It's fair to say that most of us are hoping to never see a year like 2020 again. For investors, it was a year of volatility. Somehow, we went from a brutal market correction to all-time highs. Investors handled the situation in different ways. Some chased high-risk growth. Some went heavy on value. Overall, a plentitude of strategies worked this year. Fiscal stimulus and low interest rates from the Fed set up an environment to drive stocks higher, giving investors an opportunity for big gains.
Here's a recap of the stocks I bought in 2020, that can keep going in 2021.
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Gambling
Penn National Gaming (PENN 2.35%)
My thesis was simple: Dave Portnoy and the potential of sports betting in America. Penn National Gaming's investment in Barstool Sports took Penn to a place that it could never be as the casino/racetrack company that it was. The company bought into one of the top brands that has the potential to bring in a large base of consumers for legalized gambling. This was a growth play focused on the big revenue potential of the industry. In the end, I turned my focus to one sports betting name to have in my portfolio, and let Penn National Gaming go.
DraftKings (DKNG -0.87%)
Similar to Penn National Gaming, I bought DraftKings because it has a strong brand and a head start in the gambling market. With such a large consumer base for its fantasy sports, the company was already set up to make the simple addition of sports betting.
I ended up selling most of what I bought because the stock went through the roof. Shares were up 500% at one point this year, creating a significant disconnect from the company's actual performance. DraftKings' guidance is only calling for around $540 million to $560 million in revenue for the full year 2020, while analyst estimates are looking for revenue of $850 million in 2021. The stock carries a market capitalization of $18 billion, even after pulling back from its highs, making it very, very expensive.
The takeaway: The sports betting industry is one of the most exciting right now. The drag is valuation. These stocks are priced with a great deal of future performance caked in. If you can get them on pullbacks, both DraftKings and Penn National Gaming offer long term exposure to an industry that is only going to grow.
A look at London
Barclays PLC (BCS -1.03%)
Barclays was an easy call. The drama and chaos over Brexit, coupled with fears of what the COVID-19 pandemic could do in terms of damage to loan portfolios, drove the stock down nearly 50% in the first quarter of the year. I like to look for profitable stocks that are trading below their total equity on the balance sheet. Even after a significant recovery, Barclays shares are trading at less than 0.40 times book value. The bank stabilized income in 2018 and has been putting together an improving story for earnings. In that wake, I had a hard time believing that half of the company's tangible assets were in danger.
The stock did eventually rally, and I sold off most of my stake, though I do still own shares of the bank.
Lloyd's Banking Group (LYG -0.78%)
My investment thesis for the two British bank stocks I bought was simple. They were so battered from the combination of Brexit and COVID-19 fears that the banks were trading for less than half of their book value. Lloyd's Banking Group was one of those stocks. The British bank has had stagnating earnings, but the pullback experienced this year still provided an opportunity.
The takeaway: Bank stocks are seeing continued upside, partly in sympathy with the broader market, and also from the potential of stimulus and spending deals that a Democratic held Congress could offer. Domestic financials remain the safer approach, but the value of these British implies further upside potential. I still own both, and remain long.
Domestic banks were just as appealing
JPMorgan Chase (JPM 0.49%)
JPMorgan was a simple play on the pullback in financials in the first half of the year. The bank was growing earnings prior to the pandemic, and offered one of the best returns on equity in the sector.
CNB Financial (CCNE 0.47%)
On the small cap side, I went with CNB Financial. The bank outpaces the industry average of 7.45% return on equity, shares have outpaced the S&P 500, and the company had strong annual earnings for three years leading up to the pandemic.
The bank was trading well above book value at $33 per share until the pandemic brought the stock back into reality. It has been a good buy, still currently offering a 3.2% dividend even after gaining more than 40% over the last three months.
The takeaway: Banks are one of the cheaper investments that can be made these days. Critics would cite the impact that extremely low interest rates will have on their ability to derive net interest income, but the right banks have found a way to grow the bottom line for years in a less cushy rate environment. These two offered some nice performance before the pandemic.
So long as we finely see some pressure lifted from businesses that are suffering from social distancing and make up big chunks of banks' loan portfolios, there should still be upside potential for banks. In simply slimming down the number of names I have in the sector, I let JPMorgan go, and still hold CNB Financial.
Lyme disease and COVID-19
Valneva (INRL.F -2.60%)
Valneva is a French company working in the vaccine space. Annual revenue growth has been strong, and losses have declined significantly in recent years, increasing the appeal for the company. Beyond all that, Valneva's big thing is its work to create a vaccine for Lyme disease, which is currently in phase 2 trials. This company could yield big long term gains for those that are patient.
Medical Properties Trust (MPW -1.51%)
I can take no credit for this investment idea. A dear friend and owner of accounting firm RTS, or Redden Tax Services, brought this real estate investment trust (REIT) to my attention. The case was compelling: a 6% dividend, quality assets within the healthcare sector, and the fact that the stock was battered by the market correction we saw in the first half of the year. In his words, "How do you not buy that?" Because of their structure, REITs have to pay out 90% of their income to shareholders, making stocks like this a dividend haven.
It was a lesson in networking -- and accepting that you're not always the smartest guy in the room. I made 10% on the stock before bowing out. My only regret is I didn't buy more.
The takeaway: Because my current strategy is less dividend focused, I no longer own the stock. That doesn't mean it isn't a good addition to portfolios. For those wanting some strong yields, Medical Properties Trust is in an industry that is more and more essential.
