5 Best Buys for 2020 from Argus Research

As an independent research firm, Argus Research does not advise companies or manage money. As a result, its analysts offer completely unbiased research. As part of our annual MoneyShow 2020 Top Picks Report, we asked five Argus analysts to update their top picks from last year and share their new favorites for the year ahead. Analyst Stephen Biggar chose PayPal as his Top Pick last year; the stock rose 29% and continues to earn his buy rating. For 2020, he favors a leader in the credit card market. Discover Financial Services is a direct banking and payments network company; the company pioneered cash-rewards credit cards. The network business consists of the Discover Network; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network. Discover also offers personal loans, student loans, online savings accounts, money market accounts, and CDs. International expansion remains a significant opportunity for Discover, as its domestic credit card portfolio still accounts for 80% of average earning assets. In terms of loan growth, credit quality, and ROA, Discover has outperformed most of its major card peers in recent quarters. Where Discover has competed in the higher-rewards space, it has done so in lucrative areas. These include a travel rewards card targeting prime credit customers that hold a monthly balance. The remainder of the lending mix consists of private student loans and personal loans, but at about 20% of the total, these products have not yet had a strong influence on balance sheet growth. We expect credit cards to be the strongest driver of loan growth, aided by positive macroeconomic factors, including healthy employment and wage growth. Based on current EPS growth and a still favorable credit cycle, we believe that multiples on leading credit card companies have room to improve. Discover's dividend yield of 2.2% adds to the investment case. Analyst David Coleman selected First Solar as his Top Pick in 2019. He believes the stock, which has risen 33%, is still well positioned in the solar industry. For 2020, he looks to a leader in waste management. Republic Services is a fully integrated waste management company, with operations ranging from waste collection and compacting to recycling and renewable energy generation. Republic Services is the second-largest domestic provider of nonhazardous waste services, as measured by revenue. The company serves 14 million customers with operations in 40 states and Puerto Rico. These included 348 collection operations, 207 transfer stations, 191 active landfills, 91 recycling centers, seven treatment, recovery and disposal facilities, 11 saltwater disposal wells, and 75 landfill gas and renewable energy projects. The average estimated remaining life of the company's landfills is 63 years. The company was founded in 1996 and is based in Phoenix. We view Republic as a well-run company, and expect it to benefit from both favorable economic conditions and demographic growth, with continued gains in revenue and margins. Management issued preliminary 2020 guidance calling for adjusted EPS of $3.46-$3.51 and adjusted free cash flow of $1.150-$1.200 billion. Our five-year earnings growth rate forecast is 7%. Donald W. Slager is the company's president and CEO. He has more than 35 years of experience in the solid waste industry. The primary risks faced by investors are the company's sensitivity to economic conditions and substantial capital requirements, the competitive nature of the industry, and the highly regulated nature of the business. Analyst John Eade -- also CEO and President of Argus Research -- chose defense contractor Lockheed Martin as his Top Pick in 2019. He still views the stock -- which has since rise 49% -- as a suitable core holding in a diversified portfolio. For 2020, he turns to a favorite drug developer. Novartis has historically generated stable earnings from its diverse businesses, which include its pharmaceutical and Sandoz generics groups, and has a deep new drug pipeline. The company completed a three-part deal in which it sold its vaccine business to GlaxoSmithKline , bought the Glaxo oncology business, and combined its consumer healthcare business in a joint venture with the Glaxo consumer healthcare business. Now, the joint venture has been sold back to Glaxo. The transaction is helping Novartis to focus on its strengths -- autoimmune disorders, oncology and generics, including biosimilars -- while exiting noncore businesses. Last April, the firm spun off of its eye care division, Alcon . In conjunction with the spin-off, Novartis also announced its intention to continue paying a strong and growing annual dividend. In addition, management indicated that share buybacks will continue to be part of the mix to create shareholder value. Over the next several years, we expect the Swiss company to launch new drugs in such critical areas as coronary disease, oncology and gene therapy. * Zolgensma gene therapy was launched in the U.S. for treatment of spinal muscular atrophy in children under the age of two. * Piqray (alpelisib) launched for treatment of advanced breast cancer with a PIK3CA mutation. * Beovu (brolucizumab) launched in the U.S. for treatment of neovascular (wet) AMD. * Ofatumumab (OMB157), a subcutaneous, potent, fully-human monoclonal antibody targeting CD20 positive B-cells, had positive Phase III trial results, and rolling submissions are planned to start in 4Q The