Heading into the new year, all investors want to know what stocks they should be buying for 2020.
I’ve attempted to answer that question for all of you. That is, I’ve put together a list of 15 top stocks to buy for 2020, all of which represent high-quality stocks with a realistic opportunity to head meaningfully higher over the next 12 months, thanks to strong fundamentals and favorable valuations.
Without further ado, then, let’s take a look at my list of the top stocks to buy for 2020.
Top Stocks to Buy for 2020: Facebook (FB)
Global social media giant Facebook (NASDAQ:FB) looks like a top stock to buy in 2020 for a few reasons.
First, the company’s core digital ad business will improve in 2020 as rebounding global economic activity provides support for increased ad spending. Second, Facebook will start to gain meaningful traction in the e-commerce world behind Facebook Pay and Instagram Shopping. Third, this combination of digital ad business improvement and e-commerce ramp will fuel revenue growth rate stabilization. Fourth, expense growth rates will continue to moderate as big data security investments phase out, and profit margins will meaningfully improve.
Facebook will be defined by sustained big revenue growth, improving profit margins and huge profit growth. That combination ultimately implies significant growth potential ahead for FB stock. Plus, shares still trade at a very reasonable valuation of less than 25-times forward earnings.
Activision Blizzard (ATVI)
The bull thesis for video game publisher Activision Blizzard (NASDAQ:ATVI) is very simple.
The video game market is due for a big year. You have the introduction of new consoles for the first time since 2013. Those new consoles will be the first generation of video game consoles with cloud gaming capabilities. At the same time, the 2020 video game line-up is very robust. You also have the mainstream rollout of commercial 5G, which will provide an upward lift to gaming capabilities, and the launch of multiple new eSports leagues.
Against this favorable backdrop, Activision is optimally positioned to reap the rewards of big growth throughout the market. That is thanks to the company’s strong content line-up in 2020, behind a new Call of Duty game and important expansions in its World of Warcraft series. At the same time, shares remain relatively discounted at just 24-times forward earnings.
This convergence of improving fundamentals on a discounted valuation should spark meaningful outperformance in ATVI stock over the next 12 months.
Luckin Coffee (LK)
Often labeled the Starbucks (NASDAQ:SBUX) of China, Luckin Coffee (NASDAQ:LK) had a strong 2019 showing thanks to big unit expansion, huge revenue growth and significant margin improvements. Fortunately, all of those things will continue in 2020.
That is, Luckin Coffee went from 2,000 to 4,500 coffee stores in 2019. Management projects to hit 10,000 stores by 2021, so robust unit expansion will stick around in 2020. At the same time, each of those stores will experience huge comparable sales growth, backed by a secular pivot among China’s young consumers toward coffee consumption. Even further, all of this big growth will come at a time when expense growth rates should moderate as the company’s rate of expansion slows, so profit margins should meaningfully improve and losses should shrink.
In other words, 2020 will be an extension of 2019 in terms of the company sustaining big growth. As such, bulls will remain in control, and LK stock will continue to move higher, especially since the valuation leaves room for further upside.
Beyond Meat (BYND)
When it comes to plant-based meat maker Beyond Meat (NASDAQ:BYND), the 2020 bull thesis boils down to something Bill Gates once said. People tend to overestimate what can be done in a year and underestimate what can be done in a decade.
In 2019, investors overestimated what Beyond Meat stock could do. Of course, Beyond Meat and the alternative meat trend weren’t going to take over the world in year one. But, near $250 per share in mid-2019, that is exactly what Beyond Meat stock was priced for. When it didn’t happen, BYND stock plunged.
Now investors are underestimating what Beyond Meat stock can do over the next decade. For various reasons ranging from health to resource conservation to cost, plant-based meat is the future of meat consumption. Beyond Meat will inevitably turn into a huge player in the global meat industry by the end of this decade. At $85 per share, BYND stock isn’t priced for this reality. Consequently, as this reality becomes more obvious over the next few years, Beyond Meat stock will rally.
This reality will start to become more obvious in 2020, as Beyond Meat sustains huge growth through continued grocery store, restaurant and fast-food chain expansion. Consumer adoption rates of plant-based meat will similarly remain robust. Investors will start to realize that they are underestimating the decade potential of Beyond Meat. As they do, they will rush to buy the dip, and BYND stock will pop.
Streaming giant Netflix (NASDAQ:NFLX) had a tough 2019 thanks to escalating competition concerns. In 2020, however, those concerns will prove to be overstated and will dramatically ease. As they do, NFLX stock will pop.
The announcement of Disney+, HBO Max, Peacock, Apple TV+ and many others created a flurry of competition concerns for Netflix in 2019. But, in the streaming wars, it’s all about content, and none of those services have the content firepower to match Netflix. Just look at IMDb’s lists of the most popular TV shows and movies right now. Netflix originals are everywhere on both of those lists. Disney+ and Apple TV+ originals have minimal showing on both lists.
This content divergence will ultimately sustain Netflix’s big growth trajectory. This will become obvious in 2020. HBO Max will launch. Peacock will launch. Disney+ and Apple TV+ will expand. And, through it all, Netflix will continue to report robust user growth quarter after quarter, supported by the company’s unparalleled value proposition of better and more original content than any other streaming platform out there.
