My Stock Picks For 2020

Dec. 24, 2019 1:34 AM ETATEYY, TGT, LAD, SNPS, AMAT, MA, GRMN, BIIB, MSFT, CMG82 Comments56 Likes

Summary

  • 2019 was an outstanding year for the Zen Top 10.
  • I’ve been publishing this list each December since 2008.
  • I pick my favorites and stick with them all year – no trading.
  • Looking for more stock ideas like this one? Get them exclusively at The ZenInvestor Top 7. Get started today »

Before I reveal my new stock picks for next year, a quick review of last year’s picks is in order. Table 1 has the details:

Table 1. My 2019 Stock Picks

As you can see, my 2019 picks beat the S&P 500 by 12.5%. And they beat the much broader VTI by nearly as much. Why am I showing a 30.5% gain for the S&P 500 when the official YTD gain is 28.5%? Because of the date range I used (see the top of the table).

I didn’t cherry-pick the start and end dates, I simply used the actual start and end dates for all securities, including the S&P 500 and VTI, based on the date I published the list.

I have been trading and managing money for 30 years. I'm still a stock picker at heart, but now I only do it for my own account, my family, and for consulting clients who ask me to pick stocks for them.

I do not claim to have a special gift for spotting the next Google or Amazon. I don't have a crystal ball. I’m skilled, but I’m also lucky, and picking winning stocks requires a healthy dose of luck. I've managed to beat the market by an average of 9.7% per year over the past 10 years. Since I began using this list with clients in 2000, I’ve beaten the market by an average of 9.6%. I guess I’m consistent.

Table 2. My full track record back to 2000

My winning record isn't all down to luck. I do have a system, and it's been working since 2000. The problem, of course, is that any system can stop working at any time and without warning. I'll explain how my system works in a minute, but first take a look at the results of my picks from 2000 (the first year I used them with client money) to 2019.

In addition to luck, my success with picking stocks is also due to a strict methodology that I follow - no matter what. I don't just throw darts at the Wall Street Journal stock tables. There's a method behind what I do. But anyone who beats the market repeatedly, as I have done for 18 of the last 20 years, must have a certain amount of luck on their side.

My Methodology

Now, let's move on to the issue of how I arrive at my stock picks. For the past 10 years, I have published a list of stocks that I thought would be solid performers over the following 12 months. Finding these stocks is a matter of filtering the universe of available stocks using three different criteria. Here's a quick review:

Starting with a universe of 8,000 stocks, I first screen for the ones that are rated 1 or 2 by Zacks Investment Research. This screen is all about earnings - growth, positive surprises, and upward revisions. This narrows the list of candidates to about 900 names.

Next, I cross-reference the Zacks list with VectorVest's top-rated stocks (VST score greater than 1). The VectorVest screen looks at price history to determine momentum, and various measures of relative value. This complements the earnings focus of the Zacks screen. The list of candidates that pass both of these screens is now down to about 400.

Lastly, I run the surviving names through the Thomson Reuters (now Refinitiv) stock screen and keep only the names that scored at least an 8 on their 10-point scale. This screen consolidates the opinions of all the analysts who cover the stocks, and it gives more weight to those analysts who have proven to be the most accurate in each of the stocks over time.

The 10 stocks that made it through all three of these screens for 2020 appear below:

Table 3. My top picks for 2020

The advantage of using this three-step screening process is that each screen focuses on a different aspect of what makes a stock attractive. It's a Bayesian approach to stock selection. You begin with a prior probability (the Zacks rank has a history of identifying winning stocks), and you further refine the list by adding layers of non-correlated screening criteria.

I didn't spend months analyzing financial statements and visiting these companies in person. I'm relying on the analyst community to do that for me. My methodology takes into account a consensus of top analysts and how their earnings estimates have changed over time.

I can be reasonably confident that these are solid companies producing solid and growing earnings, and they can be a reasonable addition to your own watch list as long as you do your own due diligence. I do not recommend that anyone blindly follows my picks - always do your own research.

Challenges And Limitations

All stock screening algorithms are subject to the risks inherent in shifting investor preferences. There is no guaranty that my selections will deliver Alpha in 2020, which is why you should view this as a starting point for further research and vetting. The stocks on this list are in favor today but may not remain in favor throughout the year. Due diligence is recommended.

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This article was written by

Erik Conley profile picture
10.07K Followers
A trading strategy uniquely combining fundamental and technical analysis.

Trader, analyst & portfolio manager, from 1975 - 2001. Former head of equity trading at Northern Trust Co. in Chicago. Now a private investor, founder of a nonprofit investor advocacy firm, and private investing coach.

It gives me great satisfaction to teach retail investors the same skills and strategies that I used with my high net worth clients as a private wealth manager. It may be a cliche, but giving something back to the community is more rewarding to me than helping very rich people get even richer.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ATEYY TGT LAD SNPS AMAT MA GRMN BIIB MSFT CMG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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