Investors had a year of ups and downs in 2018. The bull market continued to run, and we passed what many believe to the best longest bull market run in history. At the same time, President Trump has threatened trade war with China, interest rates have risen and concern about the overvaluation of stocks has increased.
Investors have every reason to be hopeful, but that doesn’t mean there aren’t some things that could trigger a downturn. For instance, political turmoil in Washington could certainly affect market confidence. The markets like stability and circumstances that shake confidence lead to more uncertainty.
In addition, the residual effects from the Trump tax cut that provided such a boon to investors in terms of dividends and buy backs will be slowing down.
These signs indicate that investors must remain vigilant and focus on the quality investments that will help meet their goals – whatever they may be.
This special report is meant to help you get there. Below you will find my absolute favorite picks for stocks in 2019 … stock picks that every investor should consider right now to put themselves in a position for growth in the coming year.
To bring something for every investor, I’ve separated the picks out into three categories:
- Best Growth Stocks
- Best Dividend Stocks
- Best Low-Risk Stocks
As always, we urge you to do your own research, and make sure any trades you make are part of a well-balanced portfolio that keeps your long-term investing goals in mind. We’ve all seen the market volatility in real life, so a diversified portfolio and a long-term focus on your investing goals should always be part of your thinking.
As always, I’m just an email away at editor@investorplace.com.
To a richer life …
Luis Hernandez
Managing Editor, InvestorPlace.com
Stock #1 – ShotSpotter (SSTI)
- Investment Type: Growth Stocks
- Sector: Software
ShotSpotter Inc. (NASDAQ:SSTI) is a small-cap company, but it is growing fast. The company’s namesake product detects gunfire and notifies law enforcement in real time, making police response more efficient and neighborhoods safer.
The company has sold its product to Chicago and New York, and more cities are looking to adopt it. That growth should continue, as ShotSpotter brings on additional municipalities and, eventually, expands internationally as well. In addition, ShotSpotter’s deal to acquire HunchLab, which uses police data to predict areas of higher crime risk and recommends tactics to lower crime rates, should improve the company’s ability to service municipalities.
Revenues for the second quarter of 2018 increased 53% to a record of $8.9 million from $5.8 million for the same period in 2017. On the bottom line, though the company lost $370,000, it showed marked improvement from its net loss of $4.3 million in the year-ago quarter. The 2018 revenue guidance was tightened to $33.5 million to $34 million – that’s year-over-year growth of 42%!
As the company’s product is more widely adopted, there is also the possibility that the company becomes a takeover target for larger organizations like Lockheed Martin Corporation (NYSE:LMT) or Northrop Grumman Corporation (NYSE:NOC). The need for the service shows no signs of abating, so increased adoption of the technology seems likely.
Stock #2 – Palo Alto Networks (PANW)
- Investment Type: Growth Stocks
- Sector: Cybersecurity
Palo Alto Networks, Inc. (NYSE:PANW) provides security platform solutions worldwide, with a special emphasis on preventing cyber breaches. Palo Alto serves over 85 of the Fortune 100 companies and more than 63% of the Global 2000. Fortune also named Palo Alto one of the “50 companies changing the world” in 2017.
For their fourth quarter, revenue came in ahead of Wall Street expectations as it amassed $658.1 million in sales, surpassing the expectation of $634 million according to data compiled by FactSet. The figure was 29% better than Palo Alto Networks’ sales from the year-ago quarter, which came in at $509.1 million.
The company added that it sees its fiscal 2019 first-quarter earnings and revenue to be stronger than the Wall Street guidance.
The cybersecurity market is growing faster than 10% a year, and Palo Alto is outpacing that easily. In addition to its double-digit sales growth, billings also jumped 29% YOY. Thus, Palo Alto is growing at more than twice the pace of the entire cybersecurity industry, meaning that the company’s share of the cybersecurity market is increasing meaningfully.
Over the next several years, most analysts expect that PANW should continue to grow twice as fast as the market does. Analysts also expect the company’s gross margins, which have struggled, to stabilize, and its operating expenses as a percent of revenue should continue to fall dramatically as its leverage increases.
PANW’s strong Q4 numbers show that this stock is a long-term winner. Some are concerned that this type of winning streak means the growth can’t last, but of 24 analyst ratings in TipRanks, 21 are predicting that this stock will continue to outperform the market.
Stock #3 – Neurocrine Biosciences (NBIX)
- Investment Type: Growth Stocks
- Sector: Pharmaceuticals
Neurocrine Biosciences (NASDAQ:NBIX) develops and commercializes therapies for neurology and endocrine disorders. In mid-2017, the company’s drug Ingrezza became the first FDA-approved drug to be approved for the treatment of individuals with tardive dyskinesia. A side effect of antipsychotic medication, TD is a disorder that leads to unintended muscle movements.
