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

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:

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

Upside expected by analysts is $3. Should do well. It is free cashflow positive and does not yet pay a dividend. Has generated a quarter billion in free cashflow. Analysts expect 40% upside.

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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

Likes assets, but not the setup for that size of company. How will they attract capital? Ability to do M&A is hampered. Two choices: higher dividend yield with lower growth, or consolidate with someone else. If oil goes higher, stock could take off. If not, it will be a parked car until a catalyst.

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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

10.5B market cap. While it has oil, a lot of the upside for the stock comes from gas. Sale of their small holding of Topaz has also helped them. Could see a special dividend from the proceeds. A shareholder friendly company that bumps up the dividend over time. Low finding and drilling costs.

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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:

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

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Continues to like the company for gold exposure. It has diversified assets, size and a good growth profile. Shares are consolidating and momentum is improving. Could add to a position here though you could wait for momentum to improve a little more. Unlock Premium - Try 5i Free

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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

Another contender is Sandstorm Gold, which has soared over 41% this year so far. SSL should do even better when a Turkish mine goes online, notes Rick Rule. Joe Mazumdar likes its for the production out of its mines in Turkey and, more recently, Brazil. Good cash flow, sound management and share buybacks. At $8.89,…

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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.

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

She likes the banks, releasing provisions put on last year. When the banks will be allowed to raise dividends and buyback shares, TD will likely hike its dividend by double digits. TD has the strongest capital position among the big banks. TD trades at a premium valuation to the group. They have a strong retail…

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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

He watches small cap financials – see his Top Picks today. However amongst the group of large banks, this would seem to be his number one pick. It seems to be a little more efficient with its capital and is a leading franchise in virtually every business that they operate.

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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.

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

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

(A Top Pick Dec 05/19, Up 2%) It is a core holding for the TSX. He has little Canadian holdings and has not had for several years. He is not that keen on Canada mainly because of government policy bent on destroying the energy industry.

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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 ETF (XIU-T) — Stockchase

XIU has a slightly higher MER. HXT does not distribute the income but is capitalized into the portfolio holdings. It makes it a capital gain than dividend income. The redemption cost is also a factor. Would prefer HXT all things considered.

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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.

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

The company trades at reasonable valuations. The management team is good and it pays dividends. It trades at a slight premium to book value at 1.6x. Growth opportunities abroad are a great tailwind. Social media mentions are up 160% in the last 24 hours.

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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.

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

Low interest rate is challenging. Stock's had a good run. Take profits. Economy slowing. Not right time of the cycle to be aggressive with your bank positions. Their bread and butter is lending, and the Fed has capped their loan book as a penalty. Look elsewhere.

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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).

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

At $115, this is a buy right now.

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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

Likes Apple. Apple is slightly less expensive on valuation than Microsoft. Their franchise is second to none. They came out with the iPhone 13, which was not particularly flashy, but the expected sales is positive. There are aging iPhones and the replacement cycle will be enormous. They have a good formula for success. Multiple has…

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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

It's too uncertain and speculative for him. The valuation is crazy, valued like an emerging software company.

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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.

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

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.

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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

Would start emerging markets exposure through a broad exposure is a good way to play it. You get a little bit of everything.

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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.

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

The political lens is not helpful. Structural headwinds, but the underlying e-commerce market is not going to disappear. Don't buy BABA in the US; you must buy in China or Hong Kong. Danger of delisting. Reasonable value. OK if you can stomach the risks, but if you can't then don't buy.

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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

Recommendation to buy on the HK exchange. Price target is in HK$. Wanted exposure to Chinese internet but without the risk of the US delisting. The underlying growth of the Chinese market is significant. A very high growth company with dividends. There is growth in revenue and underlying market. (Analysts’ price target is $787.65)

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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!