2020 may go down in history as one of the all-time best markets for bullish investors. Unless investors bought oil and gas stocks, many stocks in specific sectors fared extremely well this year. Technology and biotechnology companies were among the best calls. The drug companies involved in Covid-19 vaccine development rewarded investors. Conversely, a biotechnology and value stock would underperform if the company posted poor quarterly results.
Even though the energy sector lost one-third of its value, basic materials and gold rose. However, in the next year, the pendulum may swing the other way. Traditional energy firms in the drilling or oil production space may out-perform. That would need the market’s enthusiasm for clean energy and electric energy to wane.
That may happen sooner than investors expect. Sentiment may shift unexpectedly.
Looking back over 2020, my best calls were:
- Shopify (NYSE:SHOP), which doubled this year
- Plug Power (NASDAQ:PLUG), which rose 10-fold
- Altimmune (NASDAQ:ALT), up five-fold this year
- Moderna (NASDAQ:MRNA) up by five-fold
- Advanced Micro Devices (NASDAQ:AMD), up 100% in 2020
- Zoom Communications (NASDAQ:ZM), which kept rising in the Fall
- Nio (NYSE:NIO), up by 20 times from its 52-week low
The worst calls were:
Best Calls: Shopify (SHOP)
Shopify kept rising throughout 2020 when markets realized the central role it played in empowering the small business owner. Valuations did not matter at the time, and still have not created real headwinds for SHOP stock. At the time, the price target of $423.15 proved too low.
On Wall Street, most analysts rate SHOP stock as either a “buy” or a “hold.”
And why wouldn’t they? Shopify has a high gross margin and healthy balance sheet. It scores a 90/100 on quality:
Revenue is up by almost ten-fold from 2015 to 2019. In its most recent quarter (third quarter of 2020), the company posted revenue growing 96%. Gross merchandise volume grew 109% from last year’s level. Harley Finkelstein, Shopify’s president, said “The accelerated shift to digital commerce triggered by COVID-19 is continuing, as more consumers shop online and entrepreneurs step up to meet demand.”
On Black Friday and Cyber Monday, Shopify posted total sales growing by over 76% to $5.1 billion. The direct-to-consumer business relies on its platform and the massive shift from in-store to online will continue. Expect continued revenue growth from this e-commerce giant.
Plug Power (PLUG)
A bubble in clean energy stocks accelerated in recent weeks. Plug Power’s deal to grow its relationship with Walmart (NYSE:WMT) to provide hydrogen and fuel cell solutions for its eCommerce Applications sparked renewed bullish buying in PLUG stock.
Plug Power is a long-time supplier for hydrogen fuel cell technology. It started supplying such fleets in 2010. The company provided 9,500 GenDrive fuel cell-powered units for Walmart distribution centers.
For example, it has assets greatly exceeding its liabilities. But it also has a high debt-to-equity ratio. This recent article noted the $700 million in total debt at the end of the third quarter.
After I rated it as a stock to buy on Feb. 5, Altimmune shares topped $30 in the summer. The company’s peanut allergy research drew investor interest.
More recently, the company highlighted its proprietary intranasal vaccine. It said this platform is ideal for rapid response to pandemic situations like Covid-19. The company’s T-COVID product is in Phase ½. It will have data from the study in Q1/2021. AdCOVID is a promising product. This first-generation vaccine is stable for several months at room temperature. This allows for distribution and deployment without the need for refrigeration.
In 2021, it will advance five clinical programs.
Altimmune had cash and investments worth $207 million as of Sept. 30.
Waiting for Moderna to dip since February more than paid off. The stock drifted for months, at first. By late November, the share price exploded from the $65 level to a $178.50 intra-day high.
Health Canada approved Moderna’s vaccine on Dec. 23. A week before that, the U.S. Food and Drug Administration authorized the use of the vaccine in the U.S. Orders are pouring in. The European Commission exercised its option to buy another 80 million doses of the vaccine candidate. At a price of around $30, Moderna will book billions in annual revenue. If the mRNA-based vaccine works better than its peers, then expect sales to grow every year.
