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10 stocks that are poised for a stellar 2020

January 27, 2020, 1:10 PM UTC

This article is part of Fortune‘s quarterly investment guide for Q1 2020.

Thinking back to December 2018, the story was pretty bleak. A nearly 10% plunge of major indexes in December (the worst December since 1931) rang recession alarms, and the Dow Jones industrial average and S&P 500 both posted their worst Christmas Eve losses on record.

Today’s situation and that one are poles apart. Going a month into the first fiscal quarter of 2020—and a brave new decade—markets are buoyed by renewed optimism. In fact, markets ended 2019 on a high note, with the S&P 500 gaining nearly 29% for the year. Ever-faithful consumers have held up their end of the bargain thus far, and GDP looks on track for a rise of over 2% this year. A phase 1 trade deal with China (the lack of which was a pivotal concern for investors and executives alike) was signed in the first weeks of 2020, and a higher degree of resolution over Brexit adds another level of economic certainty—something investors have been chasing all year.

“I am struck by how absolutely polar opposite the sentiment and the market is today versus a year ago,” James Tierney, CIO of concentrated U.S. growth at AllianceBernstein, notes. Yet Tierney is one of many portfolio managers who aren’t exactly flush with optimism. “I think the question investors have to ask is, is all the good news priced in? For me, a lot of it is.” 

For those like Ramiz Chelat, deputy portfolio manager of asset manager Vontobel’s $33 billion Quality Growth Boutique’s Global Equity Strategy, this renewed optimism in the strength of the expansion may be premature. “Everything points toward a slower growth, lower growth environment in 2020.” 

The challenge for stock investors in the upcoming quarter, portfolio managers say, is to remain defensive while looking for opportunities, namely companies that can thrive in a lower growth environment, according to Mark Baribeau, head of global equity at Jennison Associates.

For others, the 180-degree reversal of the Fed’s rate cuts in 2019 were far more significant than other geopolitical headline grabbers. But investors can’t bank on the same support this quarter, some say. “I think [this] year the rubber has to hit the road. We can’t expect the same type of multiple expansion with what the Fed did [last] year,” says Todd Ahlsten, the CIO and manager of Parnassus’s $18.7 billion Core Equity Fund. 

The solution? Focus on companies that can sustainably grow earnings without depending on a supportive Fed or accelerating macro growth into 2020. Says Tierney, “You can’t count on the whole broad market elevating further, [so] I think it becomes much more company [based] or situational in terms of what’s going to drive things in 2020.” 

With those challenges (and upsides) in mind, Fortune asked five top portfolio managers how they’re strategizing for the first quarter. Here are 10 stocks these managers are eyeing to kick off the roaring ’20s. 

Alibaba Group (BABA, $214)

Growth in China was tepid in 2019, slowing to 27-year lows by the third quarter—and analysts aren’t anticipating much acceleration just yet. But one company that is seemingly defying this overall growth trend (and, instead, generating some of its own) is Chinese staple Alibaba Group. The world’s largest retailer has been able to tap into China’s lower-tier cities, those that are smaller than their Beijing-size counterparts—which are increasingly wielding more spending power. The stock is trading at an all-time high, having risen some 55% last year. Still, not only is Alibaba expanding its footprint, but Vontobel’s Chelat maintains that “Alibaba has done an incredibly good job of both expanding the number of categories people can buy items in…and it’s also expanded the number of merchants.” That’s why he thinks that growth in the value of items users purchase on the platform will be “very strong” leading into 2020—and, combined with the retailer’s push to invest in new areas like video content and logistics, could help grow earnings by 20% to 30% sustainably over the next three to five years. 

