Identifying the top 25 stocks of the year in a year like 2020 is no easy task, but TheStreet has done just that by going over everything from quarterly results to execution against strategy to each stock's overall story.
We began by publishing round-ups for the 25th- through the 6th-ranked stocks, and now we're running individual articles on each of our top five picks, with the winner to be announced on Monday, Dec. 21. Please check back each day between now and then to see our winners.
Amazon’s annual revenue growth accelerated from 21% in Q4 2019 to 40% in Q2 2020, before coming in at 37% in Q3 in spite of Prime Day being pushed out of the quarter. And the company’s guidance for 28% to 38% growth in seasonally big Q4 -- quite possibly conservative, given Amazon’s recent track record of topping its outlooks -- implies at its midpoint a $29 billion annual sales increase.
And it’s not just Amazon’s top-line numbers that have seen tremendous growth this year. Its spending and hiring growth has also inflected higher as the company invests heavily in both meeting near-term demand and building out its warehouse and delivery infrastructures for the long haul -- all while incurring billions in quarterly COVID-related costs.
Amazon’s shipping expenses rose 57% annually in Q3, its fulfillment expenses rose 45% and its direct purchases of property and equipment rose a whopping 136%. Amazon’s headcount, meanwhile, rose 28% sequentially and 50% annually to 1.13 million -- a number that trails only Walmart’s (WMT) - Get Report 2.2 million among U.S. companies.
In spite of such massive spending growth, Amazon (aided by its top-line growth) has remained quite profitable this year. On average, analysts polled by FactSet expect the company to generate $25.1 billion worth of free cash flow (FCF), before seeing FCF jump to $42 billion next year as spending growth moderates.
Another big number posted by Amazon in 2020? With its stock up 68% on the year, the company has added more than $600 billion to its market cap. At $1.58 billion, Amazon’s value trails only Apple (AAPL) - Get Report and (ever so slightly) Microsoft’s (MSFT) - Get Report among publicly-traded firms.
Certainly, 2020 has been a pretty good year for many of Amazon’s rivals as well. Companies such as Shopify (SHOP) - Get Report, Wayfair (W) - Get Report and Etsy (ETSY) - Get Report have also seen revenue growth accelerate sharply this year, and bricks-and-mortar rivals such as Walmart and Target (TGT) - Get Report have gotten millions of their customers to use their grocery delivery and/or curbside pickup services for the first time.
And assuming COVID vaccines are widely distributed in the coming months, it’s quite likely that e-commerce growth rates (both for Amazon and rivals) will cool considerably in 2021.
Nonetheless, Amazon is arguably exiting 2020 on stronger long-term competitive footing than when it began the year.
The inflection in e-commerce activity seen this year will almost certainly have an impact on how many consumers in the U.S. and elsewhere choose to shop in the coming years, even after COVID becomes a bad memory.
And Amazon’s two biggest competitive moats -- Amazon Prime and its warehouse/delivery infrastructure -- have been strengthened in 2020, as usage of both Prime’s e-commerce and content services jumped and (per Amazon’s guidance) the company drives a 50% increase in its fulfillment center and delivery station square footage.
Ultimately, that last number might loom as large as any when investors in the coming years look back on how Amazon navigated a year that was equal parts challenging and full of opportunities to grow.
How TheStreet Chose the Best Stocks of the Year
TheStreet polled a group of 16 writers and editors at TheStreet, RealMoney, Action Alerts Plus, Stocks Under $10 and Trifecta Stocks and asked them to nominate candidates, and then narrowed that list down to the top 25 stocks. We then asked each of those writers and editors to rank the top 25 from top to bottom, assigning 25 points for a No. 1 ranking, 24 points for a No. 2 ranking, etc. We then totaled the points for each stock to arrive at our final rankings.