4 Highly Profitable Stocks to Buy & Hold for 2021

So far, investors have mostly prioritized growth. However as the recovery matures, profitability will increase in importance. Profits indicate strength in a company’s business model as well as signaling sustainability. Highly profitable companies are more likely to grow faster than counterparts who are burning cash.

With the advent of the “new normal,” the environment is even more challenging. However, certain companies are delivering earnings growth in addition to a strong balance sheet and a proven business model to maintain growth.

Facebook, Inc. (FB), Electronic Arts, Inc. (EA), Paycom Software, Inc. (PAYC), and Corcept Therapeutics, Inc. (CORT) are four such companies that are running ahead of the competition in terms of key profitability metrics. These companies are also continuously investing in new opportunities.

Facebook, Inc. (FB)

FB is the world’s largest social media company and operates Facebook.com, Instagram, and WhatsApp. FB currently has approximately 1.8 billion daily active users. FB’s stock has gained 35.8% so far this year.

FB’s gross profit margin (TTM) of 81.5% compares to the sector average of 50.6%. The company’s return on common equity (TTM) stands at 23.6% compared to the sector average of 3.8%. Further, its return on total assets (ROA) is 16.8% versus the sector median of 1.5%.

The company is working on emerging technology such as artificial intelligence. Facebook AI has recently launched M2M-100 which can translate between any pair out of 100 languages without using English as a base language. The company has also launched the Oculus Quest 2 virtual reality headset at a price point of $299.

During the quarter ended June 30th, Facebook saw an increase in revenue of 10% year-over-year. FB is expected to witness revenue growth of 14.5% during the fiscal quarter ending December 2020, and 24.2% in 2021. The company’s EPS is estimated to grow 26.6% in 2021 and at a rate of 20.3% per annum over the next five years.

How does FB stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

B for Peer Grade

B for Industry Rank

B for Overall POWR Rating

The stock is also ranked #10 out of 58 stocks in the Internet industry.

Electronic Arts, Inc. (EA)

EA operates as a game developer for various platforms such as gaming consoles, mobile phones, tablets, and personal computers. The company also provides other online services and content. EA’s stock has gained 18.7% so far this year.

Its gross profit margin (TTM) of 74.6% compares to the sector average of 50.6%. The company’s return on common equity (TTM) and return on total assets (TTM) stand at 27.8% and 17.6% compared to the sector averages of 3.8% and 1.5%, respectively.

The company has recently announced a slew of new games such as The Sims 4 Snowy Escape, Need for Speed Hot Pursuit Remastered, Lost in Random, and It Takes Two. The company’s release of Madden NFL 21 saw a 20% year-over-year increase in first-week sales. For the quarter ended June 30, 2020, the company saw an increase in net bookings of 17% year-over-year.

EA is expected to witness revenue growth of 16% in 2021 and 4.3% in 2022. The company’s EPS is estimated to grow 6.3% in 2021 and at a rate of 14.1% per annum over the next five years.

It’s no surprise that EA is rated a “Buy” in our POWR Ratings system, with a grade of “B” in Trade Grade, Buy & Hold Grade, and Industry Rank. In the 15-stock Entertainment – Toys & Video Games industry, it is ranked #2.

Paycom Software, Inc. (PAYC)

PAYC develops and markets human capital management cloud-based software solutions in the United States. The company’s software-as-a-service offering provides functionality and data analytics for the complete employee life-cycle. PAYC’s stock has gained 42% so far this year.

Its gross profit margin (TTM) of 88.4% compares to the sector average of 47.2%. The company’s return on common equity (TTM) stands at 34.5%, almost 7 times the sector median of 5.1%. Further, it’s return on total assets (TTM) is 9.2% compared to the sector median of 2.5%.

For the quarter ended June 30, 2020, despite challenges posed by the coronavirus pandemic, the company reported an increase in revenue of 7% year-over-year. PAYC is expected to witness revenue growth of 9.6% during the fiscal quarter ending December 2020, and 20.1% in 2021. The company’s EPS is estimated to grow 27.1% in 2021 and at a rate of 14.4% per annum over the next five years.

PAYC’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, and Peer Grade. In the 96-stock Software – Application industry, it is ranked #3.

Corcept Therapeutics, Inc. (CORT)

CORT is involved in the discovery, development, and marketing of pharmaceutical drugs for the treatment of oncologic, psychiatric, and metabolic disorders. CORT’s stock has gained 44.1% so far this year.  

Its gross profit margin (TTM) of 98.3% compares to the sector average of 55.4%. The company’s return on common equity (TTM) stands at 30.4% versus the negative sector median. Its returns on total assets (ROA) of 22.9% also compares to the negative sector median.

The company has started the Phase 3 trials of Relacorilant which is a drug aimed at Cushing Syndrome. The company also has several drugs in the pipeline within the psychiatry, neurology, ophthalmology, addiction, and oncology areas.

During the quarter ended June 30, 2020, the company saw a rise in revenue of 23% year-over-year. CORT GAAP income came in at $0.23 per share, compared to $0.17 per share a year ago.

CORT is expected to witness revenue growth of 6.4% during the fiscal quarter ending December 2020, and 19.5% in 2020. The company’s EPS is estimated to grow by 11.7% in 2020.

In our POWR Ratings system, CORT has a grade of “B” in Peer Grade. In the 384-stock Biotech industry, it is ranked #73.

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FB shares were trading at $277.04 per share on Thursday afternoon, down $1.69 (-0.61%). Year-to-date, FB has gained 34.98%, versus a 8.33% rise in the benchmark S&P 500 index during the same period.

Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.

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