Currency Hedger Trading Desk April 25, 2020
The coronavirus pandemic is roiling global financial markets. But, while the pandemic is a very serious issue that we need to tackle with all of our resources, we will get through this. Mankind will survive. So will stocks. Humans have a 200,000 year track record of trumping crisis after crisis, and U.S. stock markets have a 200 year history of overcoming bear market after bear market.
So, as a long-term investor with a 5 to 10 year horizon, what am I doing during this financial market downturn? Looking for stocks to buy.
I truly believe that we will look back at this 2020 coronavirus sell-off in stocks as a once-in-a-lifetime opportunity to buy growth stocks. Many high-quality, world-changing companies which represent the future of global society, have seen their share prices drop to bargain levels over the past two months… because of a pandemic that, while serious, is temporary.
In the big picture, the coronavirus pandemic will pass. The secular growth narratives underpinning these stocks will not. Thus, when the pandemic ends, so will the sell-off in many of these stocks. They will proceed to roar significantly higher over the next 5 to 10 years.
10 Stocks to Buy Whose Companies We Can’t Live Without
With that in mind, the top 15 stocks to buy for 2020 on the heels of a massive plunge in the market are:
Beyond Meat (NASDAQ:BYND)
Canopy Growth (NYSE:CGC)
The Trade Desk (NASDAQ:TTD)
Stitch Fix (NASDAQ:SFIX)
The bull thesis on global social media giant Facebook is pretty simple.
While the coronavirus pandemic will absolutely kill the digital ad market in the second quarter of 2020, the pandemic won’t last forever. Soon enough, it will fade. When it does, the economy will normalize. So will the digital ad market. So will Facebook.
The company owns four social media apps. Each of them have over a billion users. Each of them are very sticky, and quasi-utilities in today’s digital age. In other words, Facebook will maintain a multi-billion user ecosystem for the next several years.
Accordingly, the company will continue to dominate the global digital ad market, which will grow at a steady pace once the economy gets back to normal.
Net net, Facebook projects as a 20%-plus revenue and profit grower for a lot longer. Getting that huge growth potential for just 18-times forward earnings is a steal for long-term investors.
Activision Blizzard (ATVI)
Much like Facebook’s bull thesis, the bull thesis for video game publisher Activision Blizzard is very simple.
Consumers love video games. This love for video games won’t die down anytime soon. Consumers will continue to love and play video games for the foreseeable future — and perhaps even more-so over the next few years, as some consumers remain hesitant to interact with people for fear of getting sick.
Activision is one of, if not the, most important player in the console video game market. Supported by blockbuster franchises such as Call of Duty and World of Warcraft, Activision has a video game portfolio robust enough so that, so long as consumers keep playing video games, they will keep playing Activision games. Add on the fact that new consoles are launching later this year for the first time since 2013, and the Activision has huge upside potential in the new eSports world, and the writing is on the wall.
Activision is a long-term winner, so buy ATVI stock on any and all near-term weakness.
E-commerce solutions provider Shopify is taking over the retail world, and the coronavirus pandemic won’t stop it.The story here is pretty simple. Shopping is pivoting online. As it
does, physical storefronts are becoming increasingly irrelevant. Online websites are becoming more relevant. So, whereas every retailer needed a physical storefront back in 2005, every retailer needs a digital storefront (or website) today.
Shopify builds those websites. And they do a better job of building those websites and giving retailers the tools they need to succeed online, than anyone else out there.
Consequently, Shopify is turning into the irreplaceable backbone of modern commerce.
The coronavirus pandemic won’t derail this trend. If anything, it will accelerate the pivot towards online shopping, thereby accelerating long-term demand for Shopify’s e-commerce solutions.
Investors are already noticing this. After briefly dropping by 50% on coronavirus concerns, SHOP stock has rallied to new all time highs. I wouldn’t chase this rally here and now. The stock is too hot. But, on the next dip, I’d be a buyer with both hands.
Beyond Meat (BYND)
My bullishness on plant-based meat maker Beyond Meat in 2020 can be boiled down to something Bill Gates once said. People tend to overestimate what can be done in a year and underestimate what can be done in a decade.
In 2019, investors overestimated what Beyond Meat stock could do in a year. Heading into 2020, investors were underestimating the magnitude and significance of the plant-based meat megatrend, and how big Beyond Meat could be in a decade.
Sure, the coronavirus headwind has thrown a wrench in this thesis. With restaurants closed across the world, Beyond Meat’s fast-growing food service business will inevitably slow.
But, this headwind will pass. When it does, the Beyond Meat growth narrative will regain momentum, supported by a continued consumption shift towards plant-based meat, several quick-casual chains rolling out plant-based meat options, and increased consumer awareness surrounding plant-based meat’s environmental benefits. So long as the company regains this momentum, the stock will bounce back.
