Here is a look at my potential 100%-upside picks for 2020
About a year ago, I wrote a piece on InvestorPlace.com where I outlined 7 stocks that could double in 2019. There a lot of stocks out there, and not many of them double in any given year. Thus, the odds of picking the ones that do isn’t very high.
However, fortune was on my side. As it turns out, my selection of 7 stocks that could double in 2019 was pretty spot-on.
Four of the seven stocks that I said could double in 2019, did double at some point in 2019. One of them — Roku (NASDAQ:ROKU) — is up nearly five-fold from its 2019 opening price. Another one — Advanced Micro Devices (NASDAQ:AMD) — is up nearly three-fold over that same stretch. Two of them — Skechers (NYSE:SKX) and Micron (NASDAQ:MU) — are up between 80%-90%. Of the remaining three stocks, two — Facebook (NASDAQ:FB) and Spotify (NYSE:SPOT) — have both risen around 60% and 40%, respectively. Meanwhile, only one of the seven stocks — Canopy Growth (NYSE:CGC) — had a negative showing in 2019.
For what it’s worth, an equally weighted portfolio of these 7 stocks that could double, would’ve indeed doubled since early 2019, rising about 115%.
But, now it’s a new year. And that means it’s time for a new portfolio of stocks that could double in 2020. Will I have the same luck with these stocks as I had with the 2019 batch? Let’s hope so.
Please note: this year’s iteration of the “stocks that could double” list is only 5 stocks, versus last year’s 7 stocks. This is mostly because coming into last year, stocks were broadly depressed. This year, however, stocks are broadly elevated — leaving less room for potential upside.
Stocks That Could Double in 2020: Beyond Meat (BYND)
The Fundamentals: Shares of plant-based meat maker Beyond Meat (NASDAQ:BYND) are the quintessential manifestation of a famous Bill Gates quote that goes something like this: people tend to overestimate what can be accomplished in a year, and underestimate what can be accomplished in a decade.
In 2019, investors overestimated what Beyond Meat could accomplish in a year — and BYND stock suffered from an extreme valuation as a result. But, on the heels of a major selloff, investors are underestimating what Beyond can accomplish over the next decade. This includes leveraging plant-based meat’s health, cost and resource conservation advantages to turn into the one of the world’s biggest meat producers with a market cap in the tens of billions of dollars.
In addition, this long-term potential will become obvious throughout 2020, as Beyond sustains big growth quarter after quarter through steady retail expansion. As it does become more and more obvious, BYND stock will rebound in a big way from a selloff.
The Numbers: My long-term Beyond Meat model pegs the company’s 2030 earnings per share potential at $15. Based on a packaged foods sector average around 17.5 times forward multiple and a 10% annual discount rate, that equates to a 2020 price target for Beyond Meat stock of over $110.
We all know that growth stocks with momentum can often sustain price tags above their fair values. Therefore, BYND stock does have a realistic opportunity to double in 2019, or hit a price tag of around $140.
The Fundamentals: The bull thesis on Chinese premium electric vehicle (EV) maker NIO (NYSE:NIO) comes down to two big things.
First, the company’s delivery and revenue trends — which were massively depressed throughout most of 2019 — improved meaningfully in late 2019. This is thanks to easing U.S.-China trade tensions, the company’s newest vehicle gaining sales momentum and China phasing out EV subsidy cuts. Looking forward, all these favorable developments will persist in 2020, and will be joined by new catalysts such as a new vehicle launch from NIO. As such, today’s improving delivery and revenue trends will improve even more in 2020.
Second, the company’s stressed balance sheet will find support in 2020. Specifically, given that China’s economy is rebounding, China’s central bank is easing monetary policy and expanding lending capacity. And, because NIO’s delivery trends are improving, it seems fairly likely that NIO will secure some form of capital market funding this year. If/when they do, cash burn and liquidity concerns will be eased, and lead NIO stock higher.
The Numbers: My long-term model on NIO assumes that the company will craft a sustainable niche for itself as the number one premium EV supplier in China. Furthermore, my model sees that this niche will enable the company to achieve unit annual delivery volumes of about 200,000 by 2030. Additionally, assuming NIO maintains respectable pricing power and operates at Tesla (NASDAQ:TSLA) like gross margins, I think that NIO can grow earnings per share towards 65 cents by 2030.
In a best case scenario, however, I think that number can grow to $1.40. If so, based on around a 16-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for NIO stock north of $9.
Sure, that’s a best case scenario price target. But, in 2020, the best case scenario could get adopted by enough investors that shares do trend back towards $9.
