What a wild year it’s been in 2020. The stock market started off hot, suffered a tremendous blow in March, then came surging back to life into the end of the year. Amid that run, growth stocks became some of the best investments of 2020.
The segment of the market has been on fire for several quarters now. While it was admittedly hit quite hard amid the novel coronavirus selloff, growth stocks had a sharp rebound in Q2. But because many growth trends were accelerated due to the pandemic, investors didn’t stop buying these names after the initial rebound.
Instead, they continued to buy many of these stocks right up to the end of the year. For some, that has created concern over the valuation. For others, they don’t seem to mind paying a premium for best-in-breed growth.
As we look back on the wild year, let’s look at some of the best investments of 2020 with our growth stocks:
- Roku (NASDAQ:ROKU)
- Pinterest (NYSE:PINS)
- DocuSign (NASDAQ:DOCU)
- Zoom Video (NASDAQ:ZM)
- Tesla (NASDAQ:TSLA)
- Peloton (NASDAQ:PTON)
- Etsy (NASDAQ:ETSY)
Best Investments of 2020: Roku (ROKU)
What made Roku one of the best investments of 2020? The adoption of streaming video and the stay-at-home theme.
Cord-cutting is not a new trend this year, but it’s certainly an accelerating one. Roku has quietly led the charge, even as others have entered the space. It would have been a savvy acquisition for a company like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) just a few years ago.
Now commanding a market capitalization of $45.3 billion, Roku is far from small.
While the stock did a great job rallying 200% from its March low to $177 on Sept. 24, the run since then has been even more impressive. Up more than 100% from that date, investors have witnessed a multi-year breakout.
With so much emphasis on streaming video in 2020, look for Roku to continue building momentum in 2021.
Just when it seemed like the social media space had its main players defined, Pinterest shook up the field.
Snap (NYSE:SNAP) had itself a solid year too, but Pinterest’s performance has been stellar. The former is up 203% for 2020 vs. Pinterest’s gain of 276%. In short, not a lot of investors saw this one coming.
However, is Pinterest really a social media platform?
There’s not many social elements to the platform, aside from “pinning” certain posts like recipes or photos to one’s account. Pinterest certainly lacks the toxic interactive environment other platforms are capable of achieving.
In effect, it’s a DIYer’s dream platform. Pinterest is full of how-to’s, ideas, recipes and items for shopping. It’s a marketer’s dream as well. That’s why the company has seen such strong growth, with forecasts calling for 42.5% revenue growth for 2020 and 41.5% for 2021.
Combined with a robust balance sheet and a swing to profitability, there’s little reason to be a long-term bear on this one.
DocuSign was one of the best investments of 2020, as shares climbed more than 200% on the year. However, many investors don’t expect the good times to last with this company.
Because of the coronavirus, DocuSign had a very big year. Everyone from realtors to business attorneys used the company’s platform to ink deals during the pandemic and keep the ball rolling.
Can you imagine if Covid-19 hit us 20 or 30 years ago? Or even in an age before cloud computing?
Thanks to DocuSign, companies were able to quickly, accurately and efficiently sign agreements. Best of all, they saved money in the process. There’s not many instances where companies will opt for more expensive and time-consuming methods when leveraging technology achieves the same goal.
So while it’s possible the stock price sees a hiccup next year, I fully expect DocuSign’s long-term business to keep on humming.
As it adds notarizing, integrates artificial intelligence and utilizes its Agreement Cloud platform, there’s little reason for customers to turn their back on DocuSign.
Zoom Video (ZM)
Like DocuSign, Zoom could lose some steam in 2021 as it works off a big 2020. However, that won’t render the company irrelevant.
The pandemic created an interesting environment, as the public continued to find ways to adapt to their new world. Everyday people looking to interact with friends and family turned to Zoom. So did students, employees, board members and groups working on projects both big and small.
There’s simply no way that Zoom could have ever realized the type of growth it did this year without a pandemic helping fuel demand. Here’s the thing though: Zoom was a great company before the pandemic came along.
Its critics will argue that Zoom will lack growth catalysts in a post-pandemic world. However, bulls will point out that Zoom was profitable, cash flow positive and had growth before Covid-19 was even on the map.
Despite revenue growth likely topping 300% this year, analysts expect almost 40% growth in 2021.
How can we write about the best investments of 2020 and leave Tesla off the list?
While Nio (NYSE:NIO) had a better year-to-date return — about 1,000% vs. Tesla’s 700% gain — the size of Tesla makes the return more impressive in my view.
Tesla ended 2019 with a market cap of about $75 billion. For an automaker, that’s an impressive size, making it bigger than General Motors (NYSE:GM) and Ford (NYSE:F). Plus it was up considerably from its low in summer 2019 when it had a market cap in the $31 billion range.
Fast forward to December 2020 and Tesla has a market cap of roughly $630 billion. It’s now one of the largest companies in the country.
The gains have been massive, as Tesla continues to grow its production and deliveries, while expanding its footprint around the globe. Already operational in China, Tesla is looking to set up shop in Texas and Germany as well.
With more vehicles in the pipeline — like the Cybertruck and Semi — and growth in other business segments like Energy, Tesla is looking to leverage long-term growth.
For its size and this year’s gains, Tesla easily takes the crown for best investments of 2020.
Peloton pedaled its way onto the list of best investments of 2020. While its critics like to argue about valuation and Peloton’s overpriced workout equipment, the business keeps on grinding higher.
Demand continues to outstrip supply, as consumers are enjoying an alternative to the gym and spin class.
In a way, the company reminds me of Apple (NASDAQ:AAPL). That is essentially an expensive razor and blades business model.
Rather than give away or cheaply sell the razor — the hardware — and make money on the blades — the recurring revenue model — Peloton is selling the razor for a hefty sum, while generating recurring revenue via its workout subscription plans.
While the bears hate the stock because the product doesn’t suit them, doesn’t mean it’s not working for others. PTON stock was up 440% on the year and hovering near all-time highs as we approached 2021. With lockdowns, gym closures and consumers looking to avoid risky places for Covid-19, Peloton was in prime position to benefit.
With that acceleration, Etsy has put itself on the map and refused to budge. Despite the size and greatness of Amazon, it’s clear the company’s efforts with Homemade are not going to disrupt Etsy. Etsy has cemented its position as an e-commerce platform. Consumers and sellers alike have found it beneficial, allowing artists and smaller sellers to connect with their customers.
With the stock up more than 300% so far this year, it’s clear Etsy has been a big winner. Forecasts call for revenue growth of 97% in 2020 and earnings growth of more than 177%.
Analysts expect more growth in 2021, although they clearly expect a deceleration in the growth rate vs. 2020. Still, the long-term trends look favorable for this company.
On the date of publication, Bret Kenwell held a long position in ROKU, PINS and AAPL.