Buy these 20 deeply undervalued stocks expected to surge in 2021 – including one that could skyrocket 64%, Barclays says

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"2020 will be remembered as a year of extremes," said Barclays equity analyst, Emmanuel Cau, in a November 24 research note.

Investors experienced the worst global recession since the great depression, the quickest bear market and a subsequent record-breaking bull market, Cau said. 

The pandemic brought volatility to the markets in 2020. But positive news on vaccine trials towards the end-of-year means that Barclays' equity analysts are predicting a return to normality in 2021.

"We believe high-efficacy vaccines will bring the COVID-19 pandemic under control, allowing a gradual return to normality and a strong cyclical upswing," Cau said. "Central banks and governments have ammunition left to help sustain the recovery, financial conditions are favorable, and there is pent-up demand given resilient disposable income, high savings and recovering profits"

The new research report outlines the bank's equity strategy for 2021 and highlights key analyst ratings for the year-ahead.

European equities have lagged behind their US counterparts this year, as investors piled into growth stocks and moved away from value. The Stoxx 600 index of European blue chips has fallen by around 5.5% this year, compared with a 12.7% gain in the S&P 500. Cau and his team are expecting a return to value.

"Rotation to Value driven by mildly higher yields and easy earnings comps," Cau said. "If the macro backdrop normalises and tail risks abate, extreme polarization will reduce."

This return to value will benefit the Europe stock market. Cau expects a 13% upside in the Stoxx 600 driven by earnings per share growth.

"Europe has more catch-up potential, should be a prime beneficiary of vaccines, rotation and cyclical upswing, but faces sticky structural profitability challenges," Cau said.

More generally, Barclays' analysts remain positive on equities into 2021 for four key reasons:

1. The analysts expect the COVID-19 pandemic to be under control enabling a full re-opening of economies combined with supportive monetary and fiscal policies.
2. Earnings are expected to rebound strongly.
3. The analysts expect nominal growth to drive bond yields, which in turn will cap price-to-earnings ratio. If the yield goes up for the right reason, then equities should benefit, Cau said.
4. Equities are cheaper and less owned than bonds. They also provide a hedge against inflation.

However, investors should remain aware that over the winter the stock market could remain volatile. Cau said investors should buy the dips.

Business Insider lists the 20 stocks hand-picked by Barclay equity analysts that have the largest potential positive upside for investors into 2021.

Ticker: BP

Industry: Energy

Potential upside (%): 63.7%

Price target: £4.00

Analyst commentary: "There is more BP can do, in our view, to help the market understand the potential it has in the low carbon business, but this is likely to come with delivery. We continue to see BP as meaningfully undervalued, both on an absolute and relative basis. We rate the stock Overweight with a 400p/sh price target."

Source: Barclays

Ticker: ABN

Industry: Banks

Potential upside (%): 50.6%

Price target: €13.5

Analyst commentary: "The new CEO has delivered what we have wanted, namely a wind-down of the loss-making Global Sectors loan book in CIB. We therefore see significant optionality on the stock. Our blue-sky scenario implies 104% upside potential for the shares on a capital-accretive execution. Even if we were to assume no excess capital from this exercise, we still see 47% upside potential as the core retail bank operates in arguably the best Eurozone banking market, makes returns in excess of the sector, and trades at 0.46x TNAV."

Source: Barclays

Ticker: BT

Industry: Telecoms

Potential upside (%): 47.2%

Price target: £1.80

Analyst commentary: "Moreover, as we discuss in new era of price inflation ahead (30 September 2020), we view recent price moves and statements from management as supportive of a period of steady price inflation in the UK over the coming years, in both fixed and mobile. As such, sources of potential upside include better trends for the consumer segment, but also cost-cutting (including BT's £2bn cost transformation plan)."

Source: Barclays

Ticker: TTA

Industry: Energy

Potential upside (%): 44.9%

Price target: €50

Analyst commentary:"The European-based companies are leading the way on this and Total remains our Top Pick in the space. In our view, Total has the knowledge, the technology and the financial strength to build its low-carbon offering and can do all this whilst paying a dividend, which currently implies a ~8% yield. With carbon emissions an ever-growing focus for investors, we incorporate Total's 2025 ambition but also deduct a cost associated with scope 3 emissions to ensure that our valuation is aligned with the Paris accord. We continue to believe that financial markets will reward low-carbon activities, and we rate the stock OW with a EUR50/sh price target."

Source: Barclays

Ticker: RB

Industry: HPC

Potential upside (%): 43.2%

Price target: £96

Analyst commentary: "We view RB as a year or so into a multi-year turnaround. Management has made the decision to invest heavily in 2020e and 2021e, as RB rebuilds innovation, marketing, and digital capabilities. Looking further out, we see double-digit earnings growth in 2022e and 2023e as investment normalises. Currently the main debate around RB is how much of the COVID-19 benefit to brands such as Dettol and Lysol is retained post-vaccine, and how much of the resulting operational leverage drops through to the bottom line. We expect both topline and margin to surprise to the upside during 2021e, helping to drive a rerating."

Source: Barclays

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