Canopy Growth (CGC)
The Fundamentals: Alongside every other pot stock out there, shares of leading Canadian cannabis producer Canopy Growth got killed in 2019 as everything that could’ve gone wrong in the marijuana sector, did go wrong. Demand trends in Canada flattened, leading to stalled revenue growth at Canopy. Black market competition picked up, putting pressure on Canopy’s margins. Furthermore, there was C-Suite turnover and a lack of progress on the U.S. front.
Now, however, all those trends are reversing course.
Demand trends in Canada will rebound in 2020, thanks to the introduction of new edible and vape products. Significant retail store expansion will help, and Canopy’s revenues will start marching higher at a steady pace again. Profit margins will improve, too, as Canopy leverages bigger production capacity and enhanced distribution to fight back against black market competition. It also appears that most of the C-Suite departures are in the rear-view mirror. With that said, Canopy is ready to make a splash in the U.S. market with its new “First & Free” product line.
As all of these trends reverse course in 2020, beaten-up CGC stock will bounce back.
The Numbers: My long-term model on CGC makes some very basic assumptions, including: 1) cannabis will be globally legal by 2030, 2) global sales in the legal cannabis market will measure in the several hundred billion dollar range, smaller than but comparable to the sales volume in the global alcoholic beverage market, 3) Canopy will be one of the bigger players in that market with a $10 billion-plus global sales base, and 4) Canopy’s profit margins will consistently improve towards 30%, roughly where they sit in the alcoholic beverage industry.
Under those assumptions, I think Canopy can do about $5 in earnings per share by 2030. Based on around a 20-times forward earnings multiple — which is average for alcoholic beverage producers — that equates to a 2029 price target for CGC stock of $100. Discounted back by 10% pear year, that implies a 2020 price target of over $40.
Plug Power (PLUG)
The Fundamentals: Shares of hydrogen fuel cell (HFC) maker Plug Power (NASDAQ:PLUG) more than doubled in 2019, as its HFC products gained traction among commercial clients looking to deploy alternative fuel solutions in high utilization markets (in which HFCs are better solutions than batteries because they last longer and have shorter re-charge times). This trend should continue in 2020.
Additionally, there is tremendous pressure on companies across the globe to more robustly adopt and deploy alternative fuel solutions. Battery tech will be the most commonly deployed alternative fuel solution. But, in certain high utilization areas like warehouses, HFC tech will beat out battery tech. And in those markets, you will start to see a rapid increase in things like HFC forklifts.
Indeed, this is already happening. Plug Power recently announced that a Fortune 100 customer placed a $172 million order for HFC deployments over the next two years. The company will announce many similar orders over the course of 2020. And as they do, the company’s revenues, profits and stock price will all march higher.
The Numbers: Management recently laid out an ambitious plan to get to $1 billion in annual revenue and $200 million in annual EBITDA by fiscal 2024. That represents huge growth from 2019’s projected revenue base of $235 million. But, it’s very doable, considering the company is winning several hundred million dollar contracts and that the materials handling industry is $30 billion large.
Assuming Plug Power does hit those targets, the company could realistically achieve 50 cents in earnings per share by 2024. Based on a market-average 16-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for PLUG stock of $6.
The Fundamentals: Social media platform Pinterest (NYSE:PINS) was one of the hottest new companies on Wall Street in 2019; Until it wasn’t. The company’s revenue growth trajectory slowed meaningfully in the third quarter of 2019. And ever since, PINS stock has fallen off a cliff and not recovered.
However, shares will recover in 2020 for three big reasons.
First, digital ad tailwinds will strengthen in 2020 as rebounding economic strength coupled with increased political interest will spark robust ad spending increases. Second, new ad platform features at Pinterest, including a focus on increasing the effectiveness of retail ads, will translate into digital ad market share gains for the company. Third, profit margin improvements will persist with increased scale, converging with renewed revenue growth to drive Pinterest into profitable territory.
The Numbers: Pinterest is in the early stages of turning into the next big social media company. In other words, over the next several years, a few things will happen.
One, Pinterest will steadily expand its global user base thanks to a consumption shift towards visual experience discovery. Two, Pinterest will simultaneously expand how much money it makes from each one of its users. This will be done by increasing reach and the effectiveness of its ad platform. Three, profit margins at the company will significantly improve towards digital ad industry average levels.
Under those headline assumptions, I think that $2.25 is a doable earnings per share target for Pinterest by 2025. Based on a technology-sector average 21-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for PINS stock of well over $30.
Author: Luke Lango
Source: Investor Place: 5 Stocks That Could Double in 2020