It's been a tumultuous year for investors, with the coronavirus pandemic weighing on returns early in the year followed by a solid summer rebound rally. The stock indexes are once again pushing near all-time highs, and interest in stocks has returned.
There's a lot of hype built into stock prices right now, and investors have expectations that some companies are unlikely to fulfill. But even near the highs, there are businesses that are well-positioned to produce on the hype.
This stock will continue to deliver for investors
Lou Whiteman (FedEx): FedEx shares have been trucking along nicely of late, nearly doubling in 2020 despite a 40% drop over a three-week period in the spring as the pandemic flared. The crisis has pushed an increasing share of retail spending to e-commerce, creating higher demand for FedEx services.
Even before the pandemic FedEx was a company to watch heading into 2020. Investors endured a miserable 2019 as the company increased spending to build out its infrastructure, automate internal systems, and expand residential delivery. That investment has paid off in strong earnings so far this year, and FedEx and other shippers are already saying they expect to be at capacity this holiday season.
Most of the gains so far in 2020 have been playing catch-up after issues in 2019. FedEx shares, even after nearly doubling, still trade at a substantial discount to archrival United Parcel Service (NYSE:UPS). FedEx currently has an enterprise value 13.7 times earnings before interest, taxes, depreciation, and amortization (EBITDA), considerably less than UPS's 18.8 times multiple.
FedEx in the quarters to come will get better utilization of its assets as it shifts to seven-day-a-week deliveries, and should enjoy strong pricing power during this holiday season. There's ample room to boost margins and improve cash flow, which should help the stock to close the gap with UPS.
FedEx has covered a lot of miles in 2020, but the stock remains in the fast lane.
Why GM -- yes, GM! -- is a strong bet on the future of autos
John Rosevear (General Motors): Investors obsessed with Tesla's (NASDAQ:TSLA) dizzying climb have made poor old GM seem like yesterday's (or last century's) news. But there are some very good reasons to be taking a closer look at GM's stock right now.
- GM is serious -- really serious -- about electric vehicles. GM hasn't shown its entire EV hand yet. But what it has shown is really, really good. GM has developed proprietary batteries and motors that will give its upcoming EVs competitive performance, along with something else that most of its upstart competitors can't yet match: profitability. The first of GM's new-generation EVs, the Hummer EV, sold out its first-year production in about an hour; the next, a Cadillac crossover called the Lyriq, will make its debut soon.
- GM is on the forefront of self-driving tech. GM subsidiary Cruise just got permission from the state of California to operate its self-driving test vehicles without safety drivers. It's only the second company (after Waymo) to reach that milestone.
- GM's third-quarter earnings should be strong. GM will report its third-quarter results on Nov. 5. The company had stronger-than-expected production and sales in the quarter, and its cost-control efforts appear to have worked well -- possibly setting up a nice upside surprise.
Here's the big takeaway: After several years of patient work, auto investors are finally starting to view GM not as a dying dinosaur, but as a company leading the way into the future. GM's stock is still cheap, in large part because of the coronavirus disruptions we've all been working through in 2020. But if CEO Mary Barra and her team continue to execute as well as they have recently, the stock should move up nicely over the next couple of years.
You can keep your hydrogen economy. Show me the money
Rich Smith (Bloom Energy): Hydrogen-this and fuel cells-that. Hydrogen, hydrogen, HY-drogen! It seems a day doesn't go by without someone or other hyping the "hydrogen economy" and how it's going to change our world. One day soon, goes the story, all of our factories, cars, and long-haul semis will be running on hydrogen-powered fuel cells that contribute nothing to global warming, and produce no byproduct more serious than chemically pure H2O.
But here's the thing: I've been following the fuel cell industry for well over the last 15 years, and in pretty much any year you could name, I could find you a quote from some analyst or other predicting that fuel cells would be ubiquitous "in 10 years."
Meanwhile, the last 15 years have seen hydrogen pioneers Ballard Power Systems (NASDAQ:BLDP), FuelCell Energy (NASDAQ:FCEL), and Plug Power (NASDAQ:PLUG) produce nothing but GAAP losses and negative free cash flow -- and the "hydrogen economy" is still at least 10 years away.
Fact is, at this point there's only one fuel cell company I would even consider investing in, and it's Bloom Energy.
Although eclipsed by Ballard and Plug in this year of wild dreams and inflated stock prices, Bloom Energy remains by far the biggest fuel cell maker and hydrogen producer by sales, generating more than $780 million in sales over the past year. Like its peers, Bloom is not yet profitable (a big reason why I don't own even it yet), but Bloom generated positive free cash flow last year -- $112 million -- a feat none of its peers has ever accomplished.
Viable businesses need to generate their own cash by selling their own products -- not just selling an ever-increasing pile of shares to gullible investors. Out of the entire hydrogen industry, Bloom Energy seems to me the only stock with even a passing chance of doing that -- because it already has.