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Top Stock Ideas for 2020: Stocks to Buy in the Next 12 Months

Allan Tong Posted On January 9, 2020
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One week into 2020

A week has barely passed in 2020, and already markets have already been rocked by the threat of war between the U.S. and Iran. That drone attack shattered weeks of several all-time highs.

Will this be a short-lived skirmish or all-out war?

No one knows, and investors well-are advised to have a plan for each outcome.In fact, let’s look at several outlooks and determine which stocks and sectors you should buy (or avoid) in the coming 12 months.

BDC, Canada’s entrepreneur’s bank, expects our economy to continue to grow at 1.7%, driven by real estate and consumer spending.

Casting a shadow over our growth lies abroad: trade tensions, the U.S. election in November and Brexit. The trade wars launched by America slowed global growth to 3% in 2019 and will slash almost $700 billion this year. Even if China and America sign phase one, uncertainty persists. The saving grace will be continued low interest rates, plus improving economies in India, Russia and Brazil.

What to expect from the stock market in 2020?

Meanwhile, Bay Streeters expect the TSX to reach anywhere from 17,750 to 18,500 in 2020, with energy, materials, and financials to outperform.

Top Energy Stocks Predictions for 2020

Eric Nuttall, who specializes in oil stocks, names Baytex, Crescent Point and Tourmaline as his top picks. Most oil stocks pay generous dividends. CPG-T, for example, yields nearly 8% (disclosure: I own this).

Here are Eric Nuttall‘s top oil stocks outlined:

Baytex Energy Corp (BTE-T)

A Calgary based oil and natural gas company. A junior stock that is trading below book value, with good assets in shale in Texas. A well-managed company that was chosen as a Top Pick by Eric Nuttall in mid-December.

Baytex Energy Corp (BTE-T) — Stockchase
Baytex Energy Corp (BTE-T) — Stockchase

(A Top Pick May 28/21, Up 287%) Drilling oil wells that payback in weeks (1.5 years is average). Largest shareholder of the company. Would have made to top pick, but already have picked company last time. Company aggressively paying down debt. Trading at 2x cash flow and 35% free cash flow yield. Expecting company to…

stockchase.com stockchase.com

Crescent Point Energy Corp (CPG-T)

A Canadian oil and natural gas company. They have assets mainly in North Dakota and Southern Saskatchewan. The company continues to buy back stocks.

Crescent Point Energy Corp (CPG-T) — Stockchase
Crescent Point Energy Corp (CPG-T) — Stockchase

John: 40% free cashflow yield. Cheap. Still makes money if oil goes down to $50.

stockchase.com stockchase.com

Tourmaline Oil Corp (TOU-T)

A big natural gas producer that continues to buy back stocks. They spun out some of their infrastructure into a royalty offering that gives them liquidity to make acquisitions.

Tourmaline Oil Corp (TOU-T) — Stockchase
Tourmaline Oil Corp (TOU-T) — Stockchase

(A Top Pick Mar 15/22, Up 42.6%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with TOU triggered its stop at $69.50. To remain disciplined, we recommend covering the position at this time. This will result in a net investment gain of 58%, when combined with previous buy recommendations.

stockchase.com stockchase.com

Top Materials Stocks for 2020

Among materials, Jaime Carrasco‘s favourites are Agnico-Eagle and Sandstorm Gold. A major tailwind is the ever-rising price of gold as the market grows uncertain.

Here are Jaime Carrasco‘s top material stocks outlined:

Agnico-Eagle Mines (AEM-T)

A major Canadian gold producer with operations in North America and Finland. They operate in lower geopolitical risky areas. New mines are producing and they have increased their dividend by 40%.