For its second quarter, Neurocrine reported net product sales for Ingrezza of $96.9 million, compared to $6.3 million for the same period in 2017. For the six months ended June 30, 2018, Neurocrine’s net product sales for Ingrezza came in at a whopping $168 million.
In June, the FDA approved Orilissa, a drug developed in partnership with AbbVie, as the first and only oral treatment for the management of moderate to severe pain associated with endometriosis. The drug only became available in retail pharmacies in late summer.
In 2018, NBIX’s stock price has jumped more than 30%. And top analysts believe this biopharma still has serious growth potential left to run. Most analysts are calling for anywhere between $134 to $162.
Encouragingly, the stock has received no less than 10 consecutive buy ratings from analysts in the last three months.
Stock #4 – Align Technology (ALGN)
- Investment Type: Growth Stocks
- Sector: Healthcare
Align Technology (NASDAQ:ALGN) is changing the face of orthodontics as it has developed the next generation of teeth-straightening. The company calls its devices “aligners” rather than braces. They are clear mouth pieces that fit over your teeth and gradually straighten your teeth, just like the traditional metal ones.
The new material is a clear plastic mold that is strong enough to move teeth, yet flexible and lightweight enough to pop in and out. The ease of use has changed the market because dentists now can recommend these in what was traditionally an orthodontic business. In addition, the materials are less expensive than braces making it more widely available.
The company is still growing in the U.S. market and they are already making inroads in Europe and China. For Q3, ALGN reported revenues up 31.2% year-over-year, and diluted earnings per share of $1.24.
The stock took a beating after Q3 when its outlook for the fourth quarter lagged market expectations. Align expects to earn $1.10-$1.15 per share on $505 million to $515 million in sales, when analysts called for earnings of $1.32 a share and $544 million in sales.
Regardless, the majority of analysts call this a strong buy and reiterated that call after the dip in share price. In fact, it’s not a bad idea to load up on ALGN stock on every dip, as recent Food and Drug Administration (FDA) approval for commercial release of the company’s “mandibular advancement” aligners positions Align for stronger growth.
Stock #5 – Chevron (CVX)
- Investment Type: Dividend Stocks
- Sector: Energy
Chevron (NYSE:CVX) is easily one of the best oil and gas dividend stocks. CVX recently announced a $3 billion stock buyback which helped send shares higher, even though reported earnings of $3.41 billion missed the $3.94 billion consensus. On the earnings call, CEO Patricia Yarrington said that further buybacks are anticipated.
Strong production growth in the Permian Basin of Texas and New Mexico also helps. The earnings miss was, in part, caused by increased investment in the region to increase production, that is now up more than 50% year to date, according to the company.
It’s not unusual for CVX to miss earnings estimates, But Chevron continues to increase its dividend. Oil prices have steadily risen for more than two years, and the company’s profit expectations for next year have been revised upward. As of now, its current P/E ratio stands at close to 14. The revised earnings for 2019 take the forward PE ratio to just 11.5.
Chevron is a legitimate dividend aristocrat as its payout has increased annually for 32 consecutive years. Since this payout has increased regardless of boom and bust cycles, it’s a good bet investors can expect it to move higher in the future.
Stock #6 – Omega Healthcare (OHI)
- Investment Type: Dividend Stocks
- Sector: Healthcare REIT
Omega Healthcare (NYSE:OHI) made the list last year and is back again. Omega is a landlord specializing in skilled nursing and senior living facilities.
This year was a little rough as some of their tenants, including Orianna, ran into arrears. Omega has started to transition the properties, and it appears many things are back to normal. Before this year, Omega raised its dividend for 20 consecutive quarters. Even with all that, it still pays out a generous 8%, and most expect the company to keep upping the dividends.
At the same time, some investors are wary of any business that depends on payments from Medicare and Medicaid. But really, it is Omega’s tenants who are dependent on those payments. Omega is less concerned with profit margins for those organizations so long as they continue to pay the rent.
The country’s population is aging. Approximately 10,000 baby boomers enter retirement every day according to AARP. Given those market conditions, OHI seems positioned correctly to take advantage.
Stock #7 – Bank of America
- Investment Type: Dividend Stocks
- Sector: Financial Services
In mid-October, Bank of America (NYSE:BAC) reported earnings and revenue exceeding estimates. The company reported Q3 profits of 66 cents per share, a substantial increase from last year’s 46 cents per share. Quarterly revenues also were up from the same period last year at $22.78 billion, versus $21.84 billion in 2017.
