James Glassman’s Top Stock Picks for 2020

Nvidia may be the best artificial intelligence play. The stock has bounced off its June low but still offers excellent value.

My annual stock choices beat Standard & Poor's 500-stock index for the fourth year in a row in 2019, and the margin was pretty spectacular, if I do say so myself. For the 12 months ending October 31, 2019, my picks returned, on average, 30.0%, compared with 14.3% for the S&P. But as I reminded readers last year, don't get too excited about my forecasting ability. No one beats the market consistently.

Since 1993, I have drawn nine selections for the year ahead from experts and added a choice of my own. The big winner for 2019, returning 112.1%, was Coupa Software (symbol COUP (opens in new tab)), which connects businesses with suppliers. It was the choice of Terry Tillman, an analyst with a golden touch at SunTrust Robinson Humphrey (opens in new tab). His picks on my list have beaten the S&P for eight years in a row. Among his recent recommendations, I like Okta (OKTA, whose software verifies and manages the identity of people seeking online access to company websites—a valuable corporate defense against hacking. Okta went public in 2017 and now has a market value of $13 billion. The company still hasn't turned a profit, but revenues are soaring.

Another successful regular on the list is Jerome Dodson, founder of Parnassus Endeavor (PARWX (opens in new tab)), my favorite fund in the socially responsible investing category. The Dodson pick for 2019 was Starbucks (SBUX (opens in new tab)), up 47.6%. A year ago, Dodson took advantage of a big price drop and began acquiring shares of Nvidia (NVDA (opens in new tab)), the giant maker of processors for applications that include PC gaming and artificial intelligence. In fact, Nvidia may be the best AI play. The stock has bounced more than 50% off its June low, but it still offers excellent value.

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Despite China's tariff strife with the U.S., I remain an advocate of Chinese stocks—especially those that don't depend on selling manu­factured goods abroad, such as Trip.com Group (CTRP (opens in new tab)), the company formerly known as Ctrip.com International that is called the "Expedia of China." It serves a nation crazy for travel. The stock is trading well below its 2017 highs, with a price-earnings ratio, based on estimated 2020 earnings, of 21—lower than its historically high P/E levels. Trip.com is one of the top 25 holdings of my favorite Asian stock mutual fund, Matthews China (MCHFX (opens in new tab)).

Daniel Abramo­witz, of Hillson Financial Management, in Rockville, Md., is my go-to guy for small-capitalization value stocks. For the year ahead, he likes The Chemours Co. (CC (opens in new tab)), a chemical manufacturer that DuPont spun off in 2015. Major products include titanium di­oxides, which give brightness and hardness to porcelain enamels, and Opteon, a refrigerant with environmental advantages over Freon. Chemours soared in price the first few years after the spin-off, then ran into operating problems that Abramowitz believes are temporary. Chemours, he says, "is a well-run, shareholder-friendly business, and the stock is unreasonably depressed after a sharp sell-off." It's certainly cheap. The P/E is just 5.

Last year, I highlighted Artisan Thematic Investor (ARTTX (opens in new tab)), barely a year old, as "a mutual fund worth watching." My selection from its portfolio, IHS Markit (INFO (opens in new tab)), returned a delightful 33.3%. Linde (LIN (opens in new tab)), a major supplier of industrial gases including nitrogen and oxygen, is a recent acquisition and the fund's seventh-largest portfolio holding. The company was formed in 2018 through a merger of the German firm Linde AG, and the U.S. giant Praxair. Since then, it has performed exceptionally—with more to come.

The Value Line Investment Survey is an invaluable resource that packs tons of in­formation into a small space. Last year's highly rated choice from Value Line was Home Depot (HD (opens in new tab)), which returned 36.3%. For 2020, I looked at Value Line's 20-stock model portfolio for aggressive investors and found a single stock with the top ranking for both timeliness and safety. That stock is Medtronic (MDT (opens in new tab)), which makes cardiac pacemakers and other medical devices. Medtronic's earnings have increased year over year for more than a decade in what I call a beautiful line. This stock is as solid as it gets.

(Image credit: Getty Images)

Whatever your religion, pay attention to a mutual fund called Ave Maria Growth (AVEGX (opens in new tab)), which, according to its website, is part of the largest Catholic mutual fund family in the U.S. and places "equal emphasis on investment performance and moral criteria in selecting securities." Whatever Ave Maria is doing, it's working. The fund has returned an annual average of 12.7% over the past five years, compared with 10.8% for the S&P 500. The largest holding, as of September 30, was Copart (CPRT (opens in new tab)), which runs online vehicle auctions, mainly selling damaged cars on behalf of insurance companies. It's a great business; Value Line projects earnings will rise at an annual average of 17.5% for the next five years. The stock has more than quadrupled in three years, but even with a P/E of 32, based on estimated earnings for the next four quarters, it doesn't appear overpriced to me.

My usual modus operandi is to let the previous year's big winners be this year's pickers, but for 2020, I'm giving Warren Buffett, chairman of Berkshire Hathaway (BRK-B (opens in new tab)), a second chance. His choice for 2019 was U.S. Bancorp (USB (opens in new tab)), which returned a mediocre 12.0%. Buffett has been adding to his holdings of USB and now owns 8% of America's fifth-largest bank (more than any other shareholder), so I'm putting it down here as a 2020 pick, too. Earnings have been rising consistently for the broadly diversified bank, and the stock is yielding nearly 3%, or roughly twice the yield of a five-year Treasury note.

T. Rowe Price New Horizons (PRNHX (opens in new tab)), one of the original small-cap and (now mostly) mid-cap growth funds, celebrates its 60th anniversary next June. It beat the Russell Midcap Growth index, Morningstar's benchmark for the fund, in nine of the past 10 years (including 2019 through October 31). The fund is currently closed to new investors, and a new manager arrived last March, but you can check out the portfolio for investing ideas. The top holding as of September 30 was, appropriately, Bright Horizons Family Solutions (BFAM (opens in new tab)), which runs child care and early education centers as well as providing college-entrance advisory services. It's an impressive business, and, though the stock is not cheap, it's down from its highs of last summer.

My personal pick for 2019 was The New York Times Co. (NYT (opens in new tab)), which returned 17.8%. I still like it. But for 2020, I have decided to search for bargains by checking out market strategist Ed Yardeni's regular sector review. The worst category for 2019 has been energy, especially oil and gas drillers such as Diamond Offshore Drilling (DO (opens in new tab)), which was trading above $25 a share in 2016. But Diamond's majority shareholder is Loew's (L (opens in new tab)), which is flush with cash and run by the savvy Tisch family. I am willing to wait for the inevitable rebound in energy prices. With shares trading at these prices, Diamond looks like a very good bet.

Here are my usual warnings: These 10 stocks vary in size and industry, but they are not meant to be a diversified portfolio. I expect they will beat the market in the year ahead, but I do not advise holding shares for less than five years, so consider these long-term investments. And most of all: I am just offering suggestions here. The choices are yours.

James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.