2020 has been a transformative year. The stock market as a whole is up modestly year to date. But hidden within the averages, you have profound variation. Some sectors — malls, cruises, restaurants, airlines and more — have been crushed. On the other hand, companies that have reacted to the pandemic with skill have greatly accelerated their growth rates. In a time of change, innovative stocks tend to do the best.
When looking for the biggest winners, it’s natural to focus on the technology sector. And yes, some of today’s picks are tech stocks. But it’s also valuable to look around the economy and see other companies that have improved their competitive positions thanks to clever handling of this current crisis.
With that in mind, here are the seven innovative stocks that have navigated 2020’s uncertainties with skill:
- Avalara (NYSE:AVLR)
- Walmart (NYSE:WMT)
- Estee Lauder (NYSE:EL)
- DraftKings (NASDAQ:DKNG)
- Thermo Fisher Scientific (NYSE:TMO)
- Texas Instruments (NASDAQ:TXN)
- Nasdaq (NASDAQ:NDAQ)
Innovative Stocks to Buy: Avalara (AVLR)
It has been a breakthrough year for the e-commerce industry. The rise of online retail has been a long-running trend. So far, most of the spoils have gone to Jeff Bezos and Amazon (NASDAQ:AMZN). However, Amazon has finally appeared mortal in the retail space; 2020 has witnessed all sorts of smaller rival online commerce platforms explode.
That’s where Avalara comes in. The company is the leader in digital taxation software. A 2018 Supreme Court decision made it far easier for individual states to collect sales tax on sellers from other states. Since then, individual states have rushed to enact new taxes, creating a massive headache for small businesses selling goods online. It’s no problem for an Amazon or Walmart to collect tax online, but for a small vendor using something like Shopify (NYSE:SHOP) or a Wix (NASDAQ:WIX) webpage to drive sales, collecting sales tax in dozens of states would be a Herculean challenge.
Fortunately, Avalara can take care of this. Avalara seamlessly plugs into Shopify, Wix and other leading e-commerce clients. Sellers through these services can automatically get their tax worries taken care of. Avalara’s chief executive officer (CEO) stated that the company’s mission is to eventually have a role in every transaction that happens online.
To that end, Avalara has made acquisitions to broaden its offering past just vanilla sales tax. It now handles corner cases such as taxes for online liquor sales. That’s a category that has positively exploded in 2020. Avalara is making roads into international markets and cross-border transactions as well. AVLR stock has nearly doubled this year. Given how much business sites like Shopify have picked up, that could be just the beginning of an amazing decade for Avalara. Online sales tax collection is rapidly turning into an indispensable service for the global commerce.
For the past few years, Walmart has been making greater and greater efforts in e-commerce. However, the market didn’t give these efforts much value. Until now, that is.
The novel coronavirus pandemic has put a new perception on Walmart’s omni-channel efforts. Walmart isn’t really a destination store for most people. However, in March, everything changed. At that moment, getting groceries and essentials like toilet paper became the top priority. And Walmart had everything available and with quick reliable delivery. Once people were shopping for food on Walmart’s website or app anyway, they started buying from Walmart’s various other departments as well. Now that people are accustomed to buying groceries online, it gives Walmart a chance to be part of digital shoppers’ weekly routine.
It’s not just the United States either. In Mexico, where Walmart is that country’s largest employer and retailer, Walmart Mexico saw its e-commerce sales for Q2 grow more than 200%. If the current trajectory continues, Walmart Mexico is not far from overtaking Amazon Mexico and MercadoLibre (NASDAQ:MELI) to be that country’s largest online retailer in addition to the largest physical player.
That shows the surprising strength of Walmart’s model, both in the United States and in the two dozen countries where it has stores internationally. Now that the grocery business is finally moving online, Walmart’s huge logistics advantage will help it beat out smaller grocer chains. Meanwhile, in general merchandise, Walmart can start making up ground on Amazon. Amazon’s grocery effort has been underwhelming so far, giving Walmart a golden opportunity.
Estee Lauder (EL)
It has been a no-good horrible year for retail companies. And companies with exposure to travel have fared worse than most; duty-free airport shops in particular have been a near-total loss this year. So you’d expect luxury goods retailers like Estee Lauder to be struggling. Instead, Estee Lauder shares are now trading at all-time highs.
While losing its normal mall and airport retail channels for much of the year was obviously a negative, it has allowed Estee Lauder to demonstrate its innovative side. In recent years, Estee Lauder invested heavily in e-commerce and in particular in direct-to-consumer efforts. As we’ve seen with Nike (NYSE:NKE), this has been a vital growth driver for exemplary brands. And now, investors are starting to discover that Estee Lauder has built a similarly powerful network, and that, contrary to expectations, you can sell cosmetics online.