Despite the modest increases in revenue, the company has produced significant growth. The 32.1% year-over-year profit growth closely matches longer-term patterns. Analysts expect full-year profits to rise by 38.4%. They also expect to see average annual growth of 29.2% per year over the next five years.
Another reason to like Bank of America is their recent commitment to invest about $75 million per quarter in technology from now through 2019. Traditional banks are facing stiff competition for the younger consumer from fintech companies such PayPal and Square, and a commitment to put money into its app and other consumer touch points is a smart move.
The banking sector has underperformed the market and the stock hasn’t changed that trend this year. The stock price has dropped about 10% year to date, but only 2% year over year.
All that said, BAC delivers an annual dividend yield of 2.25% on 60 cents a share. BAC raised its dividend by 60% in August 2017 and another 25% in July. For income investors, you can do a whole lot worse than to own a solid dividend stock during periods of uncertainty.
Stock #8 – Johnson and Johnson (JNJ)
- Investment Type: Low-Risk Stocks
- Sector: Healthcare
Many low-risk stocks are going to be some of the bigger, more-entrenched companies in the world. Johnson & Johnson (NYSE:JNJ) is a huge organization with around 134,000 employees that typically doesn’t draw too much attention, but generally can be counted on to provide stable and predictable performance. The company has a beta of 0.53.
The company has three business segments, Consumer, Pharmaceutical and Medical Devices, which all operate in the United States and internationally.
JNJ had a very positive third quarter in 2018. In its drug division, global sales of J&J’s cancer drugs, which include Zytiga for prostate cancer and blood-cancer treatments Darzalex and Imbruvica, jumped 36.4%. Overall, sales at the company’s pharmaceutical unit—its biggest business—rose 6.7%.
Sales were less impressive in the other two units, with consumer-product sales up 1.8% and medical-device sales down 0.2% for the quarter. A highlight in its consumer-products division was global sales of baby-care products, such as Johnson’s Baby Shampoo. Worldwide sales dropped 1%, but in the U.S. they jumped 20% after the company introduced new versions of the products that rely more on natural ingredients.
Worldwide the company is reporting an 8.6% revenue growth rate in 2018 with Pharmaceuticals leading in sales growth. Net earnings are also up 12.9%.
Combine these factors with a nice $3.60 dividend and you have a safe investment for your 2019 portfolio.
Stock #9 – American States Water (AWR)
- Investment Type: Low-Risk Stocks
- Sector: Utilities
Utilities are a common choice for investors looking for safety and American States Water (NYSE:AWR) is a winner with a low beta and 64 consecutive years of dividend increases – the longest of any publicly traded company. This is another repeat choice from last year and we see no reason to change our minds.
In July the company’s board approved a dividend increase of $0.255 per share to $0.275 per share on the common shares of the company. The annualized dividend rate is now $1.10 a share. A 7.8% increase from the annualized dividend rate of $1.02 per share.
Shares are up 115% over the past five years and 15% in the last 12 months. Analysts expect flat revenue growth this year and just 3.5% next year, but this is a bedrock stock that is focused on badly needed water and sewer infrastructure. Because the need is so great, there is growth available and not just stability.
The market may yo-yo up and down, but AWR is as close as you are going to get to a “sure thing” in 2019.
Stock #10 – Diageo (DEO)
- Investment Type: Low-Risk Stocks
- Sector: Consumer
Diageo (NYSE:DEO) is a major name in the alcohol industry and sells its products in more than 180 countries and has offices in more than 80 countries. It owns some of the most familiar brands in the industry, including Johnny Walker whiskey (the #1 seller in the world), Tanqueray gin, Smirnoff vodka and Guinness beer. It also owns 37% of Moët Hennessy, which owns brands including Moët & Chandon, Veuve Clicquot and Hennessy.
This hasn’t been the best year for DEO stock. YTD the stock is down a little over 4%, but it is up 1.5% for the past 12 months. But the Johnny Walker brand dominates the world’s biggest whiskey market – India – where it has approximately 40% of the market share.
Although the stock has had its ups and downs, it is a “steady Eddie” providing consistent profit over the last five years. It hasn’t grown much, and doesn’t seem set for any big increases as it moves into premiums brands of alcohol. But over the last three years, revenue growth has outpaced operating expense growth, increasing net income for investors.
It pays a respectable $3.11 dividend and has recently announced plans to shed some smaller brands as it concentrates more on the premium alcohol space.
DEO has shown it knows how to manage its costs and expand intelligently, making it a slam dunk for 2019 as a rock solid stock.
