The stock market has had a fantastic year, with the S&P 500 in particular rising nearly 25% so far. Certain sectors such as tech have done particularly well, and some former laggards like the big banks have also come roaring back. All in all, there’s plenty for investors to be thankful for this holiday season.
But it’s not time for complacency. Soon, 2019 will be over and everyone’s returns will reset to zero as the new year kicks off. Don’t forget to handle any tax loss selling, retirement plan contributions and other such matters that need to be taken care of before the Dec. 31 deadline. Once that is done, though, all eyes will be on 2020.
As such, it’s time to start looking at some of the top stocks to buy for 2020. While momentum sometimes continues for years on end, oftentimes, the market switches focus from one area to another as the calendar changes. Hence the popularity of strategies such as the Dogs of the Dow that seek to profit from reversion to the mean. With that in mind, here are seven stocks that may not have won that many performance awards in 2019, but are more likely to be top stock picks to buy in 2020.
Stocks to Buy: ExxonMobil (XOM)
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As of this writing, only 78 of the S&P 500 companies are in negative territory year to date. And that figures. With the market up so big on the year, most individual stocks should be in the green. Down 1% year to date, however, Exxon Mobil (NYSE:XOM) is by far the largest company of the bunch not to advance in 2019. Don’t count it out though, this year’s biggest dog will hunt in 2020.
Why’s that? The oil market seems to be nearing a turning point since the 2014 crash in oil prices. The easy capital has finally left the sector. Dozens of smaller E&P firms have gone bankrupt. The shale revolution is quickly running out of juice. We don’t have an unlimited amount of cheap oil available to produce; on top of that, political regulation is making it more difficult to drill for new resources. Witness California putting major new measures in place to limit fracking, for example.
All the attention may be on proposed new regulations, including a potential national fracking ban if certain Democratic candidates are elected. While that’s a concern for smaller players, for Exxon, a major turnaround is brewing regardless. It has oil supplies from around the globe, and is bringing new major projects online from various areas such as Guyana. All in all, Exxon is aiming to double earnings and cash flow over the next five years or so. Given that Exxon is already one of the world’s most profitable companies and pays a generous 5% dividend yield, any sort of major growth will send XOM stock soaring. The turnaround in oil prices, should it kick off in 2020, would provide another major boost as well.
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Over the past few months, there has been a big shift in the e-commerce space. Amazon (NASDAQ:AMZN) stock has lost momentum, as investors increasingly question its strategy around brick and mortal retail, and streaming, among other issues. Meanwhile, newer fresher e-commerce platforms like Wix (NASDAQ:WIX) and Shopify (NYSE:SHOP) are enjoying exponential growth.
What’s the common thread for these new e-commerce success stories? They tend to empower smaller businesses and web entrepreneurs to get into e-commerce in a big way. These smaller operations are not set up to handle all sorts of back-office and accounting functions that a massive retailer like Amazon can. The result? You need firms to handle mundane but mission-critical things such as managing and reporting sales tax collection.
Enter Avalara (NYSE:AVLR), the leading Software-as-a-Service company in this field. Since a Supreme Court decision last year opened the way to far more online sales tax collection, Avalara’s business has taken off. Every quarter, it has been reporting an accelerating revenue growth rate and faster new client sign-ups. It’s now heading into overseas markets as well as it actively broadens its competitive moat. Avalara has partnerships with Wix, Shopify and other such platforms to directly link Avalara’s sales tax software into those commerce engines. This creates a clear growth avenue for Avalara as companies like Shopify sign up more users.
At a $6 billion market cap, Avalara is still a relatively niche player, and it has plenty of growth runway ahead of it. That’s if a major tech player doesn’t buy it out first. AVLR stock got whacked on the SaaS stock selloff this fall, and is still down 15% from its highs even after another blow-out earnings report earlier this month. The discount won’t last for long; look for AVLR stock to make new highs in 2020.
Unilever (UN) (UL)
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For the more income-focused investor, Unilever (NYSE:UL) (NYSE:UN) is one of the compelling stocks to buy at this price. Unilever is a giant assortment of consumer food and personal hygiene brands. It includes marks such as Lipton tea, Ben & Jerry’s ice cream, Hellman’s mayonnaise and Axe, Rexona and Degree antiperspirants.
Many of these sorts of consumer staples companies have traded up sharply — Hershey (NYSE:HSY) and Procter & Gamble (NYSE:PG) have both posted huge gains over the past year and now trade around 25x earnings. Unilever hasn’t gone up as much yet, likely since it isn’t a U.S.-based company, and thus hasn’t enjoyed the same passive money flows that have pushed up defensive U.S. stocks. European stocks, by contrast, have underperformed, with general economic weakness there and Brexit concerns keeping investors away.