The more big user growth quarters Netflix reports in 2020, the more competition concerns will fade from the scene. The more that happens, the higher NFLX stock will go.
Social media platform Pinterest (NYSE:PINS) had a rough 2019 following a red-hot initial public offering. But, this weakness down the stretch in 2019 actually gives the stock a compelling opportunity to have a very strong 2020.
The logic here is pretty simple. Improving economic strength will provide support for increased global digital ad spending in 2020. In this improving market, Pinterest will continue to expand its ad platform to be more relevant and effective for advertisers, much as Snap (NYSE:SNAP) did in 2019. These improved ad capabilities will allow Pinterest to more meaningfully monetize its already large user base, which is woefully under-monetized relative to other social media platforms.
Pinterest’s revenue growth rates will consequently improve in 2019. That’s a big deal. Decelerating revenue growth killed PINS stock in 2019. Now, in 2020, re-accelerating revenue growth should spark a rebound in PINS stock.
It also helps that the valuation on PINS stock is significantly discounted, and leaves for plenty of room to run higher in the event that the business fundamentals do improve.
Canopy Growth (CGC)
There are five big reasons why beaten-up Canadian cannabis producer Canopy Growth (NYSE:CGC) could stage a huge rebound in 2020.
First, demand trends in the legal Canadian market will improve, thanks to new products like edibles and vapes, as well as significant retail store expansion. Second, profit margins at Canopy will also improve, as black-market competition eases thanks to Canopy’s better handle on supply and logistics. Third, improving demand trends on top of improving profit margins will turn widening losses in 2019 into narrowing losses in 2020. Fourth, progress will be made on legalizing cannabis in the U.S. through the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act.
Fifth, and perhaps most importantly, CGC stock is priced for failure. Thus, shares are optimally positioned to rip higher on good news. Calendar 2020 could be a year of good news. Naturally, that means calendar 2020 could be a year of sustained big gains for CGC stock.
Payments processor Square (NYSE:SQ) is one of the top stocks to buy for 2020. Shares look ready to rip higher over the next 12 months as the company’s revenue growth trajectory meaningfully improves.
When it comes to Square stock, there is one simple truth all investors must know. As go the company’s adjusted revenue growth rates, so goes the stock. That is, when adjusted revenue growth rates are moving higher quarter-over-quarter, SQ stock powers higher. But, when adjusted revenue growth rates are slowing, SQ stock falls flat.
Throughout 2019, Square’s adjusted revenue growth rates slowed quarter-over-quarter. SQ stock fell flat. In 2020, though, Square’s adjusted revenue growth rates should start to inch higher, thanks to improving economic strength (easing trade tensions will boost the economy), easing competition (Square has gained traction in the big seller market, so big seller competition will ease) and new product growth (Cash App is steadily gaining momentum).
As adjusted revenue growth rates inch higher in 2020, SQ stock could fly higher, mostly because shares have underperformed peers and are undervalued at current levels.
The Trade Desk (TTD)
Programmatic advertising leader The Trade Desk (NASDAQ:TTD) has posted huge returns over the past several years. And there are five reasons why this streak of big returns will persist for TTD stock in 2020.
First, ad spending trends globally will re-accelerate in 2020 as companies across the globe up their ad budgets against an improving economic backdrop. Second, U.S. ad spending trends will improve even more than global ad spending trends, thanks to upped political spending in an election year. Third, U.S. digital ad spending trends will meaningfully accelerate, as consumers shift more aggressively to digital channel consumption, thanks to the mainstream rollout of 5G, the introduction of multiple new streaming services and the launch of cloud gaming platforms. Fourth, automation technology will continue to gain mainstream traction. As it does, programmatic advertising adoption uptake rates will remain robust.
Fifth, the “open internet” will continue to gain momentum in 2020, as sustained regulatory pressures on Big Tech will force many of these companies to open up their walled gardens.
This year looks like a good one to be invested in U.S. digital ad stocks, programmatic ad stocks and “open internet” stocks. TTD stock is all three of those rolled into one. As such, TTD stock looks primed to have yet another strong showing in 2020.
Slowing revenue growth rates and compressing profit margins caused specialty e-commerce platform Etsy (NASDAQ:ETSY) to have a disappointing showing in 2019. In 2020, though, the exact opposite could happen.
Etsy has a visible opportunity to accelerate revenue growth and improve profit margins in 2020. Accelerated revenue growth will be driven mostly by broad economic improvements (which will provide support for increased consumer spending and increased ad spending) and partly by internal improvements. Newly acquired Reverb operates at lower take-rates than Etsy, and management will likely do all they can in 2020 to improve Reverb’s take-rates and therefore improve Etsy’s overall revenue growth rate.
Meanwhile, profit margin improvement will be driven by accelerated revenue growth converging on what is steadily moderating expense growth.
Broadly, then, slowing revenue growth and compressing margins will turn into accelerating revenue growth and expanding margins. This pivot from slowing growth to rebounding growth will provide support for a strong 2020 rally in Etsy stock.
