For the final note of our year-end Marketplace Roundtable series, we compile all of our authors' named favorite ideas.
The authors' focuses range from macro to small caps to biotech to tech to everything in between, so there's not surprisingly a wide range of ideas presented here.
While some of the ideas are not specific to one security, there's plenty of food for thought and perhaps further research.
We've run through 10 different sectors or styles of investing in our year-end Marketplace Roundtable series. You can review the full list of roundtables at the end of this article, in case you'd like to catch up on any specific angle.
As we do every year, we conclude the series with the compilation of our authors' answers to the question "What's a favorite idea for 2020, and what's the story?" It's not explicitly their top idea of the year, but hopefully something that's worth your time and consideration.
In the same spirit of fun and consideration, we can share our results from 2019's top picks. To be clear, this wasn't presented as a competition, and there's only so much value in tracking a top idea competition (one example of a problem: If the format isn't clear, it incentivizes high risk/high reward situations that aren't relevant to many investors). But it's fun to see how things turned out.
Here are the top 10 performers from last year's list among still active authors.
|The Investment Doctor||FRA:XY81||123.61%|
|Mycroft Friedrich/Mark Bern, CFA||AAPL||86.16%|
|Howard Jay Klein||ERI||64.71%|
Average returns were 28%, and median returns were 25.3%. We should note we did not factor in dividends, except to check if anybody outside the top 10 might have made the top 10 on a total return basis. Eyeballing our list, I would suspect it skewed toward dividend payers, but in any case, it's roughly in line with a 28.9% price return for the S&P 500.
Without further ado, our authors' favorite ideas for 2020. Disclosures are available in the original roundtable where we shared the idea, and authors are grouped by the thematic roundtable they participated in, not explicitly by what type of idea they shared.
What's a favorite idea for 2020, and what's the story?
Lutz Muller, author of Business Intel on Toys: I believe that MGA Entertainment is likely to go public, that Hasbro (NASDAQ:HAS) will face a cash crunch because of its eOne acquisition, and that Funko (NASDAQ:FNKO) will be acquired.
Eric Basmajian, author of EPB Macro Research: A top idea at EPB Macro Research is an asset that's expected to deliver superior risk-adjusted returns. Stocks may rise in 2020, but large swings and volatility may reduce the benefit of holding an overweight position.
Short-term US Treasury bonds offer a great risk-reward. The Federal Reserve is not expected to cut interest rates and also has made a strong case for not hiking interest rates.
If the economic slowdown continues into 2020, and cyclical employment growth continues to cool, the Federal Reserve may have to think about lowering interest rates further, something that's not currently priced into the front end of the Treasury curve.
With a low probability of any rate hikes and the possibility of a dovish surprise (pending weak employment data), short-term bonds look like a great risk reward, and we have an overweight allocation to ST bonds relative to the benchmark of a risk-balanced portfolio.
Harrison Schwartz, author of The Country Club: Long energy. After years of supply growth, production increases are declining and will likely bring a return of "peak oil" concerns and inflation. Many profitable energy producer stocks also are incredibly cheap today and have improved margins drastically after years of struggling.
Michael A. Gayed, CFA, author of The Lead-Lag Report : Broadly, the reflation theme, notably Financials, on the idea that yield curve steepening is at our doorstep. Second favorite is commodities which, with emerging markets, are due for their own secular bull market.
Anton Wahlman, author of Auto/Mobility Investors: If the US federal government does not renew or otherwise extend the US federal tax credit for electric cars, Tesla (NASDAQ:TSLA) will have seemingly insurmountable headwinds for its bottom line (GAAP net income) in 2020. Tesla faces radically increased competition in Europe and China, which will hurt margins even as Tesla moves units because of price cuts.
D.M. Martins Research, author of Storm-Resistant Growth: My idea for 2020 is the same for 2019, one that performed substantially better than the S&P 500 this year: To build a strategy that's well diversified across different asset classes, including domestic and foreign stocks, Treasuries, REIT and commodities (particularly gold). Because the approach tends to lower overall portfolio risk, the more sophisticated investor might want to consider using small amounts of leverage to boost absolute returns.
From Growth to Value, author of Potential Multibaggers: As a long-term investor, I think that most of my Potential Multibagger stocks are still great picks, but especially The Trade Desk (NASDAQ:TTD) and Square (NYSE:SQ). They are both in industries at the start of a big secular trend, and they are sometimes misunderstood. For Square, investors don't realize the huge potential of Cash App yet. It's only three years old, but it's already the biggest contributor to Square's revenue, bigger than the legacy point-of-sale technology. For The Trade Desk, investors don't understand enough that CTV and audio (podcast) commercials are still in their infancy and both grow by triple digits YoY.
Damon Verial, author of Exposing Earnings: With stocks nearing all-time highs, many have asked me whether to ditch stocks for bonds in 2020. The current state of the market shows that the probability favors the bulls, while the risk-reward favors the bears. In this regard, if you’re looking for both safety and income, the dividends offered in many industries, such as consumer discretionary, outperform the expected gains from bonds. Look for low-volatility, mid-cap stocks with solid dividend histories. Take a look at the ProShares S&P Midcap 400 Dividend Aristocrats ETF (REGL) or Vanguard Consumer Discretionary Index Fund ETF (VCR) for suitable alternatives to bonds.
Integrator, author of Sustainable Growth: Mastercard (NYSE:MA). I've held this name for quite a long time, but the story and prospects just keep getting better. The part of the story that's known is that this business is a powerful cash generator with exceptional barriers to entry and strong returns on invested capital that's chasing the 85% of the consumer payments expenditure market that's still dominated by cash or cheque. That's a powerful secular growth story right there.
What isn't as well appreciated is that the business will be a dominant player in B2B payments in 2-3 years' time, through leveraging existing assets and relationships, with an addressable market that is 2-3x the size of its current core consumer payments market. Given the dynamics of this market, I see Mastercard (MA) and Visa (NYSE:V) sharing the spoils in this space over the long haul.