Agnico-Eagle Mines (AEM-T) — Stockchase
Agnico-Eagle Mines (AEM-T) — Stockchase

It's one of the best-managed gold companies in Canada. They have a great asset base, including Australia after buying Kirkland Lake. He's not a big fan of gold; the price of it has lagged real estate and stocks. But AEM itself is a great company.

stockchase.com stockchase.com

Sandstorm Gold Ltd. (SSL-T)

A financing company for precious metal mining companies. The company has good cash flow and continues to buy back shares. They have a mine in Turkey that will go online in the next few years that will help the stock jump higher.

Sandstorm Gold Ltd. (SSL-T) — Stockchase
Sandstorm Gold Ltd. (SSL-T) — Stockchase

(A Top Pick Feb 28/22, Down 7%) Large transaction required an increase of the issues outstanding. Good management. Increased liquidity because of increased size portends it will be a leader in the space. Price decline means he can buy more.

stockchase.com stockchase.com

Top Financials Stocks in 2020

As for financials, well, no surprise that TD and Royal are the most beloved Canadian bank stocks. They are definetly the ones to buy according to many experts on Stockchase.

Toronto Dominion (TD-T)

One of the leading Candian banks with US exposure. They have over 50% of their business in US retail space. Analysts expect a dividend increase, putting the yield at 4.5%.

Toronto Dominion (TD-T) — Stockchase
Toronto Dominion (TD-T) — Stockchase

Core holding, though sometimes you want more or less exposure. In an economic slowdown, as he expects this year, you want to pare back. He owns RY, TD, BMO, and BAM.A. Each has unique aspects that make for good diversification within the sector. Pullbacks provide an opportune chance to buy, put them away, and collect…

stockchase.com stockchase.com

Royal Bank (RY-T)

The leading bank in Canada. A good income investment choice with yield at 4%. Higher interest rates would be beneficial to the banks. This could be a good entry point for banks.

Royal Bank (RY-T) — Stockchase
Royal Bank (RY-T) — Stockchase

Core holding, though sometimes you want more or less exposure. In an economic slowdown, as he expects this year, you want to pare back. He owns RY, TD, BMO, and BAM.A. Each has unique aspects that make for good diversification within the sector. Pullbacks provide an opportune chance to buy, put them away, and collect…

stockchase.com stockchase.com

Playing the TSX with an Index ETF

A simple way to play the TSX would be an index ETF, such XIC or XIU, but the difference between the current 17,000 level to the most optimistic 18,500 is only 8.8%. Add to that the 2.8% yield (after the MER) of either ETF, and you will gain 11.6%.

Even better, wait for a market pullback of, say, 5% before buying a tranche to better your adds and gains. Though the TSX could fall deeper, nobody sees a recession coming this year. Hope they’re right.

iShares S&P/TSX Capped Comp. ETF (XIC-T)

An ETF that tracks the TSX closely. A good way to diversify with a low MER and get a broader exposure to Canada.

iShares Core S&P/TSX Capped Composite Index ETF (XIC-T) — Stockchase
iShares Core S&P/TSX Capped Composite Index ETF (XIC-T) — Stockchase

XIC is slightly different because it's capped, but will pay distributions. HXT does not pay, but compounds gains within the ETF.

stockchase.com stockchase.com

iShares S&P/TSX 60 ETF (XIU-T)

An ETF that tracks the TSX60 large cap stocks. A low-cost way to get exposure to good names like the banks. One of the largest and oldest Canadian ETFs.

iShares S&P/TSX 60 Index ETF (XIU-T) — Stockchase
iShares S&P/TSX 60 Index ETF (XIU-T) — Stockchase

XIU vs. XIC Correlations and holdings are quite similar. XIC is more diversified, with about 240 holdings. XIC has a 6 bps MER, while XIU is 18 bps. Performance has been very similar. XIU has a bigger weighting in banks, about 28%. XIC has about 23% in banks. Not much diversification if you own both.…

stockchase.com stockchase.com

US Banks to Buy in 2020

JP Morgan predicts U.S. growth to slow from 2.3% last year to 1.7% in 2020 as the American consumer continues to spend. The bank sets a 2020 price target for the S&P at 3,400 with an EPS of 19x, which is the Wall Street consensus, but don’t expect the stellar performance of the past two years.

