As I write this, the 2020 trading year is coming to an end. The past year will be primarily remembered for the novel coronavirus and Covid-19. Compared to all the death and economic carnage that’s happened as a result of the pandemic, my best and worst stock picks rank extremely low on anyone’s list, including my own.
That said, as opinion makers, InvestorPlace contributors get paid to make predictions. Sometimes they work out and other times, they fall flat. That’s what makes the investment business so interesting. One minute you’re a genius, and the next minute you’re an imbecile. It comes with the territory.
For this year’s look back on my best and worst stock picks of 2020, I wanted to take calls from earlier in the year before the March correction to ensure they had time to experience the highs and lows.
So, for this article, I’ve picked my four best calls from 2020 and three worst calls. Of the seven picks, four are from January and three are from February.
I must remind readers that I don’t take short-term results too seriously. I’m more focused on longer-term results of at least 3-5 years. That’s where I get my satisfaction.
- Tesla (NASDAQ:TSLA)
- Zillow (NASDAQ:ZG)
- Plug Power (NASDAQ:PLUG) / FuelCell Energy (NASDAQ:FCEL)
- Pinterest (NYSE:PINS)
- Luckin Coffee (OTCMKTS:LKNCY)
- Intel (NASDAQ:INTC)
- Nio (NYSE:NIO)
As we move into 2021, I look forward to helping investors make better decisions.
Best Stock Picks: Tesla (TSLA)
As I write this, Tesla has the fourth-best performance year-to-date through Dec. 28 of stocks with a market capitalization of more than $10 billion.
I recommended Tesla on Jan. 10 when it was trading at $500 before it split five-for-one in late August.
“Tesla, in my opinion, is not going to lose sales because it can’t compare to a combustion-engine powered vehicle,” I wrote in January. “It’s going to lose sales because other electric-vehicle manufacturers come up with better vehicles.”
I argued that investing in Tesla had nothing to do with valuation and everything to do with reversing climate change. Elon Musk is now the world’s second-wealthiest person because he totally understands this critical factor in saving the planet.
Investment manager Catherine Wood has become so good at understanding disruptive investments, her firm, Ark Investment Management, has become a magnet for asset gathering.
“When Ark Investment Management CEO Catherine Wood said Tesla stock would go to $4,000 in February 2018, investors scoffed at the notion. Almost two years later, TSLA is halfway to $1,000, and one-eighth of the way to $4,000,” I wrote.
Well, if you multiply Tesla’s current share price by five, you get a pre-split price of $3,345, just 16% shy of her target.
Some investments are worth significantly higher multiples. Tesla is one of those investments.
It took me a minute to even remember that I’d written about the 35th best-performing $10 billion-plus market cap in 2020. However, in mid-February, I wondered when it would get back to $150, a level it hadn’t seen since July 2014.
The last time I wrote about Zillow before 2020 was in December 2018. Down 31% over the previous three months, I felt the market had misinterpreted its latest quarterly earnings and failed to understand the importance of Zillow Offers, its service that buys and sells homes for homeowners.
“Personally, I’ve been a fan of Zillow stock since 2013. I like what Zillow Offers does for the house seller,” I wrote on Dec. 19, 2018.
“I think the market’s got it wrong. Those willing to experience a little volatility through the remainder of 2018 should be rewarded with a higher stock price.”
Approximately two years later, ZG stock was up 330%, including 166% since my Feb. 14, 2020 article.
“Like Amazon (NASDAQ:AMZN), Zillow is looking to control an important part of the home-ownership experience. Given Amazon’s desire to sell consumers everything they need in their homes and lives, I could see Amazon buying Zillow in the future,” I wrote in February.
“My advice to Jeff Bezos: Make an offer sooner rather than later. It will be better for all shareholders, including yourself.”
In 2021, I could still see this happening.
Plug Power (PLUG) / FuelCell Energy (FCEL)
Early in January 2020, I wondered about two alternative energy stocks: Plug Power, the provider of hydrogen fuel cell solutions to companies like Amazon and Walmart (NYSE:WMT), and FuelCell Energy, the provider of Sure Source clean energy power plants.
Which was the better buy? I concluded that if you could afford to lose your entire investment because of the speculative nature of your bet, investors should buy both stocks, given the potential upside was tremendous.
YTD through Dec. 29, PLUG and FCEL were up 962% and 360%, respectively.
In 2021, I believe that of the two stocks, Plug Power is the better buy. In mid-December, I discussed how chief executive officer Andy Marsh is doing an excellent job allocating capital as it continues to push to $1 billion in annual revenue by 2024.
Plug Power is sufficiently financed to begin building its five green hydrogen facilities that will start to come online beginning in 2022. The upside is very real. So is the risk.
For this reason, I’ve recommended that investors who haven’t already bought its stock wait for it to fall into the low $20s.
I do like it as a long-term hold for those who can afford to lose the entire investment.