I like to buy and hold and compound my capital over a decade long time frame or more, so I don't just see this as just a play for 2020, but one that can be held for a multi-year time frame. I expect 2020 will see the company make more significant inroads into the space and that the stock will be rewarded accordingly.
Andres Cardenal, CFA, author of The Data Driven Investor: The Trade Desk. The company is a market leader in programmatic advertising, and it’s benefiting from massive opportunities due to the connected TV revolution and growing demand for online music and podcasting in the years ahead.
Customer retention rates are above 95%, and revenue increased 38% last quarter. The company is aggressively investing for growth, but it's already producing positive earnings and cash flows.
The Trade Desk has built key alliances with leading players like Amazon (NASDAQ:AMZN) and Disney (NYSE:DIS), so the company is strategically positioned to capitalize on exponential growth opportunities in 2020 and beyond.
Bull & Bear Trading, author of Trader’s Idea Flow: We are proud of our 8-for-8 published and documented track record of trading calls on Snap Inc. (SNAP). We were long the momentum on Snap's IPO day in March 2017. We sold short at $28 on day 3 after the IPO. And, we covered our short and went long in January 2019 at $5 per share, pretty much nailing the inflection point at the bottom of the chart.
We covered our short and went long Snap when sentiment was extremely negative, a good indicator of an oversold stock. During interaction in the comments section of a Seeking Alpha article on Snap, another SA contributor guided us to a very significant item of research. It was a brief Digiday article (yeah, rather obscure but that's the point here!) discussing Snap's low-end marketplace strategy just beginning to show first signs of gaining traction. In this case, it was another SA contributor who deserves the credit for uncovering this golden research who contributes to SA as True North Alger. We covered our short and established a long position.
This social media alternative to Facebook (NASDAQ:FB) has successfully implemented a low-end of market strategy that has increased their market share among advertisers. 2020 may see the company begin to expand their margins and revenues by increasing prices and gaining a larger portion of ad-spend budgets. Facebook's current challenges are well documented, and the threat of anti-trust regulation against tech giants has given Snap an opportunity. Newer, more experienced management has been rescuing Snap's business model methodically for the last 18 months. 2020 may be the time for Snap to begin trading at a premium in this bull market as the company's turnaround justifies the positive sentiment that has been replacing the overly bearish sentiment of the past. Snap has transitioned from the company that Wall Street loved to hate into what may become one of the best turnaround stories in social media since Twitter's (NYSE:TWTR) financial engineering to boost its own stock price. However, Snap's turnaround may prove to be more legitimately based upon actual revenue growth and the taking of market share in social media than Twitter's turnaround. This revenue growth by Snap in a growth industry is the stuff that often rewards stocks with a very aggressive premium. We anticipate all-time new highs above the $29 per share mark in 2020 for this stock currently trading at about $15.00.
Julian Lin, author of Best of Breed: Simon Property Group (NYSE:SPG) is my repeat favorite idea for 2020. SPG is a real estate landlord of high-quality "Class A" mall properties. The stock has returned -40% since 2016 vs. +40% for the S&P 500. The fundamentals, however, remain strong, with the company guiding for 2% comparable cash flow growth in spite of numerous retail bankruptcies. High-quality malls have had no trouble finding replacement tenants for store closures, but the high concentration of store closures has made the struggles appear secular rather than cyclical. SPG has a strong balance sheet with an A-credit rating and capacity to take on more leverage. SPG pays a 5.8% dividend and is generating enough free cash flow to fund the dividend, $1 billion to $1.5 billion in anchor redevelopment projects, and buy back stock. There's blood in the streets of malls, and SPG is best of breed.
Rick Pendergraft, author of Hedged Alpha Strategy: Looking at the list of stocks that currently meet my fundamental requirements, the two sectors that are most represented are tech and financials. Within those sectors, the software industry in particular is heavily represented, so I can see software being attractive this year. In the financial sector, banks are well represented on my list of stocks to watch.
Cestrian Capital Research, author of The Fundamentals: US space and defense stocks, particularly Northrop Grumman (NYSE:NOC) and Lockheed Martin (NYSE:LMT). Defense spending is rising, and the newly-real Space Force will bring with it the arming of space. NOC and LMT are best placed to take advantage of that trend, in our view. A more volatile but equally profit-capable stock riding the same wave is Aerojet Rocketdyne (NYSE:AJRD).
Mark Hibben, author of Rethink Technology: The recession of 2008 and the recovery of the tech sector this past year show how durable technology companies can be in the face of an economic downturn. This is the sector to buy into during the downturn to come. It's important to be selective and focus on quality companies with real technical advantages and good bottom lines. The story for the next few years will be what companies survive and prosper during the downturn compared to what companies do not. I will tend to avoid companies that have racked up large losses during the good times. Uber (NYSE:UBER) comes to mind.
I think the “platform” companies will ride out any recession just fine. These include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA). These companies combine hardware and software into integrated products and have extended hardware development to the silicon level.
Joe Albano, author of Tech Cache: Anything semiconductor. With trade headwinds easing and inventories in the OEM supply chain normalized after a huge build up, 2020 will be setting itself up for anything with a bit or a byte in it. Nvidia, Western Digital (NASDAQ:WDC), Micron (NASDAQ:MU), Skyworks (NASDAQ:SWKS), and Broadcom (NASDAQ:AVGO). Each have their own strengths and story in the market, so it depends how risky you want to get or how aggressive you want to get. I own them all, and I see large gains in 2020 and already have as 2019 comes to an end.
EnerTuition, author of Beyond The Hype: Advanced Micro Devices (NASDAQ:AMD) continues to be the top idea for 2020 in spite of being one of the best stocks in the market and Beyond The Hype subscribers in 2018 and 2019. While some view the stock as played out with a big run, we do not see slowdown in market share gains against Intel (INTC) and, if fact, expect market share gains to accelerate in 2020.
