Every year you’ll see many best stocks to buy type lists, and certainly, a few months ago there were plenty of articles giving you the best stocks for 2020 to buy. But in just a few short months everything has changed. We have a global pandemic and stocks markets are down over 30% in just mere weeks. Can we still identify the best stocks for 2020? Yes, we can, but first let’s map out some context and conditions for how we can explore this subject.
First, you have to identify your timeframe. For the purposes of this discussion, we’re going to assume a long-term perspective. We’re going to discuss the best stocks for 2020 assuming you are holding them for at least ten years.
Second, our goal here isn’t to find ultra beaten down stocks as a result of the coronavirus and economic shutdown. Some of these stocks are stocks we’d recommend even before the coronavirus-related events of the last month or so. But due to the market crash, we can get these stocks at better prices.
As we’re writing this in the middle of the market crash, there’s certainly a chance that these stocks could go lower if the overall market has another leg down. This shouldn’t be a concern, as our goal again is a ten year plus time horizon. With that said, let’s get into our list of best stocks for 2020.
Best stocks for 2020
Most people know Microsoft from its Windows and Office businesses, but the reason for Microsoft’s rise in recent years is all about cloud computing. Microsoft Azure is the booming business line at Microsoft. Azure is a cloud computing service enabling individuals and businesses to deploy products and services on “the cloud” (which refers to the Microsoft data centers). Note that Amazon and Google are also major players in this cloud business.
Corporate America is in the midst of a secular trend where they are transitioning their businesses to the cloud, and Microsoft’s stronghold in the enterprise market will continue powering this massive business. Microsoft reported that Azure business grew revenues 62% in its last quarterly release. This trend is firmly intact even if 2020 disappoints slightly as coronavirus fears cause businesses to hold on to their cash a bit more. Over the next ten years, Microsoft will grab a healthy share of this spend in corporate America.
Has Microsoft been beaten up by the 2020 stock market crash? As of writing, Microsoft is about 20% off its all-time highs. Interestingly, the stock still has a market cap of over $1.1 trillion. Kind of amazing. So, you’re not getting a bargain here. If you don’t own the stock, consider watching it. If the stock goes quite a bit lower, this is a great company to own long-term.
It doesn’t appear that anything could slow down Amazon. This company continues to be a part of our daily lives more and more, and while most people know Amazon for the regular packages that get delivered to our homes, like Microsoft, Amazon has an incredibly profitable cloud computing platform known as AWS. AWS is printing money for the company and is essentially funding the continual growth and takeover of much of our lives.
How is Amazon’s stock during this current market crash? The stock is down about 13% from its high as of writing. So, not nearly as much as the overall market. That’s not a surprise given that Amazon is possibly even more important to our lives as we rely on more deliveries during a “shelter at home” situation in much of our country.
Amazon might be the best bet of any stock to just continue growing, year after year, for the foreseeable future. Having this stock in your portfolio makes a ton of sense during any season, but it’s definitely one of our best stocks for 2020.
Tesla makes electric vehicles as well as other products such as solar panels and batteries for real estate. While Tesla’s revenue can indeed take a hit during a recession as individuals are unlikely to take on the expense of new vehicles, getting into this company for the long haul is certain to be a profitable position.
What I love about Tesla is that while the major automakers are saddled with legacy costs and are continually retrenching to try and remain profitable, Tesla continues to expand. While you see companies like Ford and General Motors shutting down factories, Tesla will announce that they’re building a new factory in a place like Germany.
Moreover, as recently as a couple months ago, Tesla stock saw a huge run up towards $1000 per share, and CEO Elon Musk was savvy in taking advantage of the opportunity by selling more stock at these high values. While it’s a dilutive move to existing shareholders, Musk was able to raise capital at extremely high valuations to buoy the Tesla balance sheet (which has become especially important during a time of extraordinary volatility).
The stock peaked at $968 earlier this year, and as of writing, is now trading in the $450 range. So the stock is down significantly.
Netflix has been a high flyer for much of the last decade, but 2019 was more of a challenging year for the stock. Much of this had to do with the increase in competition for the streaming platform. While Disney launched its Disney+ platform, other entities announced upcoming streaming services such as HBO Max, Peacock (NBC) and others. Still, Netflix continues to shine quarter after quarter delivering subscriber growth and increased usage on its platform.
Its first mover advantage and singular focus has benefited the company tremendously. While other companies have business models that are not specifically geared towards streaming models or legacy businesses to protect, Netflix is singularly focused on being the dominant streaming platform globally.
During the coronavirus pandemic, live sports have been suspended dealing another lethal blow to the traditional cable industry. Netflix continues to benefit from both the secular trends as well as the short-term trends. This company will continue to be a major part of our lives for years to come.
Netflix is only modestly off its all-time highs, still trading in the upper $300s. However, the stock moves around quite a bit on a regular basis, so picking up shares in the mid to low $300s is not out of the question. Netflix absolutely deserves to be mentioned on our list of best stocks in 2020.
Disney is one of my favorite companies, but is unique on this list in that it’s getting hit quite hard by the current economic shutdown. Because of the natures of its parks, resorts and cruises business, Disney’s 2020 revenues are getting quite a hit. Moreover, television ad revenue is down which affects its Media business and blockbuster movies have all been pushed back which impacts its Studio Entertainment business. All in all, Disney’s getting hit hard by the coronavirus epidemic. But it’s stock is also getting hit quite hard.
If you believe in the long-term value of Disney (which I do), it’s an opportunity to potentially get in. Risks involve the uncertainty around long-term impacts of travel, theme parks and cruises, but at this time even if it takes a year or two to get back to normal, you have to believe that Disney will thrive in the future.
Because of the uncertainty, there’s also a chance that the stock (currently trading around $95) will see much lower levels before this crisis is over. If you can buy the stock under $75, that represents some significant long-term value (while keeping in mind some of the risks outlined above).
Social networks have proven to be an important part of our lives during this unique phase of American life. While we remain separated physically, Facebook and other social networks are quite useful for staying connected.
Facebook will take a hit short-term during a recession since it’s advertising revenues are highly correlated to business confidence and consumer spending (which will take a hit during a recession), but Facebook will be primed to bounce back probably better than anyone once advertising dollars start flowing again.
Also interesting to note that because of the coronavirus, pressure that has been on Facebook and other social networks politically has completely abeted. In fact, you might argue that social networks are now in good graces of the public as they facilitate important communication during this time.
Like Disney, you can take advantage of the short-term challenges to invest in this stock for the long haul.
If the future of gyms and workout studios is in jeopardy in a post-coronavirus world, at-home workouts and fitness will continue to thrive. Peloton has perfected the model with its high end equipment nicely matched with a subscription business where users pay monthly. Peloton equipment isn’t cheap, so I’d expect new sales to slow during a recession, but Peloton remains an excellent brand and is well positioned to maximize the future of at-home fitness.
The stock is off roughly 25% from its high of late 2019, though the stock dipped into teens during the crash of March. It’s possible you could find a good entry point under $20 if we see another leg down in the market. Peloton is one of my favorite stocks on this list of best stocks for 2020 and beyond.
Home Depot (HD)
As a new working (and doing much of anything) from home paradigm takes hold and potentially even remains long after the coronavirus is gone, it’s a decent theory to expect that people will want to invest in making their homes more comfortable and more versatile for many different types of activities. Home Depot is a leader in the space and well positioned to capitalize on such a trend.
Home Depot could see short-term weakness if the residential real estate sector takes a hit which is very possible during an economic recession, so be patient on looking for entry points into the stock.
The stock is off its highs by roughly 25%, so you might start to considering picking up shares at current levels and below.