As the Bull Market Chugs into 2020, These 3 Rock-Solid Stocks Look Like Good Bets to Outperform.
As we head into the final weeks of 2019 there is ample evidence of the bull market gaining steam. The S&P 500 has been in a groove of making higher highs since it broke above 3,030 just before Halloween.
Then, in late October, the S&P 600 Small Cap Index kissed 1,000 for the first time this year. It fell back below that critical level soon after, then mounted another rally and has now moved up to 1,016.
This is a huge move in my view. There’s now little in terms of overhead resistance before the small-cap index gets back to all-time highs near 1,100. I’m not saying it’s going there straight away. But if investors want a relatively low-risk way to try to snag a 5% to 10% gain (maybe more) within the next few months buying an S&P 600 Index ETF (IJS for value, IJR for core or IJT for growth) is the way to go.
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But today I don’t want to talk about boring ETFs. Instead, I want to highlight three relatively conservative, safe growth stocks that you can buy for yourself or a loved one that should do well in 2020 and beyond.
These aren’t the fastest growing stocks out there. And they’re not the most exciting or glamorous ones either. But this isn’t a window-shopping mission intended to tantalize your eyes and tickle your gambling temptations.
These are just three solid, safe growth stocks that you shouldn’t have to worry about too much and that should deliver above-market returns in the years ahead. After all, isn’t that the point of investing in individual stocks?!
3 Safe Growth Stocks for 2020
Safe Growth Stock #1: Visa (V)
Visa (V) really needs no introduction. The payments solutions company is huge, with a market cap of $318 billion, and it operates the leading credit and debit network in the world. It’s smack in the middle of the transition to card-based and electronic payments.
Why buy it? In short, it’s a stable business with high recurring revenue, consistent profitability, low capital expenditures, and high free cash flow. There will be swings in the stock price from time to time but really, you shouldn’t need to worry much about it. There’s also a small yield of 0.67%.
In terms of what’s new, Visa has just teamed up with MFS Africa, Africa’s largest digital payments hub, to help spread digital payments across many markets on the continent. This is just one of many examples of how ubiquitous the company’s payment solutions are.
Growth is incredibly steady with Visa delivering double-digit revenue and EPS growth in most years. In October management reported that Q4 2019 revenue of $6.14 billion was up 13% and beat by $55.7 million while EPS of $1.47 was up 21% and beat by $0.04. The quarter capped off a year in which revenue was up 11% and EPS was up 18%.
Visa’s five-year chart looks fantastic.
Safe Growth Stock #2: Paylocity (PCTY)
Paylocity (PCYT), with a market cap of $6.5 billion, is one of the smaller companies in the Human Capital Management (HCM) software industry. Its cloud-based products cover the typical range of offerings, including Payroll, HR, Benefits Administration, Talent Management and Time and Labor Tracking.
Paylocity’s sweet spot is medium to small businesses. And it’s done a great job growing its base of these customers, which usually have 20 to 50 employees. One of the reasons is its mobile-first delivery model and cloud-based solutions that are easy to set up and convenient to use.
Why buy? Like Visa this is a relatively steady growth business. Revenue has been growing in the double digits since the company came public in 2014. While growth has slowed into the mid-20% range it’s still very steady. Plus, earnings growth is relatively consistent.
Revenue was up 24% to $468 million in fiscal 2019 and EPS was up 142% to $1.38. Management reported Q1 fiscal 2020 revenue in October in which revenue was up 26% to $127 million (beating estimates by $2.6 million) while EPS of $0.36 was up 80% and beat by $0.10.
Paylocity also has a great-looking chart.
Safe Growth Stock #3: CONMED (CNMD)
CONMED is a medical technology company with a market cap of $3.2 billion that provides surgical devices and equipment for minimally invasive procedures. The company’s products are used by surgeons and physicians in a variety of specialties, primarily orthopedics and general surgery. With the recent acquisition of Buffalo Filter, which brought in devices for surgical smoke evacuation, CONMED now has exposure to another niche growth market where it is the clear market share leader.
Why buy the stock? The themes today are stability and recurring revenue, and CONMED offers both. It’s not a super-fast grower, but typically delivers mid- to high-single-digit revenue growth and EPS growth is often in the double digits too.
For a small-cap MedTech stock this type of steady growth profile makes it attractive for many high-quality mutual funds, which should help push shares higher over time. It also pays a small dividend of $0.80, equal to a yield of roughly 0.75%.
Revenue in 2018 was up 8% to $860 million while EPS was up 15% to $2.18. In Q3 2019 (reported in October) revenue was up 15.5% to $233.6 million, beating by $5.5 million, while EPS of $0.62 was up 35% and beat by $0.06.
As you can see CNMD has gained momentum over the last three years and is trading just 5% off all-time highs now.
Where To Find More Great Growth Stocks
These are three great stocks that you can likely buy now and do well with in the year ahead.
And there are plenty more ideas where these came from. We just launched Cabot Early Opportunities in September to bring early-stage, high-growth ideas to investors. We’re already having great success, with several double-digit winners and one stock that’s up over 100% since mid-September!
You can learn more about Cabot Early Opportunities here.
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