Quants and Alternative Strategies
Limelight Alpha Management Partners, author of Top Stocks for Tomorrow: I think we're in the process of a cyclical bottoming in semiconductors and the potential for inventory rebuilding off multi-year lows at distributors and end-users could offer significant margin tailwinds at Microchip (NASDAQ:MCHP), especially if we get some resolution on trade. Investors will want to key in on auto and appliance sales volumes for additional conviction to the thesis that demand for Microchip's products is rebounding. Mega trends like 5G deployment and Internet of Things also support demand. Other stocks I'm bullish on coming into 2020 are Hess Corp. (NYSE:HES) on production growth tied to its share of the massive Exxon Mobil (XOM) field off Guyana, and Inspire Medical (NYSE:INSP), a small-cap medical devices play disrupting sleep apnea with an implantable device that does away with cumbersome masks.
- Is trading over 2.4 standard deviations cheap to historical trading patterns (8.5x forward DCF, vs an average of 14x), and 12x 2020 earnings vs an average of 20x,
- Has compounded EPS at 12% growth rates since 2005, and
- Recently, insiders just picked up $12.5MM worth of the units. That's a ton of stock.
From a risk-reward perspective, including distributions, EPD probably is a down $1-2, up $10-15 name in a couple years, assuming the oil and gas curves remain reasonably intact. There are lot of crummy, overlevered, poorly-managed MLPs (and we have spoken to many in the space), and this is not one of them. On an EV/EBITDA basis, it typically trades between 13x and 15x. Today, at 10x forward, it's trading at 2009 type historical low valuations, and with a heavy emphasis on NGL volumes, where prices are 20% off the summer lows, the setup looks good. At 14x EBITDA, EPD would trade to $40 (from $26.25 today). We wrote it up for subscribers very recently at these levels.
Donald van Deventer, author of Corporate Bond Investor: The foundation of any prudent investment strategy is to cover your future cash needs in the near term with matched maturity fixed income assets with an excellent reward to risk ratio. The remainder of the portfolio can be invested for the long term at a risk level that the investor considers best.
JD Henning, author of Value & Momentum Breakouts: My favorite idea for 2020 is the new rollout of the bull/bear ETF combination trade signal. A long-time member of my service named Sam asked me to take a look at dual momentum theory and see how it might be applicable to the MDA momentum cycle research I have developed. I was immediately impressed by the dual-momentum concept of using relative and absolute measures of momentum in monthly signals to minimize market exposure in downturns for crash protection. Realizing that I already was using a robust form of this concept in the Momentum Gauges on frequent daily and weekly trackers I decided to expand these positive/negative signals to a bull/bear ETF trading signal.
What I found greatly surprised me. Since Oct. 1 of last year, the Momentum Gauges have delivered five market sell signals and five market buy signals. When these 10 signals are applied to many equity ETF combinations suggested by subscribers, the results in many cases exceed both the benchmark indexes as well as a buy/hold position of the funds themselves. For example, combinations across this period from last year include:
The results have been highly significant, delivering +73.9% in LABU, +21.4% in FNGU, and +22.2% in TNA just since the last buy signal on Oct. 15. Naturally, I'm eager to expand this bull/bear ETF combination trading into 2020 and continue the live testing of this and other new ideas prompted by very bright members of our investing community.
Michael Gettings, author of The Easy VIX: My favorite idea is the same idea as last year, Don't predict, just follow the metrics. I'm convinced that, barring any true "black swan" that might come along rarely, if equity risk reaches actionable levels, I'll see it in the VIX futures curves and get out before seeing serious damage. That's empowering. I don't need to guess at how markets will follow fundamentals because, with fundamentals, timing always is a big unanswered question. I don't need to count on historical price patterns that might or might not repeat themselves. All I need to do is follow the sentiment of VIX futures traders as informed by quantitative calibrations, and then I just follow the tracks.
Fred Piard, author of Quantitative Risk & Value: I trade a systematic portfolio with an average holding duration of one to two months. It's based on abstract models of risk and value, not on "ideas." Besides that, I have a long-term ETF portfolio, mostly in low-volatility stock indexes, REITs and physical metals. My largest positions are in USMV, SCHH, gold and cash. I think the combination of these four components is a good long-term, all-weather idea. It tempers nicely the short-term volatility of the dynamic part of my portfolio.
Jonathan Faison, author of ROTY: After $3 billion buyout of Audentes Therapeutics (BOLD), gene therapy continues to be in focus. We've held Rocket Pharmaceuticals (RCKT) since $12ish, and initial data sets in Fanconi Anemia and LAD:I have not disappointed. Danon Disease phase 1 data in 2020 will be a key catalyst to look forward to as well.
Stephen Ayers, author of The Formula: I am still really bullish on Amarin Corporation (AMRN). Their drug, Vascepa, could be the first of its kind to secure a cardiovascular risk reduction label. Because it can be used in combination with other drugs that also reduce cardiovascular risk (e.g. Lipitor), it will not run into any relevant competition. Additionally, its label should be quite inclusive. And especially because the drug has been on the market for years already, the market uptake following broad label approval (the drug is, currently, only approved for very high triglyceride levels) should boom. Even without the extended indication, we already are seeing high demands as scripts continue to grow. For the quarter ending Sept. 31, Amarin saw 100%-plus product revenue growth, compared to the same period in 2018.
All in all, Vascepa is a blockbuster drug bound to change the treatment landscape of cardiovascular disease that should easily procure over $3B in peak annual revenue. Amarin's current enterprise value of $7.75B (as of Dec. 11, 2019) is yet to fully recognize the potential. Do not be surprised to see Amarin acquired in 2020.
