The third quarter was definitely a bumpy ride for the stock market. One could call it a roller coaster — primarily because roller coasters usually drop you off at the same spot where you got on. The S&P 500 saw gains of just under 0.5%, the Dow Jones gained 0.75% and the Nasdaq lost a bit more than 1%.
Must like the rest of the market, the Best Stocks for 2019 race didn’t see a lot of lasting moves. A CBD company continues to move among the top five, a cutting-edge telahealth company holds onto second, and a direct-to-consumer retailer continues its explosive growth. There’s one quarter left for big moves, but it’s far from anyone’s game.
Without further ado, let’s get into the Best Stocks for 2019, ranked from bottom to top.
10. Syrah Resources (SYAAF)
Investor: Eric Fry
Year-to-Date Change Through Q3: -70%
Q2 Ranking: 10
The story for Syrah Resources (OTCMKTS:SYAAF) went from can it be the best stock for 2019 to can it survive 2019?
It looks like it will. 2020 is a bit less likely. Beyond that…well SYAAF really needs that electric vehicle revolution to come soon.
The bull thesis for Syrah is that as electric vehicles become more profitable, the companies that supply the materials needed for the cars’ batteries will also take off. Graphite is an often overlooked one of these materials, and Syrah owns Balama Mine, the world’s highest grade graphite mine. But the prices of these battery components didn’t increase as expected.
In his update, Eric Fry explained:
“Despite the booming market for electric vehicles worldwide, an “echo boom” in the prices of the so-called battery metals has failed to materialize. The prices of copper, cobalt, lithium, and graphite are all languishing near three-year lows. Nickel is the lone standout among the key battery metals, as its price recently hit a new five-year high.
In response to the dire conditions in the graphite market, Syrah slashed production by two-thirds last month. And there is no guarantee that this deep production cut will be the last, as the price of graphite has slumped about 15% since the start of the year.”
9. Weibo (WB)
Investor: Kyle Woodley
YTD Change: -23%
Q2 Ranking: 9
Though it’s up a modest 1.84% in Q3, Chinese digital company Weibo (NASDAQ:WB) hasn’t turned around just yet. It was still down 23% at the end of Q3.
But Investorplace’s Luke Lango believes that WB has turned around and that turnaround is here to stay:
“Weibo stock has been in a secular downtrend since early 2018. But, all major signs (improving fundamentals, favorable optics, and bullish technicals) imply that this downtrend is over.”
The biggest challenge remaining for WB — and all Chinese stocks? The trade war. We keep hearing from the Trump Administration that a trade deal is close, but that’s about as good as having no information about trade talks at all.
Will things improve for WB in the coming years? Almost definitely. Will they improve before the end of 2019? Probably not.
8. Canada Goose (GOOS)
Investor: Will Ashworth
YTD Change: 1%
Q2 Ranking: 8
Canada Goose (NYSE:GOOS) had a much better Q3 than Q2, rising over 10% and bringing it back to flat returns for 2019. The turnaround was based mostly on solid double-beat earnings report that saw revenues grow 59% and earnings grow 37% year-over-year. GOOS’s wholesale business also rebounded, retaking the lead over the company’s DTC business.
Investors were disappointed that it was just a double beat quarter, and not a double-beat-and-raise quarter, however.
And Canada Goose isn’t out of the woods just yet. As Investorplace’s Ashworth stated:
“One class-action lawsuit filed in early September suggests that Canada Goose management failed to disclose or made misleading statements about its sourcing of down and fur.
While I picked GOOS as my top stock of 2019, I too am concerned about the way it treats the animals used to source its down and fur. As an animal lover, I wouldn’t stand for any ill-treatment of animals. The company denies its suppliers’ abuse the animals that are used in sourcing materials for its parkas, etc. I’ve chosen to take them at their word.”
Whether or not these lawsuits have merits remains to be seen, but it is pretty clear that GOOS will not take the top spot this year.
Especially once you take into account that the 10% gains of Q3 have been erased in the first two sessions of Q4.
7. Viper Energy Partners (VNOM)
Investor: Neil George
YTD Change: 10%
Q2 Ranking: 8
Viper Energy Partners (NASDAQ:VNOM) is an oil and gas play, but it’s not a traditional one. Instead of producing either material or refining it, VNOM owns prime parts of the Permian Basin which it leases out to E&P companies. This should isolate VNOM from some of the volatility of the energy sector, and it has.
