Peter Stephens: Diageo
An uncertain future for the UK economy means that international stocks such as Diageo (LSE:DGE) could become increasingly popular among investors in 2020.
The alcoholic beverages company has significant exposure to fast-growing emerging markets that are forecast to maintain a high rate of GDP growth in the next 12 months. Additionally, it is investing in improving its efficiency, while recent updates have shown that product innovation may enable it to successfully adapt to changing consumer tastes.
Diageo’s price-to-earnings (P/E) ratio of 22 may be higher than those of many FTSE 100 shares. But its growth potential and defensive characteristics could make it a strong performer in 2020.
Peter Stephens owns shares in Diageo.
Roland Head: Carnival
In recent months, I’ve been adding shares in FTSE 100 cruise ship giant Carnival (LSE: CCL) to my ISA portfolio. I see this market-leading company — which owns brands including P&O Cruises, AIDA and Princess — as a good long-term play on the global cruise and tourism markets.
Although Carnival suffered headwinds from rising fuel costs and other disruptions in 2019, the firm expects a return to growth in 2020. Bookings for the first half of the year are said to be ahead of the same period in 2019, with stable pricing.
Carnival shares look reasonably priced to me, on around nine times forecast earnings and with a dividend yield of 4.7%. I rate them as a buy for 2020.
Roland Head owns shares of Carnival.
T Sligo: HSBC Holdings
HSBC (LSE: HSBA) has suffered from three separate geopolitical issues: Brexit, the US-China trade war and the protests in Hong Kong. Over the past year its share price has reflected these challenges, dropping 11% in the year-to-date.
I believe its current valuation offers investors a good buying opportunity. The bank’s price-to-earnings ratio is only 11 and its prospective dividend yield is over 6%.
By the end of 2020, geopolitical tensions may have eased: the US could have a different president and Britain’s departure from the EU might be clearer (or off the table). If there is also a resolution to the protests in Hong Kong, I would expect HSBC’s share price to significantly increase.
T Sligo has no position in HSBC.
Rupert Hargreaves: Redrow
Homebuilder Redrow (LSE: RDW) looks to me to be one of the most undervalued stocks in the FTSE 350 right now, and that’s why I’ve picked the company as my top stock for 2020.
It’s no secret that the UK has a structural undersupply of homes, and this is not going to change any time soon. In my opinion, that means no matter what happens to the economy over the next five or 10 years, homebuilders like Redrow will continue to see strong and growing demand for their services.
But despite this demand potential, shares in Redrow look cheap. The company is trading at a forward P/E of less than eight and EV/EBITDA multiple of only 5. On top of this, analysts reckon the stock will support a yield of nearly 7% next year.
Rupert Hargreaves does not own shares in Redrow.
Kevin Godbold: British American Tobacco
2019 saw the shares of British American Tobacco (LSE: BATS) languish at levels more than 45% below their peak in 2017. Regulatory fears about vaping products and menthol cigarettes have driven the stock down, and it appears to be out of favour with investors judging by the forward-looking dividend yield for 2020, which is north of 7% as I write.
However, at the end of November, the firm said it’s on track to deliver a “strong” trading outcome for 2019. Chief executive Jack Bowles said in the report the issues around vaping in the US should lead to a better and stronger regulatory environment in which “we are well placed to succeed.” Operationally, things have been going well in both traditional and new product categories. I reckon 2020 could be a year in which the valuation rerates upwards, and I’m picking BATS as my top share for the year.
Kevin Godbold owns shares in British American Tobacco.
Edward Sheldon: Diageo
My top stock for 2020 is alcoholic beverage company Diageo (LSE: DGE). It owns a world-class portfolio of brands including Johnnie Walker, Smirnoff and Tanqueray, and sells its products in over 180 countries across the world.
The reason I have chosen Diageo is that it’s relatively immune to the economic cycle as people drink alcohol during both the good times and the bad. Given that economic uncertainty remains elevated as we begin 2020, I think it’s a good stock to own right now.