Terry Chrisomalis, author of Biotech Analysis Central: My favorite idea for 2020 would be a biotech by the name of Myovant Sciences (MYOV). That's because it had surprisingly solid results in its phase 3 HERO study treating men with advanced prostate cancer. It was noted that 96.7% of men who took relugolix had achieved sustained testosterone suppression to castrate levels, which was the primary endpoint of the study. With the primary endpoint met, the biotech expects to file an NDA to the FDA for relugolix approval in the treatment of men with advanced prostate cancer. The filing of this NDA is expected in Q2 of 2020. Relugolix is being evaluated for two other large market indications. These other indications are Uterine fibroids and endometriosis. Positive results already were reported for both LIBERTY studies (LIBERTY-1 and LIBERTY-2) using relugolix combination regimen in women with uterine fibroids and menstrual bleeding. These two positive studies, along with another bioequivalence study, which is expected in the company's calendar Q1 2020, will allow an NDA filing for relugolix of this program as well by April of 2020. Another catalyst for this program is a marketing authorization application for the relugolix combination for treating women with uterine fibroids and menstrual bleeding by Q1 2020. Lastly, another set of catalysts involve readouts from additional late-stage studies known as SPIRIT-2 and SPIRIT-1. For both of these studies, relugolix combination therapy is being explored in women with endometriosis pain. The data readout for SPIRIT-2 is expected Q1 of calendar year 2020 and then SPIRIT-1 is expected Q2 of calendar year 2020. With a strong pipeline and multitude of upcoming catalysts in the early part of next year, I believe there is substantial upside for investors. Which is why I believe it is a top idea for 2020.
First Genesis Consulting, author of Liver Therapy Forum (LTF): Obeticholic acid (OCA) by Intercept (ICPT) granted FDA approval as the first-ever approved therapeutics for NASH, an emerging global epidemic. As a company, Intercept has done clinical wonders for the scientific and clinical communities by bringing liver research and therapeutics to the forefront. Intercept gave a clinical voice to orphan liver diseases and non-viral liver diseases with great unmet needs, an area of medicine that big pharma typically stayed away from due to perceived lack of profitability. This is reflected in the Breakthrough Designation by the FDA for OCA in NASH.
Wall Street Titan, author of Stem Cell News and Analysis: I have covered Athersys (ATHX) on SA for a number of years and, like all long-term shareholders, have been disappointed by a clinical timeline that has extended out much longer than anyone anticipated. However, this should be the year that we see partner data out of Japan in the huge unmet medical need of ischemic stroke using the company's regenerative stem cell product called MultiStem. MultiStem is a type of stem cell that has been shown to modulate the hyperinflammation in the brain that arises after a stroke and does great damage beyond the clot. MultiStem also creates a more favorable environment to promote neurogenesis, angiogenesis and healing. I did a deep dive into the science behind this program in a 2016 article that reviews the Phase II results and my rationale for optimism. We should see results from stroke in 2020, and they could be a game changer. Athersys also has an advanced program in Japan in Acute Respiratory Distress Syndrome that has shown great promise in a Phase II trial. Both Japan trials are funded by partner Healios KK (Healios K.K.), a leading Japan-based stem cell biotech that's betting its entire future on MultiStem's success and has made a substantial financial commitment to the Athersys programs. Healios is the largest shareholder of Athersys.
Long Player, author of Oil & Gas Value Research: Yangarra Resources (OTCPK:YGRAF). This cheap Canadian producer has some of the lowest costs in the industry. Therefore, weak pricing is not a worry for this company. It can grow in a wide range of industry pricing.
Laura Starks, author of Econ-Based Energy Investing: I hope that as Exxon Mobil (NYSE:XOM) becomes more active in the Permian Basin with its fleet of 55 rigs and others, especially suppliers, benefit from XOM's deep pockets, long-term steady hand, high safety standards, and environmental focus, the company can in turn surmount PTSD from bruising legal battles that have targeted XOM as the representative of all hydrocarbon producers, shake off excess caution, and learn more nimbleness from fellow Permian operators.
Fluidsdoc, author of The Daily Drilling Report: The major oilfield service companies, Halliburton (HAL), Schlumberger (SLB) and Baker Hughes (BKR), are my top picks for growth. All are at multi-decade lows, even after a 30% rebound from October lows. Drilling activity is bottoming globally, and deepwater is seeing an increase in rig utilization and day rates. That bodes well for the big three. Absent a major crash, these companies are going to see improving fundamentals and analyst upgrades in 2020. This is already occurring and should continue.
Laurentian Research, author of The Natural Resources Hub: In the oil E&P space, I like Africa Oil (OTCPK:AOIFF) a lot, another Lundin family-associated business. Being a deep value and with little downside, the stock is loaded with powerful near-term catalysts, e.g., the closing of the acquisition of giant oil fields in offshore Nigeria and reaching FID on the high-impact Kenyan project. In the mining space, I reiterate my liking of Lion One Metals (OTCQX:LOMLF) which is drill testing a potentially enormous alkaline gold system in Fiji, a favored jurisdiction. The downside is cushioned by the highly economical Tuvatu gold deposit, part of the alkaline gold system.
KCI Research Ltd., author of The Contrarian: Antero Resources (NYSE:AR) is my top idea for 2020. Antero already is the second-largest natural gas liquids producer in the United States, only surpassed by the newly merged Occidental/Anadarko combined company, and Antero is poised to overtake both Cabot Oil & Gas (COG), BP (BP), and Exxon Mobil (XOM) to become the second-largest dry natural gas producer in the United States. Despite this size and scale, Antero's robust history of hedging success, and despite their ownership of one of the premier drilling inventories in the U.S., Antero has been left for dead. Why? From my perspective, this poor share price performance is partially due to their misunderstood cost structure, which they are addressing in a series of actions, starting with de-consolidation of their midstream company in 2019, and the poor share price performance also is due to the extremely bearish sentiment on future natural gas prices, which have been in a never ending bear market this is roughly 14 years in length now. The silver lining is that there's a massive adjustment coming in future supply/demand dynamics (low prices do cure low prices in commodities) that very few market participants are modeling in right now correctly, and this difference, in my opinion, is creating a generational opportunity.
