Four years ago, I decided that my second column in January would recommend my favorite stocks, and a mutual fund or two, for that year. I promised I would then review my results here 12 months later.
After fine results in 2016 and 2017, I lagged the market in 2018 when my eight stock choices and two mutual funds averaged a loss of 8%, compared with a decline of 5% for the S&P 500.
Last January, I stuck with three of my picks from 2018 — Amazon (AMZN), Shopify (SHOP) and Apple (AAPL). My two new stock selections were MasterCard (MA) and Amgen (AMGN). I also recommended a health-oriented mutual fund — Fidelity Select Medical Tech and Devices (FSMEX).
My amazing results last year almost convince me to quit making picks because I know I will never again be able to match my 2019 average of 68%! Shopify, an Ottawa-based company that provides e-commerce platforms to more than a million small businesses in 125 countries, skyrocketed 187% last year. It is now my largest holding, with Amazon a close second.
My second-best 2019 performer was old favorite Apple — surging 86% — that has been on my list every year. Finishing third was MasterCard, which rose 58%. My remaining three choices all underperformed the S&P 500’s stellar 31% gain last year (including dividends).
My only mutual fund selection — Fidelity Select Medical Tech and Devices — was up 30%, while leading biotech firm Amgen rose 24%. Amazon, my top favorite stock and my largest position then, was lackluster in comparison, returning only 23% — 8% below the S&P 500. It was the first time since 2013 that Amazon did worse than the S&P 500. Amazon has averaged 35% annually since it became a public company in 1997. If you invested $1,000 in it that first day nearly 23 years ago, it would have grown to more than $950,000 today!
The problem with using yearly averages, I now realize, is that since I haven’t been making my picks known until I write my second column in January, none of my readers can duplicate the results for the entire year. Therefore, beginning next December, I will publish my 2021 choices when I write my final column for this year.
My No. 1
Despite its subpar performance last year, I’m still making Amazon (AMZN) my top pick for 2020. Barron’s (Jan. 6, 2020, p. 19) argues that “at less than 30 times estimated free cash flow ($24.9 billion last year) Amazon stock is cheaper than shares of Visa, Nike, or McDonald’s.”
Currently 49 analysts cover Amazon, with 47 recommending it (two are neutral). Ad revenue for this year is estimated at $17.6 billion, with one analyst predicting it will top $46 billion by 2025. Amazon accounts for about 50% of online retail sales, but overall online merchants total only about 12% of all sales, so Amazon should be able to continue its incredible growth. Also, its cloud service — Amazon Web Services — generates 54% of its revenue.
The Oct. 31, 2019 issue of Forbes named Amazon CEO Jeff Bezos as its top-rated CEO. Even subtracting his $36 billion divorce settlement last year, his current net worth of $110 billion makes him the world’s richest person. (Based on numbers adjusted for inflation since 1920, oil-titan John D. Rockefeller’s $350 billion net worth then was more than three times as much!)
Unlike all my other stock picks, Amazon’s current stock price has not reached a record high this month. It currently is in the high $1800s, well below its all-time high of $2050 reached 16 months ago. Well-respected David Gardner from the Motley Fool owns and recommends it as does Barron’s, which argues “Amazon is popular with stockpickers for good reason. It’s not too late to join the crowd.”
My two big winners from last year — Shopify (SHOP) and Apple (APPL) — are both up double-digit percentages for the last 30 days so I am unwilling to recommend them as new buys, even though the Motley Fool rated both as best buys this month. However, I think they are terrific holds. Consider buying if either suffers a 10% correction from their current record highs.
Despite its 58% jump last year, I’m still recommending MasterCard (MA). It does business in 200 countries where it has 2.5 billion cardholders and processes sales in 150 currencies. Its profits were $5.2 billion for the year ending Sept. 30, up 68% from the $3.1 billion it earned in 2013. The new trade agreement with China will allow MasterCard to expand rapidly in China’s huge market. (If you already own MasterCard, consider Visa (V).)
After technology, health care is my favorite stock market sector given that about 10,000 Americans turn 65 every day. My health picks last year were Amgen, which I no longer recommend, and Fidelity Select Medical Tech and Devices (FSEMX) which is now closed to new investors.
However, the same FSEMX star manager, Edward Koon, also manages Fidelity Select Health Care (FSPHX) which is still open after a 31% 2019 return. His fourth-largest holding is Vertex Pharmaceuticals (VRTX), a $60-billion high-risk biotech company that I own and recommend. It rose 42% last year and is up 180% for the last three years (through Jan. 17). Last year, its drug to fight cystic fibrosis tested extremely well.
My new tech picks this year, despite their awesome returns last year, are Microsoft (MSFT) which climbed 55%, and chip-maker Nvidia (NVDA), which soared 76%.
Microsoft’s windows operating system dominates personal computing with a 78% market share and Microsoft won the $10 billion Jedi cloud contract from the Defense Department last year. One Wall Street expert predicts that Microsoft’s Azure cloud platform “could grow 40% annually over the next five years.” (Fortune, December 2018, p. 136). It is a market leader in both business computing processes (i.e., Microsoft Office and LinkedIn) and personal computing.
Nvidia is a leading Graphic Processing Unit (GPU) manufacturer that makes the crucial building blocks for the infrastructure needed for artificial intelligence, automation, connected devices, self-driving cars, etc. One writer claims that “Nvidia provides the structural foundation for the world of tomorrow.” Bank of America made Nvidia its top semiconductor choice on Jan. 10 and columnist James Glassman (Kiplinger’s, Jan. 20, p. 32) wrote: “In fact, Nvidia may be the best artificial intelligence pick.”
My final and safest choice for 2020 is a stock that should be bought by you and for the young people in your family. Disney (DIS) gained 32% in 2019. It set records for theme-park and cruise-ship revenue and it had 7 of the top 10 movies last year. Disney movies grossed $10.5 billion worldwide, accounting for one-third of all ticket sales.
Disney has launched a streaming service (only $6.99 monthly) that Credit Suisse predicts will have 20 million subscribers by the end of the year. Ten experts picked their favorite stocks earlier this month for Barron’s — no stock was picked more than once except Disney, which three of them touted. Also, on Dec. 26, Investor Place wrote: “This next year might be a rollercoaster ride but DIS stock looks headed for $200.”
So there you have my seven winners (hopefully) for 2020. The four tech stocks I recommend are Amazon (AMZN) which is technically a consumer discretionary stock, MasterCard (MA), Microsoft (MSFT), and Nvidia (NVDA). My two health care choices are Fidelity Select Heath Care (FSPHX) and biotech firm Vertex Pharmaceuticals (VRTX). My final lower-risk pick is Disney (DIS). Of course, I (or Sue) own them all.