David Alton Clark’s reputation as one of the best stock pickers in the game precedes him. Based on the blogger’s track record, he has rightfully earned this reputation. According to TipRanks, a fintech company that tracks and measures the performance of financial experts, Clark’s stock picks see a return of 25.7%, on average. Not to mention his success rate, the number of profitable recommendations measured over one year, comes in at 70%. So, it makes sense, then, that the five-star blogger scores the second spot on TipRanks’ ranking of the Top 25 Bloggers.
Highlighting the current economic landscape, Clark advises against going all in on any position in one fell swoop when making bets for 2020, which also happens to be a US election year. Following 2019’s record-breaking performance, the market continues to tear higher thanks to the Fed’s monetary policy as well as the improving geopolitical climate. Along with sky-high P/E ratios, this sets the scene for underwhelming earnings results, says Clark.
With this in mind, we asked the top financial blogger if he would share his stock picks for 2020:
#1 DocuSign (DOCU)
DocuSign is my speculative high-flyer selection. I always suggest an investor allocate at least 5% of their portfolio to a speculative play with the potential for exponential growth. Currently, the stock has a Strong Buy consensus rating with an $84 average price target. (See DocuSign stock analysis on TipRanks)
I have used DocuSign for the past few years in my real estate business. It is an invaluable asset for me. The DocuSign product helps organizations connect and automate how they prepare, sign, act on, and manage agreements. As part of the DocuSign Agreement Cloud, DocuSign offers eSignature: the world’s #1 way to sign electronically on practically any device, from almost anywhere, at any time. Today, more than 560,000 customers and hundreds of millions of users in over 180 countries use DocuSign to accelerate the process of doing business as well as save time and money. I don’t think I could operate at this point without it.
When evaluating a speculative growth stock, the most important piece of the puzzle to me is the growth rate. Currently, DocuSign’s is nearly 40% quarter-over-quarter. Moreover, EPS growth is 17%. The company is not currently profitable, yet they have a clear path to profitability. At this stage in the company’s lifecycle, many investors are unwilling to take the plunge due to the fact the company has an extremely high P/E ratio. When looking at momentum growth plays, I disregard the fundamental “value” statistics. There is more than one way to make money in the market. Growth and value investments are polar opposites. So, a high P/E ratio in this case is a good thing. Sometimes you have to just hold your nose and take the plunge. High risk equals high reward.
The stock has just broken out to all-time highs and is up over 40% in just the last six months. Once again, this may keep some on the sidelines due to the fact they believe they have missed the boat. Again, this is the value investor’s way of thinking. When looking at a momentum growth play, I want to see the stock breaking out and reaching new highs. I see this as a huge positive. The stock is trading above both its 50 and 200-day simple moving averages (SMA), which is also very positive.
As I said before, layer into the position as any type of negative macro event may provide a better entry point over the course of the year. Nonetheless, I recently added to my position on the latest breakout. I see the stock as a major buyout candidate as well, with a paltry $13 billion valuation. DocuSign saves companies time, money, and saves the trees… You can’t ask for more than that. I am expecting shares to hit $150 over the next 12-18 months if it doesn’t get bought out first.
#2 Facebook (FB)
Facebook is my cash cow solid capital appreciation play. The company is printing money yet hasn’t really gone anywhere in the last year due to potential regulatory issues that I see as overblown. Furthermore, they haven’t even begun to monetize Instagram yet. This fact seems lost on the bears.
I have faith in Zuckerberg. Just look at what he has accomplished with the company and stock so far. This is a buy and hold forever stock for me. I am an avid user of Facebook as well. None of the privacy issues or any of the other issues the company has faced has driven me away. It’s where I connect with my family and friends. I don’t see myself leaving the platform. Facebook has a Strong Buy consensus rating on TipRanks, with the highest price target coming in at $300. (See Facebook stock analysis on TipRanks)
Facebook is a cash flow machine. The company currently has a huge cash hoard of over $200 billion. With a forward P/E of 23 and a 30% growth rate, I consider the stock a bargain at current levels. I just recently added to my position as well.
Facebook is no longer a growth pure play. The company has proven they know how and when to monetize products. With Instagram monetization in the works and the potential for a crypto currency, I see the fundamentals only improving on a go-forward basis.
The current technical for Facebook is very positive. The stock is trading above both its 50 and 200-day moving averages and has recently broken out above its long-term trading range. The good news is there’s still plenty of room to run. Nevertheless, don’t buy your entire position in one shot. That is a sure way to lose money. Always layer in over time, that way you have some dry powder on hand in case an opportunity presents itself.
Facebook is a money-making machine. Zuckerberg has proven he has the chops to create streams of cash flow out of thin air. I remember when the stock sold off because no one thought he would be able to monetize mobile. He sure proved them wrong. The risk/reward ratio is extremely favorable at this juncture. I see 38% upside over the next 12-18 months with a $300 price target.
#3 AT&T (T)
AT&T is my income/dividend play with modest potential for capital appreciation. I was a consultant for Bell South in the 1990s and audited Time Warner while working with Ernst & Young as well. What’s more, AT&T is a hometown stock for me. I grew up in San Antonio, Texas, the birthplace of modern-day AT&T. I can tell you from my experience with both companies I believe they can and will achieve their goals.
AT&T is transforming from being a primarily widow-and-orphan stock to a dividend growth/total return play. Nonetheless, don’t expect any big upward moves from the current level in the near-term. AT&T needs to prove it can make money despite the added debt load and revenues from wireless services waning. According to TipRanks, the stock earns a Moderate Buy consensus rating from the analysts. (See AT&T stock analysis on TipRanks)
Recently, CFO John Stephens stated AT&T expects to meet all of its commitments to shareholders. He reiterated 2020 guidance for earnings of $3.60-3.70 per share, revenue growth of 1-2%, stable EBITDA margins, free cash flow around $28 billion, and dividend payout ratio in the low 50% range. This is a safe dividend/income play and is ideal for those looking for income combined with capital preservation with some capital appreciation potential.
The company has plenty of cost cutting to do and shares to buy back. I see a slow and steady rise in the dividend payout and share price overtime. AT&T’s fundamentals are strong with a forward P/E of 10 and a P/FCF ratio of 19.
At present, AT&T is at the upper end of its trading range. The stock performed the coveted Golden Cross, where the 50-day SMA passes above the 200-day SMA. Nevertheless, $40 has been the ceiling for the stock over the past few years and seems to be providing strong resistance now as well. Even so, AT&T is just beginning to get its streaming offering online. This new revenue stream may be just what the doctor ordered. If things go well, we could see the stock break out of the current range and climb as high as $50 over the next 12-18 months.
The fact of the matter is AT&T has always been at the forefront of most new communications systems. Moreover, the company still owns the last mile in most marketplaces. As a result, AT&T’s growth prospects have increased substantially. This selection is the least risky pick of the three. I am looking for a 15% total return based on the 5.5% dividend yield coupled with the potential for moderate capital appreciation over time. I’d say we have the potential for another 10% upside, giving you a nice double-digit return over the next year with very little risk from this dividend aristocrat.
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Disclosure: The author is Long DOCU, FB and T stocks.