Gold and Metals
The Critical Investor, author of Mining for Alpha: Adriatic Metals (ADT.ASX), a junior developer with a polymetallic project in Bosnia Herzegovina. Their Rupice project is very high grade, and they recently announced spectacular scoping study results, with an after-tax NPV8 of US917M (= A$1348M) and a truly world class after-tax IRR of 107.4%, which means a wide margin of error when developing this further. They are working on a Pre Feasibility Study (PFS) now which is planned to be completed in Q2, 2020, and a Definitive Feasibility Study (DFS) planned for Q4, 2020, alongside the necessary permitting which goes smoothly so far, not in the least supported by a very good team on the ground. They recently raised A$25M, which will take them through permitting and the FS. Their current market cap is A$309M, which is less than 23% of the NPV8. They are looking at even making improvements from scoping study to PFS, so I expect an ongoing re-rating when Rupice is being derisked at high speed. If a scoping study project stage is valued at 23% of NPV8, a PFS stage could very well be valued at 40-50% of NPV8, because of the extreme profitability premium that comes into play with these kinds of projects. There's also potential in discovering even more resources as exploration is ongoing besides development, but the current size and quality of Rupice already is very rare and would certainly generate lots of interest for mid tier producers, so I would be surprised if Adriatic Metals is still around in a year from now.
Victor Dergunov, author of Albright Investment Group: For 2020, one of my favorite plays is the gold/silver/mining sector. The economy will likely slow in 2020 and may even go into a recession. Thus, the Fed will need to lower rates and will likely have to expand the monetary base (introduce more QE). This should be extremely bullish for gold, silver, and mining companies as it could spark higher inflation, cause the dollar to weaken, and enable interest rates to go further south.
Some of my favorite assets in this sector include iShares Silver Trust (SLV), VanEck Vectors Gold Miners ETF (GDX), VanEck Vectors Juniors Gold Miners ETF (GDXJ), as well as select gold and silver mining stocks. We like Kirkland Lake Gold (KL), Newmont Goldcorp (NEM), First Majestic Silver (AG), as well as various other companies in this space.
Gold Mining Bull, author of The Gold Bull Portfolio: RNC Minerals (OTCQX:RNKLF) is a top pick for 2020. I think the junior miner has strong potential to reach 100,000-plus ounce annual production in the near term, which should result in a higher valuation. Recently, it reported its highest monthly production yet, with 9,485 ounces produced. I'm expecting strong 2020 guidance to be released in early Q1, plus a continued growth in monthly production and a corresponding reduction in all-in sustaining costs to under $1,000/oz.
Geoffrey Caveney, author of Stock & Gold Market Report: Barrick Gold (NYSE:GOLD). The market and even the gold sector still do not fully appreciate just how dominant Barrick is becoming in the gold mining industry. Their size, their acquisitions, and their ruthless efficiency will all be critical in the gold mining industry over the next 5-10 years. The gold price will continue to rise, but inflation and all costs also will continue to rise along with it. To take the best advantage of that, you need lots of gold resources to mine, but also very efficient management of the rising costs. Barrick is by far the best positioned gold miner to accomplish both of those things.
Itinerant, author of Itinerant Musings: Gold Standard Ventures (GSV) controls the Railroad gold project in Nevada. I view it as a most interesting development stage project in a very attractive location. The current share price does not reflect its value as it has been affected negatively by the formation of the Nevada Gold Mines JV between Barrick Gold and Newmont Goldcorp, with some added pressure by tax loss selling.
Kirk Spano, author of Margin of Safety Investing: Investors must sell "old economy" stocks in disrupted industries. High debt, low growth and technologically behind companies will suffer as the "smart everything world" continues to emerge. When the next correction hits, a lot of companies will never recover again. Sell them ahead of the next correction to avoid permanent loss of capital. On that next correction, buy the disruptors and companies that use technology well to get ahead of the competition.
Double Dividend Stocks, author of Hidden Stock Dividends Plus: Industrial Logistics Properties Trust (ILPT) is a high-yield backdoor to Amazon and e-commerce. ILPT yields over 6%, and Amazon (NASDAQ:AMZN) is its biggest tenant.
Fredrik Arnold, author of The Dividend Dog Catcher: Medical property real estate investment trusts pay healthy dividends and have a long life expectancy. Just the thing to produce a steady stream of passive income for the savvy investor.
Dividend Sensei, author of The Dividend Kings: One of our highest conviction buys is Bristol-Myers (BMY) due to 46% to 136% growth in fundamentals per share (ranging from EPS, operating cash flow, EBITDA and EBIT). That's courtesy of the hyper-accretive $74 billion Celgene (CELG) acquisition. Despite a 50% rally since late July, it's still extremely undervalued ($109 fair value in 2020), and we're buying more every week until it goes above $76 and is no longer a "very strong buy."
Robert Honeywill, author of Analyst's Cnr|H2 SuperGrid: The emergence of hydrogen fuel cells as serious competitors to batteries for electric motor driven transport. Australia has vast sunny spaces and is planning a transition from supplying coal to the world to supplying hydrogen, with Australian-developed technology to back it up. What good are BEVs to Japan unless the electricity to recharge batteries comes from clean fuel sources. Japan is positioning to move to a hydrogen economy, with its own developed technology and is cooperating with Australian interests through joint ventures. This is a developing story, and there will be much to investigate and analyze in 2020 to identify the potential winners and losers. Watch out for Twiggy Forrest and his Fortescue Metals Group (OTCQX:FSUMF) for green energy and other environmental initiatives.
Canadian Dividend Growth Investor, author of DGI Across North America: The China-U.S. trade tensions dragged down the valuations for Chinese stocks in 2019. The phase 1 deal has led to a nice pop in some Chinese stocks like Alibaba (BABA) and Tencent (OTCPK:TCEHY). Additionally, a greater GDP growth than North America and a growing middle class population will be growth drivers for China.
Tencent is a leader in social networks, online gaming, fintech, and much more. The stock has been one of the top ideas in our DGI Across North America Service for quite some time now. And we've added to it over time. However, there are still lots of growth runway for Tencent in 2020 and beyond despite the stock appreciating roughly 20% in the last few months from a low. So, it remains one of our favorite buy-and-hold dividend growth ideas.