In this five-year discounted cash flow growth exit model, MRNA stock is worth almost $200. Readers may assume the following:
|Discount Rate||12.0% – 10.0%||11.00%|
|Perpetuity Growth Rate||3.5% – 4.5%||4.00%|
|Fair Value||$154.10 – $198.40||$171.71|
Data from finbox
Setting a discount rate at 10% or higher would account for coronavirus vaccine sales peaking in a few years. Moderna would have to replace the lost income with revenue from its cancer drug pipeline.
Simplywall.st forecast MRNA’s earnings will grow 14.11% annually. Given the surge in vaccine orders, this estimate is probably too low.
Advanced Micro Devices (AMD)
Intel’s (NASDAQ:INTC) failure to release a refreshed desktop chip lifted AMD’s prospects. As discussed here, AMD posted strong second-quarter results. CEO Lisa Su raised the company’s outlook at the time “as we enter our next phase of growth driven by the acceleration of our business in multiple markets.”
In the third quarter, AMD posted record revenue and announced a $35 billion acquisition of Xilinx (NASDAQ:XLNX). The 45% sequential revenue growth and 56% growth from last year justified the valuation of AMD stock. Expect AMD trading at new highs in the next year.
The data above shows that AMD is trading at above a favorable valuation. Markets are willing to pay more for the stock for now, as suggested by the strong growth and quality score.
Zoom Communications (ZM)
Zoom was a sizzling buy in 2020 because of people staying and working at home. While many workplaces closed, other shifted to remote work, and that meant finding new ways to coordinate and hold meetings. Zoom and some of its peers stepped up to the plate. The stock continued to climb into October.
Then, as the pandemic worsened worldwide, Zoom stock pulled back, probably on valuation concerns.
The video meeting service brought back free calls during the holiday season. This will spur an increase in user sign-ups. When businesses reopen virtually, Zoom will likely benefit from a growth in subscriptions and recurrent revenue.
The S&P 500’s inclusion of Tesla (NASDAQ:TSLA) in its index cast a halo around nearly all EV stocks, as did the potential boost from a Joe Biden presidency. Nio rose partly for that reason. It posted strong deliveries back in March that turned out to be the start of increasing sales momentum.
In the third quarter, Nio posted revenue of $666.6 million. Quarterly EV deliveries topped 12,206. Most importantly, a vehicle margin of 14.5% and a gross margin of 12.9% suggest that the company is on the verge of profitability. In the near term, the 60 million stock offering will hurt its investors. But the cash raised will position Nio for the future.
Nio faces competition from domestic Chinese EV firms and Tesla. Selling shares at inflated prices will raise its cash position. It will give Nio the funds needed to increase research efforts and on marketing.
Worst Calls: Nokia (NOK)
5G sales soared in the year but unfortunately for my article way back in January 2020, Nokia still stumbled. The value stock failed to keep its big contract with Verizon Communications (NYSE:VZ). Instead, it chose Samsung.
To be fair, Nokia stock did climb to $5 by August, as predicted earlier this year. That rally proved short-lived. Nokia stock slumped to below $3.50 and was barely break-even for 2020.
Nokia’s new CEO, Pekka Lundmark, has lots of work ahead. It has to take Huawei’s business away, grow margins, and increase cash flow. If it does so in 2021, then it may restore its dividend. Nokia is a slow-moving company whose pace of growth is limited. It would run better as a mature 5G supplier with strong cash flow for the dividend-income investor.
iBio, Inc. (IBIO)
iBio more than doubled as predicted here. The stock peaked at $7.45, up from $1.16 in May. But then, markets lost interest in the company’s treatment offering for Covid-19. Shares are currently back in the just-above-$1 range.
iBio’s contract development and manufacturing unit leverage the FastPharming platform to make vaccine antigens and enzymes. But because vaccine suppliers are not hiring iBio for the production, the stock is underperforming. Shares were still up three-fold for 2020.
The company also failed to capitalize on the stock’s surge in the year. On Dec. 7, it announced a stock offering. This accelerated selling of its shares. iBio said it would use the net proceeds to invest in its biotherapeutic and vaccine candidate.
It has developments in oncology, fibrotic, and infectious diseases.
On the date of publication, Chris Lau held a LONG position in NOK.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.