Disney (DIS, $140)

Make no mistake: Portfolio managers aren’t predicting the same kind of multiple expansion investors saw in 2019 as we enter the first quarter. In fact, Parnassus’s Todd Ahlsten suggests focusing on companies that are “going to grow their earnings [this] year in a sustainable way and are not betting on multiple expansion or [the] Fed [to] stimulate returns.” One company that fits the bill for Ahlsten is Disney—a stock he notes has “particular catalysts” for further growth heading into 2020. The Bob Iger–led behemoth launched its much-anticipated streaming service, Disney+, in November—which garnered over 10 million subscribers in its first couple of days. Ahlsten sees Disney’s investment push into cord cutting as a selling point, as the media conglomerate is putting capital into its direct-to-consumer business and ESPN+ streaming service, while snatching up Fox assets. All that growth is going to come at a price, as the stock is nearing all-time highs. But with analysts expecting it to grow revenues by 18% in this fiscal year, Disney is poised to keep making magic for investors. 

Cisco (CSCO, $49)

The world is increasingly moving to 5G, and 2020 will be a pivotal year in the shift. As Apple plans to launch its 5G iPhone in September, telecommunications and hardware titan Cisco is poised to be a key player in 5G technology. That’s why the company “should be a winner in 2020,” according to Diane Jaffee, who manages global asset manager TCW’s Relative Value Large Cap Fund. She likes Cisco’s strong product pipeline and growing popularity in security-embedded switches and routers—but she also thinks Cisco will be a strong defensive play in the first quarter amid geopolitical uncertainty. “In this kind of environment where the world is aflame, you do want the power of a very large, super well-run company,” Jaffee says. Apart from doling out a 2.9% dividend yield, Cisco currently comes cheap—trading at around 19 times earnings (the sector average is 24). 

Charles Schwab (SCHW, $47)

Financials were touch and go in 2019, as Fed rate cuts and slumping growth pulled many names in the sector down. Yet some managers are seeing signs of life going into the first quarter of 2020, and AllianceBernstein’s Tierney has his sights set on Charles Schwab. Despite a rocky 2019 for the stock (it’s currently trading some 19% off its all-time high in 2018), Tierney thinks Schwab’s megadeal to acquire online brokerage TD Ameritrade, announced in late November, will bolster the stock in 2020. “That’s a company that’s creating their own engine of earnings growth, and we think that’s meaningful,” Tierney says. “Assuming the deal does happen, there’s a heck of a lot more upside in Schwab.” In fact, he thinks the deal (if approved) will provide for 15% to 20% of cash earnings over the next three years through savings on costs and increased combined revenues. To wit, Tierney suggests that a Fed on pause heading into 2020 and rates inching back up should be a positive boost to Schwab’s underlying business by helping to stabilize its net interest income on client cash.

Shopify (SHOP, $465)

Software-as-a-service (SaaS) companies were all the rage in 2019, and according to Jennison’s Baribeau, they’re still looking like a good bet this year. Baribeau owns Shopify, the e-commerce platform that enables entrepreneurs to set up shop and sell their goods with customized software stacks. The company’s stock may have seen a triple-digit increase last year, but Baribeau says it still looks good going into 2020. He highlights the company’s international expansion as an important shift this year—as he puts it, “taking their success from North America and moving it globally.” With roughly 45% topline growth in the last quarter of 2019, Shopify is looking to grow revenues another 36% in its upcoming fiscal year. 

Medtronic (MDT, $119)

With 2020 an election year (and a particularly contentious one at that), one sector earmarked for headwinds is health care. As various candidates debate Medicare for All and advocate curbing drug prices, few health care stocks are immune from potentially getting hit. But one stock Vontobel’s Chelat thinks has some downside protection and minimal exposure to pharma worries is medical device maker Medtronic. Ramiz is bullish on the company’s strong pipeline of pacemakers, cardiovascular devices, insulin pumps, and robotics, and he says investors are just now beginning to see the benefits of the company’s ramp-up in investment in product innovation over the past three years. He thinks Medtronic “can provide very predictable earnings growth and will potentially see some acceleration as a result of this better pipeline that they have.” To wit, the stock is estimated to trade at around 19 times expected earnings this year, coming in on the cheaper side of the health care sector at large.