Richard Berger, author of Engineered Income Investing: The value-focused investment strategy will remain key and become even more important as the bull continues to age. Even in late stage bulls, even in bear markets, individual tickers will still arise with excellent bargain value prices available. Knowing how to find these and maximize gains while minimizing risk is what EII strategy is designed for. The easing of trade war tensions also will boost several China-centric opportunities such as Caterpillar (NYSE:CAT), Deere (NYSE:DE) and selected tech.
The Fortune Teller, author of Wheel of Fortune: A few weeks ago, we wrote two articles, one about Disney (DIS), Disney: The Content (Prom) Queen Is A Constant Buy, and one about Netflix (NFLX), Debt And Punishment - The Netflix Version, where we explained that the "streaming war" is likely to benefit the former and hurt the latter.
Disney is the "Queen of Content" and Disney+, with its 25-30M new subscribers already, is a game changer, not only for the company, but also for the entire streaming arena. The company has the largest library on the planet, which has been built over the past century. It also has the muscles, the "fat" and the will, to start a pricing war, in which it's very likely to come out with the upper hand.
Netflix, up until now, has been the "Streaming King," but the company is entering this fierce war holding a very weak position from both free cash flow and net income perspectives. Add to that a non-stop issuance of debt, something that's certain to continue in 2020 and beyond, and you get yourself a recipe for a king that's facing a threat of being dethroned from its decades-long throne.
The combination of these two articles/investment thesis has led us to suggest a long DIS+short NFLX pair trade, which we believe may profit both ends of it. Nonetheless, going back to the previous question/answer, since we're very minded of risk/reward, this trade is involving two major media plays, that fight within the same arena. That way, we're less exposed to completely different fluctuations that may occur when the two stocks in a pair trade belong to two different industries.
Putting it differently, not only that we like the trade fundamentally, but we also believe that the downside risk is relatively small, because even if NFLX rise (against the odds), it's very likely that DIS will rise along.
Since this is a pair trade that started with a DIS/NFLX ratio of 0.49x, all we need is a higher ratio, even if both stocks rise (or fall) together. We really like this trade because it combines fundamental analysis, risk management, and an-out-of-the-(streaming)-box type of thinking.
BDC Buzz, author of Sustainable Dividends: Take some equity market gains and reinvest into safer fixed-income assets, including BDC Baby Bonds currently offering a 6.2% yield that easily outperforms during market downturns.
Stanford Chemist, author of CEF/ETF Income Laboratory: The MLP/midstream space has been in a sustained bear market for some time, and valuations are very attractive now. While there may be recent signs that the bottom is in, we are not concerned with being able to catch the absolute bottom as long-term income investors. Instead, we are focused on finding the best-quality MLP/midstream or infrastructure CEFs for our members that have the biggest likelihood of outperforming the peer group (hint: It's NOT those with the highest yield!).
Alpha Gen Capital, author of Yield Hunting:Alt Inc Opps: Our favorite idea is keeping an eye on beaten down, out-of-favor sectors of the bond market that we think could see a “snap back.” We did this about a year ago by buying muni CEFs which were trading at large double-digit discounts because investors thought rates were going to continue to rise. Our muni portfolio was up more than 20% in 2019 for very safe, high quality securities. We use a proprietary model to assess the muni CEF space in order to avoid distribution cuts and find the best funds trading at the cheapest valuations.
Today, we think senior loans could be one of those areas. Investors now think rates will go to zero and the discounts on loan CEFs are very wide. But those opportunities aren’t just in loans. We’ve seen a lot of dislocation in the CEF market lately providing some great buying opportunities. Analyzing the space, we looked for funds that have seen strong NAV performance without a corresponding move by the price of the fund. There were actually quite a few funds – many of which have some sort of special situation going on (like a rights offering or tender offer expiration) that's creating that compelling opportunity. One name that we recently issued a buy alert on is a small, orphan fund, High Income Securities (NYSE:PCF). This CEF was formerly run by Putnam but was attacked by activism over the last two years. Putnam ceded control of the fund, and it's now managed by Bulldog Investors and Phil Goldstein. They recently increased the distribution yield to 10% of NAV, from 6%, providing a juicier payout and likely attracting more investors closing the large ~10% discount. The fund is small and not very liquid, so we think it could actually get merged away into one of their other vehicles like Swiss Helvetia (SWZ) or Special Opportunities Fund (SPE), both of which we like.
Ruerd Heeg, author of Global Deep Value Stocks: As a quant, I do not have many favorite ideas. More generally, I warn against investments with attractive stories. Instead, it's better to invest in a basket of stocks with high returns on a statistical basis such as net:nets or cheap nanocaps. US-listed examples are JLM Couture (OTCPK:JLMC), TOR Minerals International (OTCPK:TORM), Aerpio Pharmaceuticals (ARPO), P&F Industries (NASDAQ:PFIN) and Westell Technologies (WSTL). In December 2018, I mentioned the Genzyme Contingent Value Right (GCVRZ) as my best idea at $0.5, in a similar roundtable article. Now, it is about $0.858. I expect a final payout of $0.88 most likely already before the end of 2019. So, despite having gone up so much this is now an arbitrage opportunity with a huge annualized return.
Joseph L. Shaefer, author of The Investor's Edge: Texas Pacific Land Trust (TPL). I have now purchased it four times in the low 600s, once at 595 - and sold as it went to 690 or 700, always retaining a few shares of ''the house's money" I took off the table. This has to be the least sexy stock out there. They own land. Their charter says they have to sell off the land at propitious times and good prices. There's no mandate to sell anything by a certain time, however. So, the value of their holdings in the West Texas Permian Basin just keeps rising. They may sell a couple acres here or there but, frankly, they are making more money leasing the land to oil and gas companies for a royalty override. Now, they have added the sale of some of their 100%-owned water to these same companies. When you are sitting on a gold mine, you only have to sell a little to pay expenses and let the world come to you. TPL is sitting on a metaphorical gold mine.