In fact, last quarter, Estee Lauder’s overall sales declined just 4%. This was due to a huge contribution from the internet. Overall, digital sales doubled for this quarter. And in both the Americas and Asia, online sales contributed more than 40% of Estee Lauder’s total revenues. This is tremendous performance for a line of products that wasn’t thought to be particularly well-suited to omnichannel sales prior to the pandemic. Going forward, Estee Lauder will be able to keep many of its online consumers while also reopening brick and mortar storefronts, accumulating even more market share and profitability going forward.
DraftKings has been one of the most successful new issues of 2020. With the stock up more than 300%, I’d normally urge caution. In the case of DraftKings, however, there’s a chance that the tremendous performance will continue into 2021 and beyond.
I will say, anecdotally, out of my peer group (primarily Millennial males) I’ve rarely ever seen more excitement than there is for sports betting. It far exceeds the enthusiasm for legal marijuana, cryptocurrencies and other recent trends that attracted investor interest. I have friends and acquaintances betting large sums of money on the National Football League each and every weekend. Admittedly, anecdotes don’t prove an investment case on their own.
However, I’d urge investors that are sleeping on sports betting to really do some research. The amount of passion for this space is remarkable. All that even in spite of a weird year for live sports with many delayed and cancelled games and almost no live fans. Even with those restrictions in place, sports betting has absolutely exploded.
And by getting a strong user base of people in their late twenties and thirties, DraftKings is developing a consumer relationship that could last for decades. If DraftKings continues its leadership in the fast-evolving market, it could become a leading Millennials-focused company for a huge period of time. There’s risk here, as rivals could overtake DraftKings. But if it can stay on top of the heap, its market capitalization should soar much higher over the next few years.
Thermo Fisher Scientific (TMO)
Thermo Fisher is not the sort of company that grabs a ton of headlines usually. However, the company quietly continues to excel. That success has been noticed; investors have bid TMO stock up nearly tenfold over the past 10 years. What makes TMO stock so amazing?
The company is one of the leaders in scientific tools and instruments globally. That may not sound particularly revolutionary, however, Thermo-Fisher sells the equipment needed to do all sorts of cutting-edge research. Thermo Fisher’s primary customers are companies such as biotech firms that need the latest lab equipment and consumable supplies to do their research. Like with gold mining, it’s highly profitable selling the picks and shovels that the healthcare industry can’t do business without.
The pandemic has given Thermo Fisher a moment to shine. It has sold an estimated $1.6 billion of tools and consumable products to various companies seeking to develop Covid-19 vaccines and therapies just in Q3 alone. This won’t be permanent ongoing revenue, of course, as a successful vaccine or cure will be developed sooner or later. But it shows the extent to which Thermo Fisher is an integral part of innovations in the scientific research community.
Texas Instruments (TXN)
On a similar theme to the prior pick, Texas Instruments is benefiting from the pandemic in an under-the-radar way. Texas Instruments’ primary market is analog semiconductors. In practice, that means it makes a bunch of devices that help turn real world data such as temperature, fluid levels, wind speed and so on into digital data that can be tracked and analyzed.
This year has accelerated all sorts of technological developments; that’s no secret. The big question, though, is which of these shifts are permanent, and which will revert as life starts to get back to normal?
There’s a good argument that Texas Instruments will be a long-term winner. Think about where its chips end up. They end up in a lot of Internet of Things (IOT) type applications: remote monitoring, smart appliances, autonomous driving and decision-making applications.
Even as people slowly start to return to offices and schools, the demand for remote capabilities will remain elevated. After seeing what a quarantined world looked like in March and April, the demand for remotely controlled systems should rise sharply higher. Texas Instruments will see a long-lived demand boost as the world prepares to insulate itself against future shocks.
The Nasdaq stock exchange may not be what comes to mind when you consider a list of innovative stocks. However, when you think about it, the Nasdaq’s investments in industry-leading technology are now paying off in a variety of ways.
The company’s claim-to-fame was building the first large all-digital stock exchange. While rivals have caught up on the main theme, the Nasdaq still leads the way in its infrastructure for remote trading. In 2020, Nasdaq has been in good shape to offer a robust trading experience even when there are few humans in Manhattan offices handling business.
More broadly, the Nasdaq is prospering from the successes of the other tech companies. Take an example like DraftKings. DraftKings just joined the Nasdaq exchange this year and its stock is already soaring, attracting more trading volume for the exchange. Given DraftKings’ hyper-growth profile, it will probably issue more stock, causing more fees for the Nasdaq when that happens. And all that trading in DKNG stock creates valuable trading data that the Nasdaq can sell to hedge funds and high-frequency trading shops.
At the end of the day, stock exchanges are a network. The more companies you have on your exchange, the more you can charge for your ancillary services. And with the Nasdaq having the fastest-growing tech companies and world-class trading infrastructure, the exchange will prosper as the current software boom picks up speed.
On the date of publication, Ian Bezek held long positions in AVLR, EL, TXN and TMO stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.