Rather, 2020 to be the “year of the Great Rotation II,” a repeat of 2013 when retail investors shifted from bond funds into equity funds. Also, JPM reflects Wall St. Consensus that the US dollar will show weakness, at least early this year. Oil should improve in 2020, given OPEC’s deeper production cuts, with Brent averaging US$64.50 per barrel.

JP Morgan Chase & Co (JPM-N)

One of the big American banks. A leader in the US banking space and a bellwether. A premier company that comes with a premium. Analysts expect to see continued dividend growth and steep earnings growth.

JP Morgan Chase & Co (JPM-N) — Stockchase
JP Morgan Chase & Co (JPM-N) — Stockchase

Market is pricing in a recession. If that does not happen, JPM will deliver good results. Positive loan growth. Guy Adami recently gave a Buy signal. Social media mentions are up 300% for the past 24h.

stockchase.com stockchase.com

Wells Fargo is a little less optimistic. It calls for 1.8% growth; targets 3,200-3,330 for the S&P; and WTI between $55-65. For maintain global growth, consumers must continue to spend, fixed-income spreads must be “well-behaved” and the US-China trade war must de-escalate. WF favours tech, consumer discretionary and financials, but gives the thumbs-down to communication services and materials. It predicts large-cap’s EPS to rise 6.3%, but only 3% in mid-caps.

Wells Fargo (WFC-N)

An American bank that recently hired a new CEO, who was accepted by the market. There were some regulatory issues following fraudulent accounts that has hurt them. It now seems to be improving and has started to follow the other US banks.

Wells Fargo (WFC-N) — Stockchase
Wells Fargo (WFC-N) — Stockchase

Penalty box from regulators. Better places to be. Struggling, margins and earnings are down, losing key personnel.

stockchase.com stockchase.com

More US stocks to buy in 2020

So, consider Starbucks and JP Morgan (a recent top pick by no less than three Bay Street analysts), and the FANG stocks plus Microsoft and Tesla (the latter two have outperformed the Nasdaq).

Starbucks (SBUX-Q)

The ubiquitous coffee chain that has gone global. They have successfully expanded into China. They are in a very high margin business that continues to do well.

Starbucks (SBUX-Q) — Stockchase
Starbucks (SBUX-Q) — Stockchase

Struggling to evaluate company at this time (poor service and decreasing shop count). Underlying negative trends for the company. Current price not highly attractive. Expecting stock price to decrease. Expecting inflation to negatively affect business.

stockchase.com stockchase.com

Microsoft (MSFT-Q)

A computer software, cloud and service company. Their position in the cloud space is only disputed by Amazon. Their subscription business has continued to go well. A good long term hold.

Microsoft (MSFT-Q) — Stockchase
Microsoft (MSFT-Q) — Stockchase

It has sold off with the market and is down 27-28% year-to-date. As a tech company it is more infra-structure and service focused than advertising like Google and Facebook. It is already embedded in millions of companies around the world and allows migration to the cloud.

stockchase.com stockchase.com

Tesla Motors Inc (TSLA-Q)

The electric vehicle company that started the trend. It has been known to have high volatility. Valuation is very expensive but the stock continues to edge higher despite all the concerns.

Tesla Motors Inc (TSLA-Q) — Stockchase
Tesla Motors Inc (TSLA-Q) — Stockchase

Continues to like the prospects of the company even with extremely high valuation. Sky high valuation is justified given the advanced nature of software and technology. Results coming in better than expected as production increases with stable costs. Company able to raise prices on products as consumers willing to pay. Autonomous driving presenting large opportunity…

stockchase.com stockchase.com

Emerging Markets and China Stocks to Buy in 2020

After two weak years, emerging markets are poised to enjoy a better, even upbeat 2020. While the U.S. Fed is expected to keep interest rates steady, EM central banks are expected to continued cutting rates. That’s the good news. The bad news depends on which country you’re investing in.

