In the rough and tumble world of stocks that we’re in now, investors are presented with all sorts of lists of stocks to go with now. We roll out six for you to have a look at.
Stocks have come a long way since their bottoming in late March, and there have been many good opportunities to make money from stocks during this time, with a huge amount of stocks putting in a nice bounce.
Many have not fared so well though, and even during a party like what has been going on over the last 7 weeks, it’s still important to be selective. A stock falling isn’t enough in itself, and the most money has been made from choosing good stocks who have performed well before this and are more set to resume it, over stocks that were struggling and are hoping to get back to this struggling.
Now that we’ve come back most of the way, where we may no longer expect the level of the ocean to rise like it did, raising all boats, this is a time where stock selection is extremely important, perhaps more important than any time in recent memory.
We’re also seeing a lot more picks being offered in the financial media than usual, reflecting the unique nature of this experience. Many of these picks are stocks that can do well during the shutdown, but with that lifting, we don’t want to be relying on that due to the transient nature of this. The shutdown has already peaked and while a company like Clorox has benefited a lot from all the extra wipes they have sold this year, the growth of this market is certainly limited as the demand for these things move more toward normal consumption levels.
We’re interested in stocks that not only can handle the lockdown, but can keep growing as it dissipates and eventually ends. As tempting as it may be to go with one of the hot pharmaceutical stocks like Regeneron, this is another case where the excitement may wane as we move forward, and there is simply too much risk involved compared to whatever further upside these stocks may have.
Our six picks are all stocks that have done well so far this year, which in itself counts for quite a bit, as it makes a lot more sense to choose stocks that have shown us that they in a growth phase. This is even more important to pay attention to given that we aren’t likely to see the market itself grow all that much for a while from here, and being stuck with a stock that isn’t growing should not be the plan here.
Many people will look at the laggards in a situation like we’re in now and think that they will catch up, but given that they had an opportunity to do that already and failed when the market moved up so much, they have had their chance and have not proven themselves worthy, and we have to ask ourselves what the chances are that they will somehow kick into action in quieter times.
With stocks, strength begets more strength, and weakness begets further weakness, at least until these trends are broken. They do break, and our choice comes down to going with something that is already working but might break, versus something broken with our hoping that this will change.
We don’t want to be too stubborn with our picks though if things end up not proceeding the way we prefer, and any time that the market changes its mind about a stock, this is when we need to change our minds about it as well. If we buy a stock expecting it to go up, and it goes down instead, that’s not what we bought it for, and holding stocks requires that we not only see something that we like when we enter, we also need to continue to see what we like to stay in it.
This is the essence of good stock trading, to put ourselves on the side of probability and seek to remain there as we hold. We’re looking to come up with stocks that show enough promise for 2020, but they need to hold enough promise to want to continue to be in them.
Not doing so is why so many people get in trouble when they chase hot stocks, as if and when things go against them, they hold on and can lose a bunch of money on these plays. Stock picking is all about probabilities, and what looks good today may not tomorrow, depending on what happens.
If all of these six picks of ours go straight into the toilet quickly, and people end up losing money on them, it’s not the fault of the picks, as they were made with a good enough positive expectation at the time. Times change though, and the probabilities that may have been on our side yesterday may not be tomorrow, and this includes both the performance of the stocks themselves disappointing as well as the market itself moving against us.
Our Six Top Stock Picks for the Rest of 2020
If we’re looking for good stocks to be in right now, the list starts with Amazon, which has really built its business up during the coronavirus. If we had to bet on one stock being higher at the end of the year, this would certainly be a good choice.
At least some of that new business that Amazon has gained lately is bound to be sticky, where many who may have never shopped there have been broken in, along with a lot of their regular customers ordering more things than they were accustomed to.
Amazon was already expected to grow its market share of the overall retail business before all this, and this process has now been accelerated. Amazon is up 29% for the year so far, and is primed for more. Amazon is also very well positioned to attract more attention if most stocks struggle for the rest of the year and more people eye Amazon as a better choice.
Gold has been very bullish lately, and this is expected to continue, and this has been very good for business with gold mining companies. Newmont is leading the way here and is up a whopping 52% so far this year. If the stock market struggles from here, this will likely place even more upward pressure on the price of gold and increase Newmont’s profits and their stock price even more.
