Are bitcoin, data processing and cannabis themes to watch in 2021?

In this article, Mish Schneider, director of trading research and education at MarketGauge.com, explores several megatrends that could provide enduring returns throughout the year ahead.

When looking for stocks that will continue to perform in 2021, we can look at the megatrends that will continue to grow — considering the pandemic is likely to be in the rear-view mirror.

At the top of the list of trends is blockchain technology and alternative currency.

With Bitcoin above $52,000 and stocks like Riot Blockchain [RIOT], Canaan [CAN], MicroStrategy [MSTR], PayPal [PYPL], Microsoft [MSFT] and others jumping on the blockchain bandwagon, this trend will continue to change the landscape.

Any industry that would benefit from a transparent, decentralised database where all transactions are stored could benefit from blockchain. Not controlled by a central authority, its popularity and usefulness will grow.

Data collection also continues to grow.

Although it overlaps with blockchain technology, real-time processing using the cloud and digital channels make data collecting much more insightful and useful.

The hybrid cloud combines a private and public cloud which makes companies feel more secure.

Amazon [AMZN] and Microsoft are two that offer these types of services. Large organisations will be buying and selling more data as time goes on. This is already a huge trend in China.

"Large organisations will be buying and selling more data as time goes on."

Other notable companies in this space include Datadog [DDOG], Zendesk [ZEN], PayPal, and Cloudflare [NET].

However, while these companies are in megatrend territory, technical analysis is critical as all these stocks have dropped 20-40% from their highs.

If the rates hold steady as the cost of capital rises with yields, then these could start moving up again. It would also behove investors to look at the 200-day moving averages (DMAs) on most of these names as the risk point — though a break below could get costly.

Another megatrend is alternative energy and EVs. Because of this, I am watching electricity distribution very carefully.

With predictions of demand expected to double (at least), finding companies that are working on distributing electricity is another big area to watch.

There are ETFs in this space that offer diversified exposure to the theme.

One example is the Invesco Dynamic Building & Construction ETF [PKB], which is sitting at new all-time highs.

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund [GRID] is another ETF that is consolidating and looking ready to go higher, while a stock called Emcor [EME] is also rocketing to new highs.

These are outperforming and could continue to do so.

With the rotation into value and domestic US sectors like transportation, small caps and retail, there has been a fundamental shift from growth to value.

What is interesting is that before the pandemic, the economy was holding steady at circa 3.5% GDP but not really growing.

This is a big reason tech did so much better than the small caps or the transportation sector. Also, value stocks were well under pressure.

Now, post-pandemic, with this recent move up in value, the economy must continue to grow beyond pre-pandemic levels. What could help are two major reforms: an infrastructure package and cannabis legalisation.

That is why we expect some stocks in both spaces — such as Tilray [TRLY], the ETFMG Alternative Harvest ETF [MJ] and the iShares Transportation Average ETF [IYT] — as well as some other names in that basket to outperform.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.