Russia, Mexico, South Africa and Argentina are wrestling with political and economic difficulties, including debt repayments. India has its bulls, but also bears. XID-T plays India, though VEE-T covers Asia, including India but excluding Japan. India has great promise, but hasn’t blossomed into a powerhouse like its neighbour, China. In fact, her economy remains sluggish.

iShares CNX Nifty India (XID-T)

An ETF that covers India broadly. The country has a growing middle class with upwardly mobile, English speaking workforce. It is a bet on India and it’s growing population that is set to surpass that of China.

iShares CNX Nifty India (XID-T) — Stockchase
iShares CNX Nifty India (XID-T) — Stockchase

He had been suggesting China but he now suggests changing that to India. The median age there is 28. The rate of literacy is growing dramatically.

stockchase.com stockchase.com

Vanguard FTSE Emerg. Mkts. All Cap ETF (VEE-T)

An ETF that covers emerging markets broadly. A good long term buy that is one of the best emerging market ETFs in Canada. The MER is 0.25% and covers India as well.

VANGUARD FTSE EMERGING MKTS ALL CAP IDX (VEE-T) — Stockchase
VANGUARD FTSE EMERGING MKTS ALL CAP IDX (VEE-T) — Stockchase

Has better P/E ratios in emerging markets so less downside. Great diversification with 20 to 30 companies from around the world.

stockchase.com stockchase.com

In contrast, China remains the biggest economy in emerging markets though her growth will likely continue to slow in 2020: the IMF estimates 5.8% GDP growth, the World Bank 6.1%. Trump’s tariffs and the trade war hurt Chinese stocks in 2019 (and harmed American productivity as well), but the scheduled signing of phase one of the trade deal has lifted a lot of tension.

China will also benefit if the American consumer continues to buy. Bay St. remains bullish on Alibaba and Tencent. But investors either believe in the Chinese economy and the transparency of its financial reporting, or they stay out altogether.

Alibaba Group Holding (BABA-N)

The Amazon of China. The stock has been hit due to the US-China trade war and uncertainty over China. The price has remained the same for a few years. There is no dividend, and has a PEG ratio of over 50.

Alibaba Group Holding (BABA-N) — Stockchase
Alibaba Group Holding (BABA-N) — Stockchase

Valuation is incredibly cheap, because the Chinese government put the hammer down. If you want to own a Chinese stock, this is probably the best one to own. There's probably upside, but there's still that Chinese risk.

stockchase.com stockchase.com

Tencent Holdings Ltd (0700-HK)

The largest online advertiser and gaming space. It is getting into fintech and cloud storage as well. It is one of the largest internet companies in the world based on revenue and market cap.

Tencent Holdings Ltd  (TCEHY-OTC) — Stockchase
Tencent Holdings Ltd (TCEHY-OTC) — Stockchase

(A Top Pick Apr 23/21, Down 39%) Fundamental story is very good. Political interference from the Chinese government has been difficult and made investors shed the name. Political interference from the US by potential delisting. Attractively priced now, but political risk is too high. Sometimes you make a mistake, and it's time to sell.

stockchase.com stockchase.com

2020 outlooks

After gleaning several 2020 outlooks, I can report: sluggish world growth, low yields, but also low or flat interest rates. Risk assets will grind higher while the U.S. dollar will soften. Gold will continue to be a hedge against uncertainty. Trade tensions between the U.S. and China will decrease, but remain on the table.

After all, both the Republicans and Democrats will talk tough about China during the election campaign, a campaign that will play a huge role in 2020 markets. There’s little chance of recession this year, but geopolitical tension remains, as we are experience now with Iran and America. Expect more volatility.

Have a good 2020!

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