Given how high gold is already, this already cashes out to some very nice profits for Newmont. The real key to this pick is the fact that the risk of gold dropping a lot in price over the rest of the year is pretty low, with some pretty big upside, especially if the stock market really gets stuck in a rut or even gives back a good chunk of the rebound.
We’ve been a big fan of AMD since last year, and while this stock is only up by 16% year to date, not as much as the other picks but impressive enough compared to just about all stocks, there doesn’t seem to be much standing in its way of going even higher. AMD still has a way to go to reach its 2020 peak, but the top stock of 2019 is chugging along nicely and continues to grow its market share in the chip business.
AMD is quite prone to a downward shift in the market though, and as good of a stock as this still is, we need to be a little more careful with this one and ensure that it manages to earn its keep while in our portfolios. Gold needs to not fall too much to stay in Newmont, and the way that the market moves doesn’t matter, but it does with AMD and other tech stocks.
NVIDIA is another stock that has really benefited from the lockdown, although it already was pretty hot and is now up 157% from the start of 2019 when it started to take off, and is up 47% so far this year.
While the demand for video chips has certainly gone up during the lockdown, a demand that may end up levelling off as the lockdown gets wound down, this stock was plenty strong enough to go with before all this, and has been one of the very best lately. The boost in the arm they got lately will only help but their continued growth is more organic, a trend that should continue.
We now have one online retail stock, a gold mining stock, and two strong tech stocks, all areas that have considerably better prospects than your average type. The final two are both financial trading stocks, and while not all of these stocks have done well, these two sure have, and are poised for more.
These stocks are particularly vulnerable to market pullbacks though, and we just saw a lot of that go on, although nothing that out of proportion with the market. Some of our other picks have some built-in resilience to these things, but this is not the case with these market stocks, as they are likely to take the full brunt of this stuff.
MSCI is a major index provider that should actually be immune from market pullbacks, as the need for the things that they provide is not dependent upon the overall market at all. However, this has not been the case with the latest crash, and that’s why we need to be a little careful with this. As the overall market for stocks continues to grow, their business will in turn. MSCI is currently up 33% for the year.
As long as we don’t see any more big market moves against it, MSCI is in a solid position to continue to climb without any of the excess baggage that weighs a lot of other stocks down. This is the key to these two market stocks being included, stocks that not only have performed very well but without any fundamental risks around their necks in the foreseeable future.
MarketAxess also serves the markets, by providing data and trading platforms. This is needed just as much in bear markets or flat markets as it is in bull markets. This stock has moved straight up for the last month, not even pausing for the breaks that the market has taken due to the heightening of one concern or another, and now sits up 30% for the year.
This is another stock that is much more immune to economic changes normally, save for the real panics. MarketAxess specializes in the bond market, which will see lots of action in spite of what happens to stocks in general over the rest of the year. This may not have the same potential as many of these other picks but still looks solid and much more so than your average stock.
Good Stocks Beat the Averages, and Better Ones Beat Them by More
The goal here is, of course, to outperform the major indexes, and this includes the Nasdaq, which is much more challenging to beat. If we’re going to pick stocks to do that, we need to make sure that they actually do have good potential to do so, and this means their showing us that they are up for the task. Each one of these stocks has delivered that, but once again, they need to keep doing it for us to want to stay in them, otherwise it will be time to look for a replacement.
Replacing stocks in our portfolio when needed is the single most important thing that there is with portfolio management, as what could be more important when seeking performance than to ensure that you do hold stocks that are actually performing.
We especially want to make sure that we don’t litter up our portfolios with junk, as people want to do, and the idea that you want to balance the good with the bad is not only nonsense, it’s harmful nonsense. This isn’t even a good idea for those who don’t manage their portfolios at all, as it’s better to start with good stocks and take your chances with those if you refuse to be open to changing your mind.
We want to instead stick to 6 strong looking stocks here, all meat and no bone, and the meatiest overall that we could find in fact. However this all works out, the key takeaway is to act from the point of the present with our decisions, to do our best to discover the best opportunities based upon what we know right now and then adjust as we travel on the path to the future that we have sought to predict.