In any case, Unilever stock now sells at just 20x forward earnings; that’s a substantial discount to similar peer companies. The company is growing revenues at more than 5% annually, which is a nice figure within consumer staples at the moment. The dividend, at 3.1%, also stands out, particularly since the company tends to hike it at a high single-digit rate most years.
Finally, I’d note that Unilever has two listings, UL and UN stock. These have the same economic interest in Unilever; however, the UL shares operate under British jurisdiction, which means that its dividends are paid to American shareholders without any foreign withholding tax, making it the superior option for most U.S.-based holders.
Hormel Foods (HRL)
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With Thanksgiving just around the corner, it’s natural to think of mainstay Hormel Foods (NYSE:HRL) products such as turkey and ham. But there’s much more to the company than just traditional meat products. Hormel is now a leader in a variety of more millennial-oriented products, including organic and non-GMO meats, nut butters, ready-to-eat guacamole and Mexican salsas.
On top of that, Hormel has recently made a big move into the plant-based protein space with its Happy Little Plants ground protein product. Hormel’s CEO, Jim Snee, indicated that the company had looked into buying a rival plant-based company, but concluded it was cheaper to do it on their own. Hormel went from concept to market with Happy Little Plants in just three months, showing Hormel’s robust R&D and distribution capabilities.
Why is HRL one of my stocks to buy for 2020? It’s one of the more attractive Dividend Kings (a company that has raised its dividend more than 50 years in a row) at the moment.
Its share price has been flat recently as investors fret about the African Swine Fever and its impact on the global supply of pigs. Higher pork prices hit Hormel’s profit margins on products such as SPAM and Black Label Bacon. Once those concerns pass, however, HRL stock could easily make a 30%-plus run-up in share price, as peers like Procter & Gamble and Hershey already have. Finally, as the Beyond Meat (NASDAQ:BYND) bubble continues to deflate, money should flow back into more traditional protein-centered companies.
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It’s shocking how cheap Facebook (NASDAQ:FB) stock remains. With every passing month, the Cambridge Analytica scandal fades farther into the rearview mirror. Yet, FB stock is still priced as though some major business disruption is coming.
How else do you explain the fact that FB stock is selling for just 21x forward earnings despite posting earnings growth of a similar rate? Or that revenue growth came in at a startlingly fast 29% over the past year? Bears kept saying that all the regulatory problems would lead to a massive drop-off in Facebook’s business. It hasn’t happened. Not even a little bit.
Sure, margins are down due to all the steps they’ve taken to improve the platform’s security. But earnings are still growing at more than 20% per year, even during this big hiring period. And revenues are growing at nearly 30%. The whole cancel Facebook thing really didn’t play out, meanwhile Facebook’s other properties — Instagram and WhatsApp — continue to explode in popularity. Facebook’s balance sheet is also pristine, with tens of billions in net cash. Don’t overthink it, Facebook stock is a great opportunity for 2020.
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It appears that the worst has passed for the tobacco industry. Not too long ago, I focused on four vaping stocks to buy as the sector slumped under the weight of intense regulatory and media scrutiny.
Sentiment is swinging rather quickly, however. The Trump Administration appears open to allowing flavored e-cigarette product sales again, contrary to previous reports. This would be a big win for Juul, and by extension Altria (NYSE:MO), which has a large Juul stake. Furthermore, the Food and Drug Administration just dropped plans to reduce the amount of nicotine in cigarettes. Meanwhile, the media’s focus has shifted away from vaping in general as a huge societal ill to more nuanced reporting focusing on the specific causes of vaping illness such as contaminants in unlicensed black market cartridges.
With all that favorable news, Altria stock has now bounced off the lows; it’s back up from $40 to $48. Still, that’s down from $75 in 2017 and $58 as recently as earlier this year. At $48 a share, MO stock still yields 7%, making it one of the hottest dividend players out there for 2020.
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I recently laid out the full case for JD.Com (NASDAQ:JD) following the company’s most recent earnings report. To summarize, JD announced another excellent quarter, with accelerating growth, solid margins and strong cash flow generation. This was all the more impressive because JD managed these results during a time when the Chinese economy is struggling and consumers have pulled back.
Look at the results from rival Pinduoduo (NASDAQ:PDD) that just came out, and which caused PDD stock to plummet more than 20%. It’s clear that the consumer is hurting, yet JD was able to maintain its market share and keep the business growing in spite of the headwinds.
This puts JD in a favorable position for whenever things turn around with China’s economy more generally. Throw in any sign of a trade deal or other warming in U.S.-Chinese relations, and JD stock should soar. For now, relations appear to be heading in the opposite direction, which could offer a compelling “buy on the dip” opportunity in JD stock heading into 2020.
At the time of this writing, Ian Bezek owned XOM, UL, AVLR, HRL, FB, HSY, MO and JD stock. You can reach him on Twitter at @irbezek.