[Editors Note: this article was originally published in January of 2020. It has since been updated to include the most relevant information.]
About a year ago, I wrote a piece on InvestorPlace.com where I outlined 7 stocks that could double in 2019, and the selections were pretty spot-on.
Four of the seven stocks that I said could double in 2019, did double at some point in 2019. One of them — Roku (NASDAQ:ROKU) — is up nearly five-fold from its 2019 opening price. Another one — Advanced Micro Devices (NASDAQ:AMD) — is up nearly three-fold over that same stretch. Two of them — Skechers (NYSE:SKX) and Micron (NASDAQ:MU) — are up between 80%-90%. Of the remaining three stocks, two — Facebook (NASDAQ:FB) and Spotify (NYSE:SPOT) — have both risen around 60% and 40%, respectively. Meanwhile, only one of the seven stocks — Canopy Growth (NYSE:CGC) — had a negative showing in 2019.
For what it’s worth, an equally weighted portfolio of these 7 stocks that could double, would’ve indeed doubled since early 2019, rising about 115%.
But, now it’s a new year. And that means it’s time for a new portfolio of stocks that could double in 2020. In early January, I unveiled my new list of stocks that could double. So far, so good. All five of them are up in 2020, and year-to-date, the average gain in the portfolio is 33.3%, far above the S&P 500‘s 3.6% return in 2020.
This portfolio of stocks that could double in 2020 includes:
- Beyond Meat (BYND) +57.7%
- NIO (NIO) +3.0%
- Canopy Growth (CGC) +5.4%
- Plug Power (PLUG) +78.5%
- Pinterest (PINS) +22.0%
Will this portfolio of red hot stocks continue to outperform for the rest of the year? I think so. The winners — Beyond Meat, Plug Power, and Pinterest — will keep winning, while the laggards — NIO and Canopy Growth — should catch-up. All together, then, this portfolio should keep working for investors.
Stocks That Could Double in 2020: Beyond Meat (BYND)
The Fundamentals: Shares of plant-based meat maker Beyond Meat (NASDAQ:BYND) are the quintessential manifestation of a famous Bill Gates quote that goes something like this: people tend to overestimate what can be accomplished in a year, and underestimate what can be accomplished in a decade.
In 2019, investors overestimated what Beyond Meat could accomplish in a year — and BYND stock suffered from an extreme valuation as a result. But, on the heels of a major selloff, investors are underestimating what Beyond can accomplish over the next decade. This includes the company leveraging plant-based meat’s health, cost and resource conservation advantages to turn into the one of the world’s biggest meat producers with a market cap in the tens of billions of dollars.
This long-term potential will only grow more and more obvious as we go deeper and deeper in 2020. Consumer demand for plant-based meat will grow. More quick-service food chains will roll out plant-based meat options. More grocery stores will start stocking plant-based meat on their shelves. As all this happens, investors will start to see that Beyond Meat’s momentum isn’t fading — it’s actually getting stronger.
As a result, they will keep bidding up Beyond Meat stock.
The Numbers: My long-term Beyond Meat model pegs the company’s 2030 earnings per share potential at $15. Based on a consumer staples sector average around 20-times forward multiple and a 10% annual discount rate, that equates to a 2020 price target for Beyond Meat stock of nearly $130.
Beyond stock trades at $120 today.
But, we all know that growth stocks with momentum can often sustain price tags above their fair values. Therefore, BYND stock does have a realistic opportunity to keep moving higher in 2019, and I believe the stock can and will challenge the $150 level at some point over the next few months.
The Fundamentals: The bull thesis on Chinese premium electric vehicle (EV) maker NIO (NYSE:NIO) comes down to two big things.
First, the company’s delivery and revenue trends — which were massively depressed throughout most of 2019 — improved meaningfully in late 2019. This is thanks to easing U.S.-China trade tensions, the company’s newest vehicle gaining sales momentum and China phasing out EV subsidy cuts. Looking forward, all these favorable developments will persist in 2020, and will be joined by new catalysts such as a new vehicle launch from NIO and more fiscal stimulus from the People’s Bank of China. As such, today’s improving delivery and revenue trends will improve even more in 2020.
Second, the company’s stressed balance sheet will find support. Specifically, in addition to injecting stimulus, China’s central bank is expanding bank lending capacity. Because NIO’s delivery trends are improving, it seems fairly likely that NIO will secure some form of capital market funding as banks give out more loans this year. If/when NIO does, cash burn and liquidity concerns will be eased, and lead NIO stock higher.
Of course, the wild card here is the coronavirus. This outbreak has brought daily life in China to a screeching halt. So long as it sticks around, consumers won’t be going outside, let alone be buying new cars. But, the bigger idea is that the coronavirus is a temporary headwind. Like all other epidemics, it will pass. When it does, Chinese economic activity will rebound sharply.
The Numbers: My long-term model on NIO assumes that the company will craft a sustainable niche for itself as the number one premium EV supplier in China. Furthermore, my model sees that this niche will enable the company to achieve unit annual delivery volumes of about 200,000 by 2030. Additionally, assuming NIO maintains respectable pricing power and operates at Tesla (NASDAQ:TSLA) like gross margins, I think that NIO can grow earnings per share towards 65 cents by 2030.
That’s my base case. But, in a best case scenario, I think that number can grow to $1.40. If so, based on around a 16-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for NIO stock north of $9.
Sure, that’s a best case scenario price target. But, in 2020, the best case scenario could get adopted by enough investors (given dramatically improving premium EV adoption trends in China) that shares do trend back towards $9.
