Look for growth as the new decade begins.
Entering 2020, markets were in an all-out bull mode as equities soared higher in the longest uninterrupted bull market in U.S. history. The sudden economic shock resulting from the pandemic changed that quickly, with economists now expecting U.S. growth domestic product to drop by 4% to 7% this year, far worse than the 2.5% decline in 2009 and the worst falloff since 1946. That makes finding the best growth stocks to buy a vital part of portfolio construction as sustainable growth is harder than ever to find. With what looks to be a secular shift into tech stocks now underway, this list is chock-full of Silicon Valley names, which are generally better suited for survival going forward. Here are seven of the best growth stocks to buy in 2020.
Amazon.com (ticker: AMZN)
Amazon.com has been one of the most successful growth investments in history; in the 2010s, shares gained around 1,200%. As the year began, CFRA analyst Tuna Amobi expected more of the same in 2020. Amazon investors should anticipate both e-commerce and cloud revenue growth to slow over time, but in the meantime, analysts are expecting another year of 20% revenue growth for Amazon -- outpacing many of its smaller tech peers and reiterating Amazon's undeniable staying power. CFRA had a "buy" rating and $1,950 price target for AMZN stock to start the year, levels the stock had already breezed past by May with shares above $2,400. Recent reports that it may be considering an acquisition of AMC Entertainment (AMC) confirm that Amazon will press its size advantage in hard times to expand.
Despite a never-ending parade of negative headlines related to data abuse, political manipulation, content violations, regulatory crackdowns and antitrust risk, Facebook continues to deliver impressive growth numbers and outsized returns. In fact, 2019 was another huge year for Facebook, with the stock up 56%. Analysts expect earnings per share growth around 18% in 2020 even as the pandemic holds back ad revenue. Entering the year, CFRA analyst John Freeman noted that the biggest growth source for Facebook should come from better monetizing its users. CFRA began the year with a "buy" rating and $233 price target for FB stock. Shares are up slightly year to date as shares rallied following first-quarter results, which reflected better-than-expected advertising trends.
Like "FANG" peers Amazon and Facebook, CFRA's Freeman foresaw another big year for Alphabet in 2020. He cites the increasing profitability of Google Cloud as one of the biggest near-term growth drivers. Although the potential of AWS rival, Google Cloud, will likely be kept in check due to the pandemic, revenue for that high-margin segment still surged in the first quarter, jumping 52% to $2.8 billion. Although its core advertising business saw reduced demand in March, the rapid growth of YouTube has also been a strength as the demand for entertainment surges in quarantine times. Google's autonomous vehicle business Waymo could also be a major long-term growth driver for investors. For better or worse, the traditional "big tech" names remain some of the best growth stocks to buy in 2020. Analysts have a consensus $1,515 price target for GOOGL stock.
Fiverr International (FVRR)
Transitioning to a bit of a riskier pick and certainly a much smaller company, the online freelance and contract working marketplace Fiverr is a natural beneficiary of the current environment. Worth about $1.5 billion, FVRR is a volatile growth stock, but even after shares have doubled year to date, it still has greater potential to be a grand slam than, say, the FANG stocks. Revenue grew 44% in the first quarter, and although horrendous for millions of families and the wider economy, the 30 million-plus newly unemployed Americans led to an increase in demand "among all annual cohorts" in April. The online services marketplace, where gig authors, graphic designers, translators and others can hawk their skills, is not yet profitable, but Fiverr revised its 2020 revenue estimates higher on the heels of global shelter-in-place orders and economic upheaval.
Slack Technologies (WORK)
Workplace messaging and productivity platform Slack Technologies has a business model that Wall Street has come to love in recent years: It's a high gross margin, recurring revenue software business. It's taking losses in the short term, but as it grows its customer base, losses will shrink. Then the company will turn profitable as fixed costs more easily spread across a growing revenue base, with shareholders enjoying the margin expansion that comes with scalable software businesses. Large corporate customers, including IBM (IBM), are using Slack for communications across their entire workplaces. If Slack continually cements itself into workflows, the "network effect" will make its clients less likely to leave. Analysts expect revenue to jump about 36% this fiscal year.
Microsoft CEO Satya Nadella is widely credited with pushing the software giant aggressively into the high-margin, high-growth cloud computing industry following more than a decade of stagnation under Steve Ballmer. "We've seen two years' worth of digital transformation in two months," Nadella said during MSFT's most recent earnings report. Although it might seem odd calling Microsoft one of the best growth stocks to buy given its status as the most valuable public company in the world, even a portfolio of growth stocks needs to have its share of safer picks. The company pays a roughly 1% dividend, which isn't much to brag about but isn't bad for a $1.4 trillion company that saw top- and bottom-line growth of 15% and 22%, respectively, last quarter.
Activision Blizzard (ATVI)
Last but not least, Activision Blizzard rounds out the list of growth stocks to buy for 2020. It's the largest publicly traded game publisher in the U.S., with a market capitalization near $56 billion, and its portfolio of titles has created an ecosystem of hooked gamers with 400 million players across all titles globally. Not only does the company make popular games like World of Warcraft, Overwatch, Diablo and Candy Crush, but its Call of Duty franchise has been wildly popular for years. Activision itself, the division under which Call of Duty is published, has seen monthly active users skyrocket from 41 million to 102 million year over year. Its most recent earnings report was far better than expected, sending ATVI shares back toward all-time highs.
The best growth stocks to buy this year:
-- Amazon.com (AMZN)
-- Facebook (FB)
-- Fiverr International (FVRR)
-- Slack Technologies (WORK)
-- Microsoft (MSFT)
-- Activision Blizzard (ATVI)
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