“Viper has generated a return through the first three quarters of 2019 of 10.81% — well outpacing the traditional E&P companies’ stocks.
It has also been expanding its properties thanks to its affiliation with Diamondback Energy (NASDAQ:FANG) which founded the company through a drop-down of property assets to Viper back in 2014.”
The problem? The energy sector itself. The Energy Select Sector SPDR (NYSEARCA:XLE) was up 1.2% for the first nine months of 2019. So VNOM’s investment thesis held true, but the energy sector is seriously lagging other stocks this year.
This doesn’t mean Viper Energy isn’t a good stock or dividend play, but it does mean 2019 isn’t its year.
6. LyondellBasell (LYB)
Investor: Charles Sizemore
YTD Change: 10%
Q2 Ranking: 7
LyondellBasell (NYSE:LYB) is a plastics, chemicals and refining company — and that wasn’t the right sector to be in this year. Furthermore, with just a 9x trailing P/E and 7x forward P/E, LYB is deep in value stock territory.
“With cheap valuations like these, you might assume that Lyondell had hit a rough patch. But nothing could be further from the truth. Gross margins and operating margins have trended higher for years, and revenues have been stable.
The lack of investor interest in Lyondell has far less to do with company performance and far more to do with the neighborhood it’s in. In a world of social media hype, a plastics, chemicals and refining company just isn’t all that interesting. But as investors rotate out of the story stocks of the last decade in search of new opportunities, they’re likely to give reliable dividend payers like Lyondell a closer look.”
LYB didn’t win the Best Stocks for 2019 contest, but the stock is still worth a look – especially if you think value stocks will come back in 2020.
5. Amazon (AMZN)
Investor: Readers’ Choice
YTD Change: 16%
Q2 Ranking: 5
Readers’ Choice stock Amazon (NASDAQ:AMZN) didn’t have a great quarter. Though it held onto the 5th place slot, it’s actually down 10% in Q3. Right now, AMZN stock isn’t even beating the S&P 500 for 2019. Maybe it’s time to pick a different stock for 2020?
What this loss seems to come down to is that investors are growing weary of Amazon’s growth without thought for profits attitude. The strategy got AMZN to $1 trillion in market cap, so it did pay off, but it looks like investors are starting to expect a more mature company.
“This was highlighted earlier in Q3 when AMZN missed Q2 earnings per share expectations and plummeted nearly 12% in a few sessions. That’s over $100 billion in market cap erased over a miss of 35 cents per share.
This plunge was despite a revenue beat, so the message investors are sending here is clear: They expect more in profits than Amazon has been delivering.”
Of course, the long-term narrative for Amazon is still strong, but AMZN winning the Best Stocks for 2019 at this point depends more on the leaders taking a nose dive than several hundred billion in market cap flowing into AMZN in the next three months.
4. Adobe (ADBE)
Investors: John Jagerson and Wade Hansen
YTD Change: 22%
Q2 Ranking: 4
Despite holding onto 4th place, Adobe (NASDAQ:ADBE) didn’t have the best Q3. It fell 8%. But one bad quarter isn’t much in the scheme of things for a stock like ADBE. Adobe produces industry leading products and was one of the first companies to capitalize on the new software subscription revenue model.
Can ADBE rebound from its Q3 losses and take the top spot in the Best Stocks for 2019 contest? That remains to be seen.
3. Charlotte’s Web Holdings (CWBHF)
Investor: Matt McCall
YTD Change: 25%
Q2 Ranking: 3
For a third place stock, Charlotte’s Web (OTCMKTS:CWBHF) has a better shot than you might think of winning the Best Stocks for 2019. One reason is that Charlotte’s Web is in the very volatile pot sector. Who could forget the day Tilray (NASDAQ:TLRY) ran up to $300 from $230 and back to $150 in a single trading session? I’m not saying Charlotte’s Web – or the 2019 pot sector – is nearly that volatile, but a run of 40% over three months is certainly possible.
Another reason a win is still possible is Charlotte’s Web’s size. Other than SYAAF, CWBHF is the only one of our stocks sporting a sub-$1 billion market cap, that means less investor money is needed to move the needle. For today’s $675 million market cap to hit 60% gains for the year, only about $200 million would needed to be invested in the company.