If there’s a social media platform that I could get into, it has got to be Pinterest. Compared to all the others, it seems so much more fun to use. But that’s just my own opinion.
In late January, I suggested that the platform’s use of augmented reality should pay dividends down the road. At the time of the article, Pinterest had 82.4 million monthly users. At the end of the third quarter in September, the monthly users had grown five-fold to 442 million.
In my article, I argued that as long as Pinterest stayed the course, the future would be rewarding for shareholders.
“As long as Pinterest continues to focus on the user experience, I don’t think it’s going to have a problem wooing advertisers to its doorstep. Revenues will continue to grow, and its scale will deliver consistent profits,” I wrote on Jan. 31.
On a non-GAAP basis, Pinterest made $87.2 million in Q3 2020, 1,362% higher than a year earlier on a 58% increase in sales. While sales grew by 49% in the U.S., they were up a whopping 145% internationally.
And yet its average revenue per user (ARPU) internationally was just 21 cents, one-twentieth its ARPU in the U.S.
Up 264% YTD through Dec. 29 and 65% in the last three months alone, the only thing that can derail Pinterest in 2021 at this point is poor handling of the discrimination complaints lodged against it.
It saddened me to learn that the corporate culture was toxic at Pinterest because they sure deliver a wonderful product. I’d keep an eye on the progress made in this area.
In the meantime, I continue to rate it as an excellent long-term buy.
Worst Stock Picks: Luckin Coffee (LKNCY)
As I write this, it appears that investors have come to their senses and Luckin’s share price is falling in value.
Despite no new information about the company’s financial results over the past year, Luckin Coffee’s stock rose from the dead in December, up 58% through Dec. 28.
The reason? The Securities and Exchange Commission fined the Chinese coffee retailer $180 million, ostensibly putting the massive fraud it committed in the rearview mirror.
In early January, after being entirely skeptical about the company after its initial public offering in May 2019, I changed my tune, suggesting it should have a good year ahead of it.
“While I’ve been burned in the past by being overly skeptical of new IPOs, Luckin was one of my worst calls of 2019,” I wrote on Jan. 9.
“In September, I called Luckin one of the seven worst IPO stocks of 2019, suggesting that the fast-growing allure of China for North American investors was going to come back to haunt them. In the case of Luckin, so far, that hasn’t been the case.”
At the time of my article, Luckin was trading around $37. By the end of May, it was close to $1. Sometimes, it pays to stay with your gut.
In my most recent article about the company in December, I said that “Until the 20-F comes out, I’ll remain skeptical about its business, despite the fact the SEC has let it skate with only a hefty fine.”
Once bitten. Twice shy. It will take a lot for me to change my tune a second time.
In mid-February, I asked myself and investors whether Intel stock could move higher, despite being near an all-time high. Trading at a smidgen over $66, I said it could get to triple digits.
In hindsight, we know I was incredibly wrong. It might someday get to $100, but it probably won’t get there in 2021, and possibly not even in 2022.
Like a lot of people, I played the relative value card as my argument for owning it.
“Based on trailing 12-month free cash flow (FCF) of $16.9 billion and an enterprise value of $303.6 billion, it has an FCF yield of 5.6%. Generally, anything above 8% is in value territory,” I wrote on Feb. 18.
I provided a chart with three competitors: Broadcom (NASDAQ:AVGO), Texas Instruments (NASDAQ:TXN), and Advanced Micro Devices (NASDAQ:AMD). Intel’s FCF yield was almost identical to Broadcom’s and higher than both TXN and AMD.
To me, it seemed like one of the best values amongst technology stocks heading into 2020. Alas, perception isn’t always reality. Investors viewed growth plays such as AMD as better bets in the current economic environment.
AMD was up 100% YTD through Dec. 28 while INTC was down 19%, including dividends. Enough said.
In the case of China’s latest electric vehicle superstar, I put it on my list of worst stock picks because in the months since my recommendation to get off the Nio train, I’ve changed my tune and am now a big believer in the EV manufacturer.
“Nio stock has come a long way since the beginning of October, when it traded at a 52-week low of $1.19,” I wrote on Jan. 24.
“From where I sit, the low-hanging fruit has already been picked. To push your luck and hold indefinitely, will reap unfortunate consequences over the remainder of 2020.”
Well, if you consider an 845% gain over the next 11 months to be unfortunate consequences, then I suppose I was right. But otherwise, it was a big fail on my part.
In my most recent article about Nio in December, I discussed why I was so impressed with its capital allocation initiatives in 2020. Selling $3.1 billion worth of stock in mid-December when its shares were trading in the mid-$40s was an inspired move.
Sure, it could have sold the stock a few weeks earlier when its shares were nearing an all-time high, but that would put too fine a point on it.
The reality is, Nio continues to make a lot of smart moves that have pulled it out of a hole and made it an automotive powerhouse, not to be taken lightly.
Long-term, I like its stock a lot. A year ago, I definitely wouldn’t have said that.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.