U.S. stocks had reached all-time highs before a selloff on Friday. But somewhat surprisingly, many stocks in the market still trade below past peaks.
Indeed, entire sectors like energy and retail have missed out on the bull market of the past few years. Some financial stocks — most notably Citigroup (C) — still haven’t returned to their housing bubble-era levels.
The dot-com bubble that burst in 2000 still colors the long-term performance of some mature tech names; after all, even Amazon (AMZN) took over a decade to return to its 1999 highs.
But as stocks keep rising, more and more names reach new records. These three stocks to buy should join that list in 2020. All three are nearing past peaks and have more than enough momentum to surpass them.
All-time high: $94.88 on Nov. 29, 2000
It’s easy to forget that internet stocks weren’t the only ones soaring in the late 1990s. From the beginning of 1995 to the end of 1999, even the S&P 500 (.SPX) more than tripled.
And pharmaceutical stocks like Merck (MRK) were among the big winners. MRK stock outperformed even the roaring market over that five-year stretch, gaining more than 250%. Despite the bursting of the dot-com bubble, it kept gaining through 2000, rising as much as 41%.
In the 19-plus years since, however, Merck stock actually has declined. To be sure, shareholders still are in the black. Including dividends, total returns have been roughly 100%. But many of those who bought MRK at the 2000 peak likely wound up selling at a loss. They weren’t alone — shares of rival Pfizer (PFE) still haven’t returned to their 1999 highs.
But those who have owned MRK more recently have done well. Shares rose 36% in 2018 and another 19% last year. As a result, they’re tracking toward a new high. Merck stock needs to rally about 5% to surpass the late 2000 peak.
That should be easily doable. Merck continues to post impressive earnings, most recently with a monster third-quarter beat in late October. Cancer treatment Keytruda looks like a legitimate blockbuster. Valuation is a bit aggressive by pharmaceutical standards, but at 16x forward earnings Merck stock hardly looks expensive. There’s a lot to like here, and a clear path to new highs — and eventually $100.
All-time high: $45.81 on April 5, 2004
To be fair, Boston Scientific (BSX) did clear its all-time high last month during intra-day trading, but it hasn’t closed above its 2004 high. It’s likely BSX stock will do so at some point in 2020, as the stock needs to rally less than 3% to establish a new record.
I’d expect bigger gains than that in 2020. Revenue continues to increase at a solid pace, with raised guidance after the third quarter projecting organic growth over 7% for full-year 2019. Profit growth should accelerate in 2020, with Wall Street projecting a 14% rise in earnings per share.
BSX stock isn’t necessarily cheap, at 25x next year’s consensus. But for double-digit EPS growth in a defensive name, that multiple is more than reasonable. As that multiple expands and earnings grow, BSX should rise nicely past that 2004 peak.
All-time high: $217.50 on July 25, 2018
Facebook (FB) is trying again to regain its 2018 high. A rally above $200 in July quickly reversed. Now above $213, FB stock sits just 3% or so below its record price.
Of course, that record price was short-lived. The same day Facebook established its record, it set another. Facebook stock lost more value in a single day than any other stock in the history of the market. $119 billion in market capitalization was erased in a single day, topping 2000 declines at Intel (INTC) and Microsoft (MSFT).
Shares have clawed back about three-quarters of those losses, and with even modest help from the market there’s a nice path toward $220 and beyond. FB stock remains reasonably cheap. The effect of user defections at the namesake platform should be offset by continued growth at Instagram and WhatsApp. International markets still provide room for revenue growth and margin expansion at all three units.
There are risks here, as I detailed last month. The same spending worries that sent shares plummeting in July 2018 still hover over 2020 expectations. But it seems likely that the bulk of the margin pressure has passed, and that profits this year will return to impressive growth. If that’s the case, Facebook stock should continue to march higher, and finally reach a new peak.
As of this writing, Vince Martin has no positions in any securities mentioned.
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