Diageo shares are a little more expensive than your average FTSE 100 stock. However, I wouldn’t let the valuation put you off. This is a high-quality, dependable stock that deserves a premium valuation, in my view.
Edward Sheldon owns shares in Diageo.
Kirsteen Mackay: Imperial Brands
My top stock for 2020 is tobacco company Imperial Brands (LSE: IMB). Since losing its defensive appeal, with the tobacco industry in decline, I think it now has growth potential through its focus on next-generation alternatives to cigarettes.
IMB is a UK-based tobacco company with a global presence. It has had a dismal two years, but I think it will begin to turn around in 2020. This FTSE 100 company has a standout dividend yield of 12% and trailing price-to-earnings ratio of 16. It seems to be on the lookout for new opportunities to meet consumer needs and harness loyalty. Recent examples include the August launch of its myblu Starter Pack to help adult smokers switch to vaping, followed by its release of Lambert & Butler roll-your-own, in November, to address the desire for cheaper alternatives to cigarettes, whilst retaining brand loyalty.
Kirsteen Mackay does not own shares in Imperial Brands
Paul Summers: Games Workshop
Like every year, no one knows for sure where markets are going in 2020. That’s why I’d focus on investing in quality businesses that can be held ‘forever’.
My pick is fantasy figurine maker Games Workshop (LSE: GAW). It may be one of the best-performing shares in recent years (and now valued accordingly) but I think there’s still lots of room for the company to grow, especially in relatively untapped Asian markets. It has no competitors, a loyal following, a debt-free balance sheet and generates sky-high margins and returns on capital employed.
I’ll be adding to my own holding on any weakness.
Paul Summers owns shares in Games Workshop.
G A Chester: Capital Gearing Trust
I’m making Capital Gearing Trust (LSE: CGT) my top buy for 2020 not because I’d expect it to make the biggest gains if we have a raging bull market. It won’t. Not with little more than 30% exposure to equities, and substantial holdings of cash and lower-risk assets, such as index-linked government bonds.
However, this positioning offers relative downside protection — as well as the potential to pick up equities at dirt-cheap prices — in the event of a bear market. As such, I see Capital Gearing, which has a long history of steady, lower-risk returns, as a top buy for whatever 2020 brings.
G A Chester has no position in Capital Gearing Trust.
Tezcan Gecgil: Centamin
Investing in gold miners may add some sparkle to your portfolio in the new year. In 2019 many gold miners saw their share prices pop as global gold prices also surged higher. Yet there has been some profit-taking in the tail-end of 2019, which may be of interest to some of our readers.
I’d consider Centamin (LSE: CEY), which is best known for Egypt’s Sukari gold mine.
In early December, CEY rejected a £1.47bn all-stock takeover proposal from Canada-based Endeavour Mining, saying it fundamentally undervalued the company. Going forward, I expect bidding wars to heat up as consolidation in gold sector continues.
This mid-cap stock has a robust balance sheet with no debt. And it offers a current dividend yield of about 4.8%. The next ex-dividend date is expected in April 2020.
Tezcan Gecgil does not own shares of Centamin.
Karl Loomes: BT
Seeing its stock under pressure amid talks of increased competition and nationalisation, I think 2020 will see the BT (LSE: BT-A) share price really begin to gain ground. Nationalisation talks not withstanding, the restructuring and cost-cutting plan BT has been implementing should truly start to show in 2020, when job cuts particularly will be helping the bottom line in the quarterly results and full-year results.
Meanwhile one of BT’s biggest concerns – its liabilities from its pension obligations – should continue to slide as a natural consequence of older employees leaving (the pension scheme was closed to employees in 2018). A potential dividend cut may hit investors in the short term, but if it happens it will only help secure longer-term growth anyway.
Karl Loomes owns shares in BT.
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The Motley Fool UK has recommended Carnival, Diageo, HSBC Holdings, Imperial Brands, and Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.