2019 was indeed an eventful year, but it seems like the year flew by all too swiftly! As I soak in the festivities, I also find time to reflect on what happened during the year and any mistakes I may have made during my investment journey. While it's human to make mistakes, it's important that the mistakes are small (so that they do not scuttle your long-term investment goals) and that we also learn from them (in order to avoid a repeat).
With 2020 just around the corner, it's time to plan on how to position our portfolios for the New Year. Though there have been rumblings of a possible global slowdown amid the ongoing US-China trade tensions, there has not been a specific catalyst identified that would cause markets (and valuations) to crash. Bearing this in mind, investors need not constantly fear a crash and sit around trying to time the markets. I believe that buying great stocks at reasonable valuations should enable us to grow our wealth steadily over time.
Let's start the new year off right by buying these three very promising growth stocks.
Visa (V -0.09%) is one of the dominant payment technology companies in the world, with a global reach and strong brand recognition. For the 12 months ended September 30, 2019 (FY 2019), the payments giant processed 180 billion payment transactions worth $11.6 trillion . Net revenue for FY 2019 was up 11% year over year, while net income jumped by 17% year over year to $12 billion. For a $400 billion company to be able to report double-digit top- and bottom-line growth is impressive, and Visa also generates a free cash flow yield of 3% .
Management is not resting on its laurels, though. Visa concluded four acquisitions (Earthport, Payworks, Verifi, and Rambus) during FY 2019 and plans to tap these businesses to expand the company's capabilities in areas such as omni-commerce solutions and tokenization. A variety of platforms are being enabled to improve the payment experience for consumers with the launch of an installment solution where card issuers (such as banks) can offer installments to cardholders directly through participating merchants. These initiatives should continue to drive steady growth for Visa and enable the company to compete more effectively against its competitors.
At around 35 times trailing price-earnings, the company's shares aren't cheap, but paying up for quality is something investors need to learn to do.
Starbucks (SBUX -0.10%) has delivered a more than respectable performance year to date, with its shares soaring 37.5% to around $88. The coffee giant has reported steady revenue growth with a 7.2% year-over-year increase in total net revenues to $26.5 billion, while net income (net of one-off items) grew 12.6% year over year to around $3 billion . Global comparable store sales are up around 5%, comprising a 3% increase in ticket prices and a 2% increase in comparable transaction volumes. Growth for the company seems intact with 17.6 million total active US Starbucks Rewards members, up 15% year over year. Starbucks ended the fiscal year 2019 with 31,256 stores in 82 markets, and the company's focus continues to be on growth in key markets in the US and China.
Though Starbucks may have Luckin Coffee (LKNC.Y -3.53%) vying for a slice of the lucrative China pie, the brand's extensive network, track record, and mind share should stand it in good stead to continue to grow in the world's most populous nation. Starbucks' powerful digital flywheel strategy is generating the momentum for its Rewards program, and this should continue to attract repeat customers to its stores, who will end up being "sticky" and loyal.
Starbucks is a well-oiled machine with clear expansion goals and the culture and initiative to pull these off successfully, making the company a clear buy for investors.
Though Nike (NKE 3.26%) has seen its share price hit an all-time high of $100 recently, I believe there are still good reasons to buy the stock. For its Q1 2020 earnings (for the period ended August 31, 2019), revenue was up 7% year over year while gross profit jumped by 11% year over year, signaling a gross margin improvement. Looking back at the past two years (i.e., FY 2018 and FY 2019), gross margin has improved from 43.8% to the current 45.7%, an almost two-percentage-point increase . This steady improvement points to pricing power and strong brand recognition for Nike.
Greater China saw the biggest jump in divisional revenue, soaring 22% year over year for all three categories of footwear, apparel, and accessories. Operating profit for Greater China soared even more at 33% year over year to $669 million, underscoring Nike's successful penetration into China even while facing stiff competition from local brands such as Li Ning and Anta. For the Tokyo Olympics in 2020, management plans to introduce a new Zoom Air running platform that will feature a combination of both performance and lifestyle attributes. The Jordan brand has also hit a new milestone, achieving its first-ever $1 billion in sales in the last quarter.
With great traction in sales and clear growth catalysts ahead, Nike should definitely be a conviction buy for investors' portfolios.