The Value Pendulum, author of Asia Value and Moat Stocks: One of my favorite ideas for 2020 is Hong Kong-listed Hong Kong-listed Far East Consortium International (OTC:FRTCF) [35:HK], a diversified property conglomerate. Far East Consortium deserves to trade at a premium to its Hong Kong and China peers which have assets concentrated in Hong Kong or Mainland China, and derive most of their earnings from the cyclical and volatile property development business. Firstly, the company is diversified geographically with properties in Hong Kong, Australia and New Zealand, Singapore, Mainland China, U.K. and Continental Europe, and Malaysia. Secondly, Far East Consortium generates a high proportion of its earnings (56% of FY2019 YE March core cash profit) from recurring income generated by its hotels, car park and facility management businesses, and other investment properties.
Far East Consortium trades at 0.72 times P/B, and 0.30 times revalued net asset value per share or RNAV (adjusting for the market value of its hotel portfolio) based on its share price of HK$4.00 as of Dec. 13, 2019. The stock also offers a consensus forward FY2020 dividend yield of 5.5%. The company announced on Nov. 28, 2019 that it was considering a potential spinoff and IPO of certain of its overseas hospitality properties located in Australia, Singapore, Malaysia and the U.K. in the form of a stapled trust group comprising a real estate investment trust and a business trust (Hospitality Trust). The planned IPO Hospitality Trust by end-2Q2020 (calendar year) will allow Far East Consortium to unlock part of the revaluation surplus associated with its hotels (recorded at historical cost on the company's books) which should lead to a positive re-rating of Far East Consortium's valuation.
Safety In Value, author of Microcap Review: Alexander’s (ALX) is a REIT with assets in New York City and surrounding area. By far, their biggest asset is the square block of midtown Manhattan they own, which contains the headquarters of the Bloomberg company. There are a few other assets, mostly retail properties in the NYC area. The tenant roster of the retail properties is reasonably strong (Home Depot (NYSE:HD), H&M (OTCPK:HNNMY), Costco (NASDAQ:COST), Ikea for example) but they did have a Sears store which gave back its lease as part of that firm’s bankruptcy. However, Ikea has taken most of the space for an additional store, which will open next summer. The new rent for that space will improve results, as it was vacant for all of 2019. The bigger catalyst (and the reason I own this) is the Bloomberg lease. I was reading the lease and noted that the rent re-sets every four years. So, instead of small increases yearly every fourth year, there is an 11% increase in the base rent paid by Bloomberg. As it happens, that anniversary comes in January 2020, so this catalyst is timely. The combination of the Ikea and Bloomberg rents should add over $12 MM per year in payments to the firm. I estimate they are trading at about a 7% trailing cap rate at the current price (as of Dec. 18) of $317, and I think the assets are easily worth a 6% cap rate. Combining that multiple with the extra rent gives me a price target of $430, and they pay a 5.7% yield as well. Shares traded around $430 approximately two years ago prior to the Sears vacancy, so while this is quite a bit of upside, it isn’t a stretch by any means.
Mark Hake, CFA, author of Total Yield Value Guide: My favorite idea is Expedia (EXPE). Barry Diller has retaken the reins of the company and ousted the non-performing CEO and CFO. Moreover, EXPE announced a 20 million share repurchase program on top of their existing 9 million share buyback program. This represents 20%-22% of the stock's market value, depending on how fast the stock rises. In addition, Barry Diller also is committing to buy more shares for his own account, even though he controls 49% of the voting power of the company. This will have a secondary effect of reducing float just like a buyback. The company consistently makes $1.1 billion to more than $1.4 billion in trailing 12 month free cash flow. The dividend (yield is 1.3%) costs $200 million. So, EXPE could afford to do the whole 29 million shares, which which would cost $3.67 billion or more in 2.5 to 3 years, since it would have $1.2 billion excess FCF to spend on buybacks. That gives the stock a total yield of over 12% (dividend yield plus buyback yield) annually. The buybacks alone will push the stock higher just from the buying pressure and the reduced float.
Grant Gigliotti, author of Good Stocks@Bargain Prices: I've been strong on Big Lots (BIG) and buying around $20, when possible. I've felt that it is very undervalued and see the real valuation of around $30-plus. The market is beginning to realize it, and the stock is starting to climb.
Mark Bern, CFA, author of Friedrich Global Research: We are being cautious at Friedrich Global Research and focusing on companies that are less dependent upon the global market growth. Ryman Hospitality Properties (RHP) is a recent addition based upon strong free cash flow, falling future capital expenditures and expected revenue growth. A nice, 4% rising dividend doesn't hurt, either.
Value Digger, author of Value Investor's Stock Club: My favorite idea for 2020 is bearish. I'm very bearish on CrowdStrike Holdings (CRWD) at the current price of $50 per share. CRWD is massively overvalued at $50 per share due to a combination of company-specific and sector-specific reasons. You will find more key information about this bearish call in my free article that is expected to be out by the end of 2019.
Chris Lau, author of DIY Value Investing: The election year will not bring more volatility and uncertainty than markets expect. The US-China relations will not change, either. So, avoid macro investing and hone in on strong segments of the market.
David Krejca, author of Global Wealth Ideation: Delek Drilling (OTC:DKDRF) - energy oil and gas company - developing major natural gas field reservoir in the Eastern Mediterranean Sea. The company has built critical infrastructure and intends to start commissioning first gas. There are great differences between the prices of natural gas in Europe, the U.S. and Asia, so the only question that remains is the pricing.
Dining Stocks Online, author of DSO Restaurant Analysis: We really like Jack in the Box (JACK) as a value-based restaurant play in 2020. The stock is sitting near its lows, but a strong buyback is in place and management is focused on growing traffic and new units after spending years trying to grow Qdoba (now sold) and running a distracting strategic review process. We see free cash flow per share surging over the next 1-3 years, and the stock trades for less than 10 times our estimate of free cash flow a few years out will be. Other franchised businesses trade for 2x-3x that valuation.