IQVIA (IQV, $158)

For investors wanting to avoid Big Pharma heading into 2020, AllianceBernstein’s Tierney favors contract resource outsourcing company IQVIA, which has been steadily gaining share in the health care–adjacent space. IQVIA provides analytics, tech solutions, and contract research services to biotech and big drug companies. Trading at over 100 times sales, the company is one of the most expensive stocks on Fortune‘s list, but 2020 is shaping up to be a big year for IQVIA. In fact, the company announced in late December that pharma giant AstraZeneca contracted IQVIA’s Orchestrated Customer Engagement (OCE) platform to aid its digital push—what Tierney calls a “big engagement” from AstraZeneca that’s helping IQVIA gain “tremendous” share. “This is a company [where] there’s more R&D going on,” he says. “I love that short term and long term.” That momentum has IQVIA projecting over a 7% pop in revenues in the next fiscal year. 

Adyen (ADYEY, $18)

The digital payments space continues to be hot for investors going into 2020, and some of them, including Jennison’s Baribeau, favor Netherlands-based Adyen. In late December, the global payments company inked a deal with U.S. fast food powerhouse McDonald’s for the use of Adyen’s platform (what Baribeau calls a “landmark victory” for the company), which will begin to roll out in the U.K. in the first quarter of 2020. “[Adyen is] now making big headlines in the United States, where their market share is quite low. It’s because of their technology stack that they’re winning in the market,” says Baribeau. That tech stack, Baribeau suggests, has helped contribute to the company’s nearly 40% topline growth rate. Another thing that’s growing? Adyen’s share price, which nearly doubled in the past year. But Baribeau believes Adyen’s McDonald’s deal shows its technology is applicable to traditional retail as well, and that the company is poised to scoop up more share in the U.S. in 2020. “It’s one of these underappreciated growth drivers, and we think it could emerge as a big payments platform [this] year,” he contends. 

CME Group (CME, $209)

According to Parnassus’s Ahlsten, “Volatility was not the trade you wanted [in 2019]”—but it might be in 2020’s first quarter. With a bevy of potential boat-rockers for markets—including tensions in the Middle East, a U.S. President’s impeachment, continued questions over trade, and a Fed that’s pumping the brakes—Ahlsten is bullish on options and futures trading titan CME Group as a volatility play. The stock has traded off slightly since fall of last year. And as a “fantastic, high-margin cash flow business” that pays a 2.3% dividend, Tierney thinks CME is a good stock to have in the portfolio if markets go topsy-turvy. As a stock that typically goes up if volatility spikes, “that’s going to be a really good place to be,” he says.  

General Electric (GE, $12)

While mounting geopolitical tensions aren’t a death knell for the markets by any means, some managers are exercising caution in an already tumultuous first quarter. TCW’s Jaffee sees this quarter as an opportune time for General Electric—a stock that saw an impressive boost in 2019, rising over 40% last year, but is still some way off from all-time highs. After a long fall driven by a combination of business catastrophes and accounting controversies, GE’s stock finally appears to have bounced off the bottom in 2019. Two different avenues show promise for GE going into 2020, Jaffee suggests—its gas turbine business and its burgeoning offshore wind turbine unit. In an uncertain climate regarding international troubles, she notes GE’s gas turbines present a “very important power business that’s on the mend,” and that the possibility of conflict “actually is benefiting [GE] a little more.” On the other hand, GE’s new alternative energy push via its Haliade wind turbines offshore at the port of Rotterdam is already becoming “an increasingly important role for [GE] internationally.” Estimated to trade at around 17 times earnings this year, the stock is one of the cheapest on Fortune‘s list, but the troubles that made the stock so inexpensive may finally be receding.

All stock prices calculated as of 01/24/2020.

More from Fortune’s investment guide:

—Start a donor advised fund for your charitable giving
—The health of the economy in nine charts
Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors

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