Shares of cloud security company Okta (NASDAQ:OKTA) will sustain robust strength in 2020 behind three major catalysts.
First, improving economic conditions will stabilize Okta’s revenue growth trajectory. That is, throughout 2019, Okta’s revenue growth rates slowed as companies pulled back IT spending amid escalating geopolitical and economic uncertainty. That uncertainty is now fading. As it continues to fade in 2020, companies will re-up their spending. This will lead to more spending on cloud security products and stabilizing revenue growth at Okta.
Second, big expense growth should moderate in 2020, as Okta gets bigger and spends less on marketing. It instead will rely more on size and reputation to drive new client growth. Expense growth moderation on top of revenue growth stabilization lays the groundwork for meaningful margin improvements in 2020.
Third, interest rates should remain low in 2020, held back by increasing Middle East tensions and central banks around the globe that appear ready to cut more to help support the current expansion. Sustained low rates will provide continued support for growth stocks like OKTA. The company has been and should remain a big winner.
China is in rebound mode. As it continues to rebound throughout the next 12 months, one of the best stocks to buy is e-commerce giant JD.Com (NASDAQ:JD).
For most of 2018 and 2019, China’s economy slowed, thanks to rising trade tensions between China and the U.S. Now, those trade tensions are easing. They will continue to ease for the balance of the year, as neither side wants to upset the egg carton in an election year. As these trade tensions continue to ease, China’s economy will rebound. Continued support from China’s central bank — which just opened up $115 billion for lending — will only help stimulate this rebound.
Because JD.Com is China’s second largest e-commerce platform, as goes China’s economy, so goes JD. When the economy is slowing, revenue growth rates slow, margins come under pressure and JD stock drops. When the economy is rebounding, revenue growth rates improve, margins expand and JD stock rises.
Right now, because China’s economy is already improving, JD’s revenue growth rates are improving, margins are expanding and JD stock is rising. JD stock looks ready to outperform in 2020.
Stitch Fix (SFIX)
Shares of online personalized styling service Stitch Fix (NASDAQ:SFIX) have been on a wild ride ever since the company hit the public markets in 2017. This wild ride will continue in 2020, and it should carry shares meaningfully higher.
The core of the 2020 bull thesis on SFIX stock revolves around three big ideas. First, the U.S. economy will improve in 2020, and as it does, consumer spending trends will similarly improve, providing a boost to all retail companies. Second, consumer-facing automation technologies and services will gain more traction. Consumers will be more inclined to adopt a personalized styling service which “automates” the shopping process. Third, the expansion of new features (namely, direct-buy) will help support big revenue growth.
If all three of those things happen — and I expect them to — then SFIX stock will take off like a rocket ship. Simply consider that the stock is trading at a near all-time low trailing sales multiple, with a price tag that is more than 50% off its all-time highs. Clearly, there is appetite out there for SFIX stock at much higher prices. That appetite will come back in 2020 as this growth company hits its stride again.
One of my favorite high-risk, high-reward small-capitalization stocks for 2020 is Chinese premium electric vehicle maker Nio (NYSE:NIO).
There are two parts to the bull thesis on NIO stock. First, the company’s delivery and revenue trends — which were depressed throughout most of 2019 — improved in a big way in late 2019. And they’re set to improve even further in 2020 behind a rebound in China’s economy, a pause in subsidy cuts and a new vehicle launch. As those delivery and revenue trends rebound, NIO stock should rebound, too.
Nio’s second-biggest problem is its cash-light balance sheet, at risk of running out of money soon. But the company will fix the balance sheet in 2020. China’s economy is rebounding, Nio is improving its growth trajectory and China’s central bank just freed up a bunch of lending money. It is quite likely that NIO secures funding in 2020. This funding will shore up the balance sheet, ease cash burn concerns and provide an upward lift for NIO stock.
While 2019 was an awful year for NIO stock, 2020 is shaping up to be the exact opposite.
In 2020, social media platform Snap will regain the tremendous growth momentum it had in the first half of 2019. SNAP stock essentially tripled in six months.
That is thanks to three tailwinds. First, Snap is attractively positioned to benefit from digital ad market tailwinds in 2020. Specifically, the big boost in U.S. digital ad spending in 2020 will come from political ads. Snap is one of the very few big digital ad platforms that hasn’t come under fire for how it handles political ads. Naturally, that makes Snap a choice destination for political ads in the 2020 election.
Second, continued product innovation and geographic expansion lay the groundwork for sustained user growth in 2020. Of note, the “face swap” filter was a big user growth driver in the first half of 2019. Snap could repeat on that success with cameos in the first half of 2020. Also, Snap is far from done growing internationally, and continued Android app improvements will sustain healthy international user growth.
Third, and perhaps most importantly, SNAP stock is undervalued given the company’s robust growth prospects both in 2020 and into 2025. Consequently, the convergence of favorable developments over the next 12 months on a discounted valuation will spark big gains in SNAP stock.
As of this writing, Luke Lango was long FB, ATVI, LK, NFLX, PINS, CGC, SQ, TTD, JD, SFIX and NIO.