two years, consumers have only begun buying the first 5G iPhone, which was released in October.
Why did Apple (NASDAQ:AAPL) wait longer than other Android-based brands to bring a 5G phone to market? Probably because there wasn’t any real substantive 5G coverage available. Yes, the major telecoms have been rolling out their 5G networks for about a year-plus, but the buildout will take time because of capital intensity and technical hurdles.
Some companies, including Verizon (NYSE:VZ), first concentrated on rolling out millimeter-wave, or mm-Wave, ultra-fast 5G signals in major cities, but the coverage for mm-Wave is extremely limited, only traveling about 500 meters from the radio, and unable to penetrate walls and other objects very well. At the other end, T-Mobile (NASDAQ:TMUS) began rolling out low-band 600 MHz spectrum nationwide last year. That offers wide coverage, but its speeds, while higher than 4G LTE, probably aren’t fast enough for consumers to notice a huge difference.
However, all of the carriers have continued expanding their networks, improving speeds and coverage. Importantly, T-Mobile is now aggressively rolling out mid-band 5G on the spectrum acquired in the Sprint acquisition, with the goal of covering 100 million people by the end of the year. Mid-band offers a happy medium — good coverage, along with speeds that are markedly higher than 4G LTE. Currently, all major telecoms are bidding billions of dollars on new mid-band spectrum in the ongoing FCC auction, with the aim of rolling it out in earnest in 2021.
The combination of that wider mid-band coverage along with 5G-compatible iPhones means that the 5G era will really begin in earnest next year, and developers will begin to make new 5G applications that could really wow consumers and enterprises alike in the years ahead.
The race for global semiconductor superiority kicks into high gear
Powering the 5G revolution — along with the AI revolution, the Internet of Things revolution, and the “smart-everything” trends of the 2020s will require more and more advanced semiconductors. Yet in conjunction with the rise in importance of advanced leading-edge node semiconductors, many chipmakers are running up against the limits of Moore’s Law, which states that the number of transistors on a chip will double every one to two years.
Basically, just as advanced chips are becoming super-important, they are becoming harder to make.
That means companies and whole countries are likely to continue investing in the key chipmaking technologies. Perhaps the most important company in the world right now is Taiwan Semiconductor Manufacturing (NYSE:TSM), which has leapt ahead of the world’s leading foundries and chipmakers such as Samsung, Intel (NASDAQ:INTC) and still-private GlobalFoundries in terms of leading-edge chipmaking capabilities.
Taiwan Semi has become so crucial to the tech world that the U.S. just agreed to subsidize TSM for a $12 billion plant in Arizona, so that the U.S. has at least some leading-edge capacity on U.S. soil. Intel CEO Bob Swan also recently implored the incoming Biden administration to offer subsidies and incentives for even more U.S. advanced semiconductor manufacturing. Meanwhile, Samsung recently announced a massive spending plan designed to catch up to TSM in its chip foundry segment, to the tune of $116 billion. And don’t forget, China still wants in on its own chip manufacturing capabilities. Though the U.S. has shut off some key equipment sales to certain Chinese companies it believes engages in military applications, China is still moving ahead with its own foundry spending to wean itself off its huge dependency on foreign chipmakers.
This battle will be key for global tech supremacy, both among companies and countries, so get ready for continued strong spending in semiconductor equipment, especially key proprietary technologies involved in shrinking distances between transistors, such as the EUV lithography pioneered by ASML Holdings.
Stepping away from technology for a second, it’s also become clear that U.S. cannabis regulations are likely to continue rolling back, in whole or at least in part. There are a number of good reasons cannabis will continue heading toward full legalization, either in increments or all at once. For one thing, an all-time high of over two-thirds of Americans now believe in full cannabis decriminalization. In November, voters approved all five pro-cannabis ballot measures across both red and blue states. And the incoming Biden administration is likely to move forward with decriminalization initiatives. Incoming Vice President Kamala Harris, who herself sponsored a Senate bill to decriminalize cannabis when she was a senator, has said the administration won’t be “half-steppin'” cannabis reform.
The beneficiaries should be the leading U.S. multistate operators, which have mostly posted impressive revenue and EBITDA growth in 2020. Most of these companies have their stocks trading over the counter, because of the current status of cannabis as a Schedule I drug. Even if full legalization at the federal level doesn’t happen, cannabis banking reform and cannabis tax reform could still help these companies immensely by lowering their costs of compliance, capital, and taxes, thus boosting their respective bottom lines.
A coming travel boom
Finally — and this may come later in 2021, once vaccines are rolled out — there’s a good chance the snap-back in travel and leisure spending will be fierce. After 12 to 18 months cooped up inside, many will no doubt travel to see family or take that long-awaited vacation once the virus recedes. Recently quoted in The Washington Post, large travel agent World Travel Holdings’s CEO Brad Tolkin said of the potential late 2021 snap-back in travel, “I think it’s going to be thunderous.”
Remember, the 1918 Spanish Flu pandemic gave way to the Roaring Twenties. As vaccines are administered next year, look for a rebound in spending at travel-related companies such as cruise lines, airlines, hotels, resorts, casinos, online travel agents, and private rental companies including Airbnb. A big increase in travel and entertainment discretionary spending should also benefit banks and credit card companies as well, which make money from spending fees, services, and consumer loans.
Because of the peculiar nature of the virus recession, affluent and employed household balance sheets are in relatively good shape, and many (though not all) recently unemployed could soon find work again in travel and entertainment-related industries once the economy reopens. When you combine that with low interest rates through 2023, as the Federal Reserve has promised, and many economists think there could be a big unleashing of the animal spirits next year and a snap-back in the economy. Therefore, consumer and cyclical stocks could see their revenues and earnings bounce back strong in late 2021 and into 2022.