company's growth products include Cosentyx for psoriasis and other conditions, Jakavi for myelofibrosis, Entresto for chronic heart failure, and bone marrow stimulant Promacta/Revolade, Tafinlar + Mekinist for melanoma. Other recently launched products ar Kisqali for advanced or metastatic breast cancer, Lutathera for cancerous neuroendocrine tumors affecting the digestive tract, and Kymriah, a promising immune-oncology drug. Many of the drugs under development are considered breakthrough treatments and should benefit from strong pricing power. The company's balance sheet is clean and management has a history of increasing the dividend annually. Last year, analyst Jim Kelleher chose Nvidia Corp. as his Top Pick; the stock rose 45% and he believes long-term growth prospects remain strong. For 2020, he suggests another chipmaker. Qualcomm is a designer and manufacturer of advanced semiconductors for mobile phones and commercial wireless applications. It provides integrated solutions, including processors, GPS, WiFi, basebands and other applications, for smartphones, tablets, and mobile PCs. Qualcomm has extended its leadership in the 3G CDMA wireless standard into the 4G LTE niche. It derives substantial royalty and licensing revenue from its extensive intellectual-property portfolio for 3G, 4G and now 5G technologies. Qualcomm had a highly eventful fiscal 2019, which began with the company battling both Apple and regulatory agencies in the U.S. and other jurisdictions. The May settlement and licensing agreement with Apple caused the stock to surge higher, only to retreat when the U.S. FTC reiterated its position that Qualcomm's licensing model violated FRAND standards. Qualcomm exited the fiscal year having successfully executed on its strategic priorities. These include helping drive commercialization of 5G globally, completing a number of important anchor license agreements, and executing across the product roadmap. CEO Steve Mollenko explains that 5G is a meaningful step-change in complexity from 4G, given that 5G requires new and dense network architectures, high-performance basebands, advanced RF front end designs, increased processing requirements, and leading-edge process nodes. Additionally, Qualcomm is actively supporting release 16 and 17, which support 5G in adjacent markets such as IoT. Qualcomm believes that '5G will represent the biggest opportunity in Qualcomm's history,' according to the CEO. Looking ahead to fiscal 2020, a key priority is to continue executing on the 5G transition with partners around the world. Currently, more than 40 device OEMs and more than 30 network operators are launching or announcing 5G products or services; those numbers have doubled since the beginning of calendar 2019. Qualcomm hit revenue and non-GAAP EPS peaks over five years ago in fiscal 2014, at $26.8 billion and $5.27 per diluted share, respectively. With Apple signed, a potential settlement with the FTC, and 5G looming, Qualcomm may finally be in position to take operating results to new highs, though it won't happen overnight. Analyst Jacob Kilstein selected CMS Energy as his Top Pick last year. He continues to rate the stock -- which rose 29% last year -- as a buy based on strong growth in earnings and dividends. For 2020, his top idea is a REIT. Equinix Inc. is a real estate investment trust (REIT) that operates global interconnection and data centers. It is focused on helping customers develop secure networks and cloud-neutral data center platforms. The company is leveraged to the secular transition away from on-premises data centers to cloud colocation centers. Its global platform for digital business serves customers in more than 50 major markets on five continents. We believe that Equinix, which operates facilities that enable global interconnection, data integration and information management, has strong opportunities in the global colocation market, and note that the company has grown both organically and through targeted acquisitions. Equinix pays a quarterly dividend of $2.46 per share, or $9.84 annually, for a yield of about 1.8%. Concurrent with earnings, the board declared a quarterly dividend of $2.46 per share. Over the past five years, the board has raised the dividend at an average annual rate of 7.8%. Our dividend estimates are $9.84 for 2019 and $10.56 for 2020. We believe that the shares remain undervalued at current levels given the company's strong growth prospects. The shares trade at 23.7-times our 2020 AFFO estimate, compared to a peer average of 19.9. On other metrics, however, EQIX trades closer to the peer average despite what we view as its superior growth prospects. The price/sales ratio is 8.5, compared to a peer average of 7.4, and the EV/EBITDA multiple is 20.2, just above the peer average of 19.9. We are maintaining our price target at $630, as we see EQIX as the data center REIT best positioned to take advantage of current industry growth trends, and warranting a higher price/AFFO multiple than its peers. Click here for access to MoneyShow's 100+ page Top Picks Report featuring the nation's most respected and well-known newsletter advisors' favorite investment ideas for 2020.

5 Best Buys for 2020 from Argus Research

Analysts from the independent research firm review their picks from last year and share their new favorites.

Columnist Conversation

QQQ and Our Long-Term Signals

The Future of FAANG

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.