Streaming giant Netflix had a tough 2019 thanks to escalating competition concerns. But, going into 2020, I was bullish on NFLX stock because I believed the company was going to report a series of quarters which proved that those competition concerns were overstated.
Two quarters in, two quarters down.
Netflix has reported back-to-back record quarters with superb subscriber growth that didn’t show any competitive headwinds. In response, Netflix stock has soared to all time highs. This rally will persist. Netflix’s earnings reports going forward should be quite good. You will get big subscriber growth numbers. And that’s all investors care about.As those big user growth quarters roll in, Netflix stock will keep going higher.
The long-term bull thesis on Pinterest is pretty compelling.This company has built a visual search platform which has a unique and enduring product and service discovery value prop in today’s crowded digital ecosystem. Consequently, the platform will not just sustain its 300 million global user base. The platform will grow that user base, too.
At the same time, Pinterest has built a digital advertising platform which offers marketers a compelling and unique value prop, both because it is visual-first and because Pinterest’s users are intent-driven (that is, they aren’t aimlessly scrolling through Pinterest feeds; they are there to actively discover something).
Because of this, Pinterest should have no problem rapidly scaling its digital ad business over the next several years. This rapid scaling will power huge revenue and profit growth, the likes of which will push PINS stock way higher.
Yes, the company will get whacked in the second quarter as the coronavirus pandemic kills digital ad spending trends. But, looking past the noise, growth should normalize by the back-half of 2020, and the stock should get back to a winning path.
Canopy Growth (CGC)
Canadian cannabis producer Canopy Growth has been hit hard amid the coronavirus slump. After all, if the economy comes to a screeching halt, who will be buying weed?
But, the economy won’t be halted for long. Current trends imply normalization by May. Economic normalization will lead into a huge rebound for Canopy Growth stock, for five big reasons.
First, demand trends in the legal Canadian market will improve, thanks to new products like edibles and vapes, as well as significant retail store expansion. Second, profit margins at Canopy will also improve, thanks to curbed production expansion and cost-cutting initiatives. Third, improving demand trends on top of improving profit margins will turn widening losses in 2019, into narrowing losses in 2020. Fourth, progress will be made on legalizing cannabis in the U.S. through the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act.
Fifth, and perhaps most importantly, CGC stock is priced for failure. Thus, shares are optimally positioned to rip higher in the second-half of 2020 on good news.
At the beginning of the year, I said that payments processor Square was ready to rip higher over the next 12 months as the company’s revenue growth trajectory meaningfully improved.
For the first two months of the year, everything was going smoothly. It was becoming increasingly obvious through various partnerships and fee structure changes that Square’s revenue growth trajectory was set to improve in a big way. In anticipation of that big improvement, Square stock roared an impressive 30%-plus higher in 2020 through mid-February.
Coronavirus fears have since killed the rally, because Square has broad exposure to small retail businesses, many of whom have taken a huge sales hit amid the coronavirus pandemic, and some of whom are at risk of insolvency.
But, the U.S. government’s $2.2 trillion stimulus bill will help those small businesses weather this downturn. By May, the downturn should be largely over. Consumers will get back to shopping at local stores and restaurants. Small businesses everywhere will see sales rebound in a big way. When that happens, Square stock will rebound — and that rebound will persists for several years, because Square is increasingly morphing into the technology payments backbone for small and medium sized merchants and retailers all across the world.
The Trade Desk (TTD)
Programmatic advertising leader The Trade Desk has posted huge returns over the past several years. At the start of this year, I believed that 2020 wouldn’t break this cycle of big returns.
So far, though, it has, because investors are concerned that coronavirus hysteria will cause a consumer spending slowdown which will lead to an ad spending slowdown. True. But this slowdown won’t last long.
At present, the U.S. and Europe are looking at economic normalization starting in May. This normalization will spark the beginning of a gradual, multi-month recovery in consumer spending, which will coincide with a gradual, multi-month recovery in digital ad spending. As ad spending trends rebound into the end of the year, so will TTD stock. Long term, TTD stock is a big winner, mostly because programmatic advertising is the future of advertising. I’d be a buyer on any and all weakness going forward.
Slowing revenue growth rates and compressing profit margins caused specialty e-commerce platform Etsy to have a disappointing showing in 2019. But, the exact opposite has happened in 2020.
In late February, Etsy reported quarterly numbers that included accelerating volume and revenue growth, and expanding revenue take rates. In April, the company reported that first quarter volume growth yet again accelerated — even in the face of the coronavirus pandemic.
Broadly, then, Etsy appears to be on a strong growth trajectory. It will remain so for the foreseeable future.