We only check in with the Best Stocks once a quarter, but CWBHF has topped 100% gains twice in 2019, the last time being Aug. 5. It’s as if we’re just getting snapshots of a race, and that works just fine for a lot of stocks, but most stocks are much steadier than Charlotte’s Web. Will the next snapshot happen on a day when Charlotte’s Web has once again sprinted into first place before being overtaken again by a steadier runner? We’ll have to see.
Matt McCall pointed out that Charlotte’s Web is well-positioned for this growth even among pot stocks:
“Charlotte’s Web remains one of a handful of cannabis companies that is able to turn a profit. That’s huge. CWBHF is expected to earn $0.19 per share this year, followed by $0.69 in 2020 and up to $1.07 by 2021.
…The stock is undervalued based on both earnings and revenue forecasts. Using the 2021 numbers, which is less than two years from now, CWBHF stock trades with P/E ratio of 14.3 and a price-to-sales of 1.67.
Stocks that are in high-growth sectors such as cannabis and CBD should (and typically do) trade at valuations higher than the overall market. A P/E ratio between 40 and 50 for Charlotte’s Web would be in-line with other high-growth stocks.”
In my opinion, Charlotte’s Web has a higher chance to take the top spot than even the next stock on the list.
2. Teladoc (TDOC)
Investor: Jason Moser
YTD Change: 37%
Q2 Ranking: 2
Teledoc (NYSE:TDOC) has had its ups and downs in 2019 to be sure, but the moves haven’t been nearly as wild as the ones in Charlotte’s Web stock. As a result, TDOC is up a very respectable 37% as of the end of Q3.
Teladoc is the undisputed leader in the telehealth space. It’s a company that makes it possible to seek medical attention, virtually without having to travel to a doctor’s appointment. As more services and industries become digital in some way and the U.S. cries out for healthcare reform, a company at the intersection of these two things stands to profit big.
And its growth is going well. As The Motley Fool’s Jason Moser pointed out:
“TDOC stock’s second-quarter results showed us the business remains on track. There were a couple of leadership additions with Mala Murthy coming on as CFO and David Sides as COO… TDOC’s revenue for the quarter came in just over $130 million –representing 24% organic growth.”
Moser also pointed out upcoming catalysts for TDOC:
“Medicare Advantage will be a nice catalyst in the coming years as it will open them up to an opportunity as large as 20 million additional members.
It also sounds like the CVS (NYSE:CVS) partnership continues to develop nicely. There was plenty of positive language on the earnings call regarding the relationship building with CVS and Aetna. Minute Clinics have expanded to 8 additional states, and the Aetna acquisition has stoked the HealthHub concept …In fact CVS plans to have 1,500 HealthHUB locations operating by the end of 2021.”
Will any of these catalysts hit in time for the end of 2019? That remains to be seen.
1. Lululemon (LULU)
Investor: Louis Navellier
YTD Change: 58%
Q2 Ranking: 1
And finally, Lululemon (NASDAQ:LULU) holds onto the top spot for the second consecutive quarter, and no one else really came close. LULU closed out Q3 a whopping 21 percentage points ahead of TDOC.
Louis Navellier of Growth Investor attributes Lululemon’s success to two things: being an entirely direct-to-consumer company and smart management.
The first allows LULU to control costs and quality and keep close track of what customers want. LULU keeps production costs down and can release new products strategically in a way that won’t leave them sitting on shelves. This lets LULU “charge a premium for quality products that are in limited supply.”
“The second force that keeps LULU stock chugging along is the company’s smart management. The key to success here is that its management has known how to time Lululemon’s growth.
Lululemon hung back as its popularity grew, choosing to focus on building out its yoga business into the women’s athleisure force it is today. Thanks to this, it was able to grow its reputation in a much more profitable way than simply flooding the market with stores and products. That cachet with its target market (and, thus, staying power) is a big reason I named it as my pick for the InvestorPlace Best Stocks of 2019 contest.
And now, as it enters the men’s space, analysts are drooling over the potential.”
So will LULU keep it’s lead through the end of Q4 and win the whole thing? It seems likely, but nothing in the market is certain so I’m not betting against the other front runners either.
As of this writing, Regina Borsellino held no positions in the aforementioned securities.