I have a hard time choosing the best of nearly anything. For example, I could think for hours about which is the best song of all time and still be wishy-washy about my choice. Substitute professional basketball player, quarterback, or musical artist for song, and the outcome would probably be the same.
It should come as no surprise, therefore, that picking the best stocks to invest $20,000 in right now isn't easy for me. There are many strong contenders. However, I think that these three stocks (listed in alphabetical order) deserve to be at the top of the list.
1. Alphabet
Critics of Alphabet (GOOG 9.96%) (GOOGL 10.22%) believe that the company is lagging behind OpenAI and Microsoft in the artificial intelligence (AI) race. They question the ability of Google Search to continue dominating its market. And they wonder if Alphabet's culture is an impediment to its ability to innovate.
Maybe those skeptics are right, but I doubt it. It could be a huge mistake to underestimate Alphabet's AI expertise or Google Search's resilience. My hunch is that many investors realize this. Even with OpenAI's ChatGPT, GPT-4, and Microsoft's newly enhanced Bing search engine receiving a boatload of attention, Alphabet's stock gains are neck and neck with Microsoft's so far this year.
My view is that a rebound in the digital advertising market is in store within the next year or so, which should help Alphabet return to strong growth. I think that Google Search will retain its market dominance. The transition to the cloud should pick up momentum as organizations scramble to take advantage of the power of new AI functionality. This should directly benefit Google Cloud.
I also fully expect that Alphabet will remain one of the top leaders in AI. The company's Waymo self-driving car technology business should become a major growth driver in the not-too-distant future. I also believe that quantum computing could be a game-changer for Alphabet.
Few tech giants trade at valuations that are as attractive as Alphabet's are right now relative to its growth prospects. This stock holds the potential to skyrocket.
2. Amazon
You might not think that Amazon (AMZN 3.43%) stock is valued so attractively. After all, its shares currently trade at nearly 57 times expected earnings. However, earnings-based valuation metrics have never been all that useful with Amazon.
The consensus Wall Street price target for Amazon stock over the next 12 months reflects an upside potential of nearly 40%. I don't know if shares will rise by that much, but I do expect significant gains. Amazon's cost-cutting initiatives should boost its earnings and free cash flow. The market is likely to reward these improvements with a higher share price.
Amazon Web Services (AWS) stands to benefit from the same trends that should help Google Cloud. Importantly, AWS is already Amazon's most profitable business. If the shift to the cloud progresses like CEO Andy Jassy thinks it will, AWS could become bigger in the next 10 to 15 years than Amazon's entire business is today.
Don't overlook the opportunities for its core e-commerce business, though. There's still plenty of room for growth on that front. In addition, Amazon continues to expand into other markets, notably including its move into primary care. This e-commerce and cloud-hosting giant could become much bigger over the next decade and beyond.
3. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX -0.06%) doesn't share much in common with Amazon. There is at least one similarity, in my view, though: I predict that both stocks will at least double within the next seven years.
The path for Vertex to double begins with its cystic fibrosis franchise. The big biotech still has room to grow sales significantly in that market by securing additional reimbursement deals and winning regulatory approvals for its current treatments to be prescribed to younger patients. Also, the profits generated by Vertex's cystic fibrosis drugs give it a lot of money to invest in expanding its pipeline and in business development.
Vertex should be just around the corner from adding a non-cystic fibrosis treatment to its lineup. The company hopes to win approvals later this year for exa-cel as a treatment for sickle cell disease and transfusion-dependent beta-thalassemia. This gene-editing therapy is just the first of several candidates Vertex expects to launch over the next five years that have the potential to make at least $2 billion annually.
One of those pipeline candidates, inaxaplin, is in late-stage testing as a treatment for APOL1-mediated kidney disease. This condition affects more patients worldwide than cystic fibrosis does. As icing on the cake, Vertex is developing islet cell therapies that it believes could eventually cure type 1 diabetes. If the company's candidates fulfill their potential, this biotech stock will almost certainly be a huge winner over the next few years.