J Mintzmyer, author of Value Investor's Edge: One of my favorite ideas for 2020 is an extension of one of my favorite ideas in 2019, which has been wildly profitable, nearly a 3-bagger: Dorian LPG (LPG). The lowest hanging fruit has been obviously plucked, but the rates are still enormous, and the stock still trades below its net asset value ("NAV"). Most importantly, the VLGC trade routes are growing between the US and Asia, and the recent US-China Trade Deal should be very beneficial to further shipping demand growth. They don't pay a dividend yet, but once they've fully stabilized the balance sheet, I expect we'll see impressive returns, which should drive further valuation premiums. I don't expect a repeat of the 2019 performance (nearly 3x!), but this one is very simple and clear to follow.
Michael Wiggins de Oliveira, author of Deep Value Returns: My favorite idea is Bed Bath & Beyond (BBBY). On the surface (System 1), it's a retailer, which investors are avoiding investing in. But digging deeper, it is more than a retailer. It has two separate operations which will release pent up shareholder value.
Firstly, it will have a huge sale and leaseback of four million square feet of owned real estate which will approximate $500 million in cash, or 30% Bed Bath's market cap. Secondly, it's divesting of two business units which are expected to bring $450 million in cash. Thirdly, it's liquidating close to $1 billion of inventory. Fourthly, there is still Bed Bath's core operation. This is a heads, I win, tails, I don't lose much investment!
Jeffrey Himelson, author of Invest With A Stacked Deck: In 2020, my favorite investing idea is Maple Leaf Foods (OTCPK:MLFNF). MLFNF is a Canadian-based company that trades on the Toronto Stock Exchange and is not very well followed. It has a large meat-based segment that's profitable and also is a significant player in the new plant-based meats industry. In fact, it will soon have the largest plant-based meat manufacturing facility in North America, and its plant-based segment has a revenue run rate that is not far off of Beyond Meat's (NASDAQ:BYND). MLFNF has not spent much to advertise and grow the brand of their plant-based products, but this has just changed, and they've started a new advertising campaign with several celebrities, including Ellen DeGeneres, Kristen Bell, and Dax Shepard. If you do decide to invest in MLFNF, since it is not widely followed and has a low volume, I recommending purchase shares with limit orders.
David Trainer, author of Value Investing 2.0: Disney (DIS) - The huge launch for Disney+ reaffirms what we’ve been saying for the past three years. Disney’s unparalleled collection of IP, its unique brand, and its superior content monetization capabilities give it a significant competitive advantage over Netflix (NFLX) and every other content company.
Disney stands to benefit as consumers become more overwhelmed by the amount of content and gravitate toward familiar characters and franchises. No other company can boast the familiarity or the same level of franchise IP. The company’s tentpole franchises don’t just help Disney attract new subscribers, their extraordinary popularity lowers subscriber acquisition costs, too.
Furthermore, no other content firm monetizes content better than Disney. When Disney develops successful content, it can extract value across a wide array of businesses and channels. A hit franchise like Star Wars doesn’t just make billions at the box office, it also sells toys and merchandise, creates the potential for spin-off TV shows, forms the basis for attractions at theme parks, and now – with Disney+ – contributes to the library of a streaming service. Most importantly, Disney remains undervalued. If Disney can grow NOPAT by 9% compounded annually over the next decade (the default forecast in our model right now based on historical margins and analyst revenue projections), the stock has a fair value of $181/share, a 23% upside to the current stock price. As the market grows more skeptical of the growth expectations embedded in Netflix’s stock price – and as Disney+ continues to gain market share – we expect to see more of the capital invested in Netflix to flow to Disney.
Ranjit Thomas, CFA, author of Stock Scanner: Danaos (DAC) is a shipping company trading at less than 2x EPS. After years of oversupply, the market is finally in balance and rates are rising. Read my article for why I think it could be a multi bagger.
Cory Cramer, author of The Cyclical Investor’s Club: My favorite idea for 2020 is probably Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). It's one of the few large-cap stocks that's fairly priced that doesn't have problems. It's positioned well to take advantage of a market downturn with its large cash pile, and Buffett is still at the top of his game.
Chris DeMuth Jr., author of Sifting The World: While I have not historically been fixated on dividends, a favorite idea for 2020 is another big dividend payer, our long position in Franchise Group (FRG). This is one of our largest investments. It owns Liberty Tax, Buddy’s Home Furnishings, The Vitamin Shoppe, and Sears Outlet. Over time, FRG will add companies that it can acquire at a discount to intrinsic value and recoup much or all of its acquisition costs through franchising. It will be light on assets and heavy on distributions to shareholders. It's starting with a quarterly $0.25 per share dividend, but my expectation is that figure will substantially grow over time. The goal is to distribute a large part of excess cash flow. This company has one of my favorite management teams and a promising opportunity for a rollup of companies well situated to be franchised. This company is small, new, and largely unknown. As with Broadmark, we were investors before day one but continue to own and like it today. FRG’s market cap is less than half a billion dollars today, but it will probably be ten or twenty times that within the next decade.
Quad 7 Capital, author of BAD BEAT Investing: We became immensely bullish on energy in September-October this year. That has paid off with Schlumberger (SLB) and Halliburton (HAL). We think that natural gas is a place to consider. We have been pushing Southwestern Energy (SWN) for two months now and in that time it has rallied 40%. We think that so long as the weather is even average to below average temperatures, natural gas stocks offer strong value, despite the oversupply of the last five years. Oil has rebounded, and if it stays at current levels and natural gas rebounds to even a still super cheap $2.65 on futures for natty daddy, then we are looking at another 20% upside at least here, if not more.
Daniel Jones, author of Crude Value Insights: I'm an oil guy, so I really like crude and anything tied to it just about. Shale output is not as robust as a lot of people think, and we could actually see output from shale begin to fall before too long. This could create a surprise scenario that helps out oil bulls.
Thank you for reading this article and this series. If you want to catch up on any of the previous editions, have a look at our full list of roundtables below:
- Quants and Alternative Strategies
- Alternative Income
- Small Caps
- Value Part 1
- Value Part 2
What's your favorite idea for 2020, or for the decade? Let us know in the comments below. Wishing you luck in your investing and a successful 2020 from Seeking Alpha and the Marketplace!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Please see individual roundtables linked at the end of the article to see authors' disclosures.