As the go-to online retailer for handmade crafts, Etsy will continue to ride secular e-commerce tailwinds to the tune of 20%-plus revenue and profit growth over the next several years.
Such big growth will keep ETSY stock on a winning path.
Cloud security company Okta is a long-term winner for one very simple reason: the company is pioneering a new, better, and more relevant security solution that will gain widespread adoption over the next several years.
Specifically, the company is turning identity into the security perimeter, on the idea that if each identity in an ecosystem is secure, so is the whole ecosystem. It’s a genius breakthrough which optimizes for employee mobility and enterprise flexibility (both of which are increasingly important) while not compromising on security.
Sure, enterprise IT spending trends will be depressed for the foreseeable future thanks to the coronavirus pandemic.
But such headwinds won’t last forever. Once they pass, IT spending trends will pick back-up, and spending on cloud security solutions like Okta’s Identity Cloud will bounce back to robust levels. As they do, OKTA stock will bounce back to all time highs. And then
keep moving higher in a long-term window, powered by steady and robust revenue and profit growth.
At the beginning of 2020, it looked like China was in major rebound mode, and that this rebound would power e-commerce giant JD.Com to new highs.
The coronavirus outbreak has put this Chinese economic rebound on hold. But, it hasn’t put the rally on JD stock on hold. Year-to-date, shares are up about 30%.
Because, while the coronavirus has hit China’s economy hard, the negative impacts won’t last long. Within the next few months, coronavirus fears will fade, and China’s economy will bounce back, supported by a ton of fiscal stimulus from the People’s Bank of China.
When it does, JD.Com’s revenue growth rates will improve. The company’s margins will, too, as a consequence of margin expansion and cost saving initiatives that are already in place. Against that backdrop, JD stock will continue to work and move higher.
Stitch Fix (SFIX)
Shares of online personalized styling service Stitch Fix have been decimated so far in 2020. But, the drubbing of SFIX stock looks like a golden buying opportunity.
There is concern that coronavirus anxiety will kill consumer spending in the U.S. In particular, there is concern that it will kill consumer spending on leisure items, like clothes.
In early March, Stitch Fix confirmed those fears with a downbeat revenue guide for next quarter. Stitch Fix stock has since fallen off a cliff. But, this is a temporary depression. As stated before, coronavirus anxieties will calm down come May. When they do, there’s enough fiscal and monetary stimulus in the pipeline to stoke a rebound in consumer spending, especially on things like clothes (which consumers haven’t been buying).
This rebound in leisure consumer spend will provide a huge boost for Stitch Fix’s numbers, mostly because Stitch Fix’s data-driven, curated approach to shopping is simply a better, faster, and easier way to shop that will gain incredible traction over the next few quarters and years.
That big boost will converge on what is now a hugely discounted valuation. That convergence will cause a big pop in SFIX stock from here into the end of the year, and will be followed by several years of gains, as curated online shopping services like Stitch Fix become more normal and widely used.
One of my favorite high-risk, high-reward small-capitalization stocks over the past few months has been Chinese premium electric vehicle maker Nio. There are two parts to the bull thesis on NIO stock.
First, the company’s delivery and revenue trends — which were depressed throughout most of 2019 — improved in a big way in late 2019. Excluding a short-term coronavirus hit, they’re set to improve even further in 2020 behind a rebound in China’s economy from significant fiscal stimulus, a pause in electric vehicle subsidy cuts, and a new Nio vehicle launch. As those delivery and revenue trends rebound, NIO stock should rebound, too.
Second, the balance sheet is now “safe”. That is, Nio’s cash-light balance sheet was at risk of running out of money. Emphasis on the “was”. Nio just scored 10 billion yuan in financing from Hefei’s city government, shoring up the company’s balance sheet and easing going liquidity concerns.
With funding secured and improving demand trends on the horizon, NIO stock looks ready to explode higher in the back-half of 2020.
Although social media platform Snap didn’t start 2020 off on the best foot — the company reported disappointing fourth quarter numbers in early February — the bull thesis on this stock remains alive and well. That bull thesis boils down to three tailwinds.
First, Snap is attractively positioned to benefit from long-term digital ad market tailwinds, thanks to its strong choke-hold on the malleable teen demographic. Second, continued product innovation and geographic expansion lay the groundwork for sustained user growth in 2020. Third, and perhaps most importantly, SNAP stock is undervalued given the company’s robust growth prospects both in 2020 and into 2025.
It also helps that the company just reported blockbuster first quarter numbers that more than overshadow the bad fourth quarter numbers, and illustrate that the long-term growth narrative here is on track. So long as that long-term growth narrative remains on track, SNAP stock will keep going higher.