Canopy Growth (CGC)
The Fundamentals: Alongside every other pot stock out there, shares of leading Canadian cannabis producer Canopy Growth got killed in 2019 as everything that could’ve gone wrong in the marijuana sector, did go wrong. Demand trends in Canada flattened, leading to stalled revenue growth at Canopy. Black market competition picked up, putting pressure on Canopy’s margins. Furthermore, there was C-Suite turnover and a lack of progress on the U.S. front.
Now, however, all those trends are reversing course.
Canopy just reported third quarter numbers that comprised huge sequential revenue and volume growth, sizable gross margin improvement, and a narrower adjusted loss. The stock jumped in response to that strong print.
That’s the good news. The better news? All of these important financial trends will keep improving.
Revenue and volume trends will keep rebounding over the next few quarters, supported by the introduction of new edible and vape products as well as significant retail store expansion in some of Canada’s most populated provinces. Margin trends will also keep improving, because Canopy and other cannabis producers are cutting back on production expansion, and lower supply and higher demand should lead to better pricing and higher margins. Higher revenues plus higher margins will produce narrower losses.
As revenue, margin, and profit trends keep improving throughout 2020, Canopy Growth stock will bounce back.
The Numbers: My long-term model on CGC makes some very basic assumptions, including: 1) cannabis will be globally legal by 2030, 2) global sales in the legal cannabis market will measure in the several hundred billion dollar range, smaller than but comparable to the sales volume in the global alcoholic beverage market, 3) Canopy will be one of the bigger players in that market with a $10 billion-plus global sales base, and 4) Canopy’s profit margins will consistently improve towards 30%, roughly where they sit in the alcoholic beverage industry.
Under those assumptions, I think Canopy can do about $5 in earnings per share by 2030. Based on a 20-times forward earnings multiple — which is average for alcoholic beverage producers — that equates to a 2029 price target for CGC stock of $100. Discounted back by 10% pear year, that implies a 2020 price target of over $40.
Shares trade hands around $22 today. Consequently, while CGC has been the laggard in this portfolio year-to-date, it could be the big winner over the next nine months.
Plug Power (PLUG)
The Fundamentals: Shares of hydrogen fuel cell (HFC) maker Plug Power (NASDAQ:PLUG) more than doubled in 2019, as its HFC products gained traction among commercial clients looking to deploy alternative fuel solutions in high utilization markets (in which HFCs are better solutions than batteries because they last longer and have shorter re-charge times).
This trend has continued in early 2020. That’s why shares are up a whopping 78.5% year-to-date. It will also continue over the next few quarters and years, laying the groundwork for big gains to persist for the foreseeable future.
There is tremendous and growing pressure on companies across the globe to more robustly adopt and deploy alternative fuel solutions. But, doing so can be very costly. So, companies are increasingly looking to adopt and deploy cost-effective alternative fuel solutions across their business operations.
HFC forklifts are one way to do this. Companies can go green in their warehouses by using hydrogen-powered forklifts. At the same time, they can cut costs by eliminating the need for huge battery storage, improving the power efficiency of the forklifts, and elongating the work-life of the forklifts.
So, companies like Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Home Depot (NYSE:HD) are already adopting and deploying Plug Power’s HFC forklifts. More companies will join suit over the next several years. As they do, Plug Power’s growth trajectory and stock price will both accelerate higher.
The Numbers: Management recently laid out an ambitious plan to get to $1 billion in annual revenue and $200 million in annual EBITDA by fiscal 2024. That represents huge growth from 2019’s projected revenue base of $235 million. But, it’s very doable, considering the company is winning several hundred million dollar contracts, adding new anchor customers, and attacking a $30 billion material handling industry.
Assuming Plug Power does hit those targets, the company could realistically achieve 50 cents in earnings per share by 2024. Based on a market-average 16-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for PLUG stock of $6.
Sure, PLUG stock is almost there already ($5.50). But, hot growth stocks tend to shoot above their fair values so long as they remain hot. Plug Power will do just that in 2020, so this stock could realistically grind towards $7 or $8 by the end of the year.
The Fundamentals: Social media platform Pinterest (NYSE:PINS) was one of the hottest new companies on Wall Street in 2019 — until it wasn’t. The company’s revenue growth trajectory slowed meaningfully in the third quarter of 2019, and that slowdown sparked a huge sell-off in PINS stock.
But, share have already started on a recovery in 2020.
Year-to-date, Pinterest stock is up more than 20% on the back of a strong fourth quarter earnings report which showed that the third quarter’s slowdown was short-lived. That is, in the fourth quarter, Pinterest grew its revenues at a similar rate to the third quarter (whereas revenue growth rates had previously been falling each quarter).
This stabilization adds credence to the thesis that Pinterest is in the first few innings of huge revenue growth, and that the third quarter slowdown was just a temporary hiccup in that otherwise robust long-term growth narrative.
As this thesis gains traction throughout 2020 — and it will, because macro digital ad tailwinds coupled with ad product improvements will power strong numbers for Pinterest all year long — Pinterest stock will keep rebounding.
The Numbers: Pinterest is in the early stages of turning into the next big social media company. So, over the next several years, a few things will happen.
One, Pinterest will steadily expand its global user base thanks to a consumption shift towards visual experience discovery. Two, Pinterest will simultaneously expand how much money it makes from each one of its users. This will be done by increasing reach and the effectiveness of its ad platform. Three, profit margins at the company will significantly improve towards digital ad industry average levels.
Under those headline assumptions, I think that $1.65 is a doable earnings per share target for Pinterest by 2025. Based on a technology-sector average 23-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for PINS stock of nearly $26.
As of this writing, Luke Lango was long FB, CGC, and PINS.