5 Stocks To Buy Now! January 2020!

The year 2019 was a great year for stock market investors. We should not expect to have another such a good year, but I believe that you can find a good deal in every market.

First, let's look at my choices for December and how these stocks performed. Then, I will present you the choices for Stocks To Buy Now series. I will also show you the valuation calculation of Facebook company.

The average return from my choices during the last month was 7.93% vs return from the S&P 500 of 2.86%. First, my United States stocks: Facebook went up by 1.79%, and Alphabet increased by 2.71%.
Then my Emerging markets choices. CD Projekt Red went up by 6.48%. Investors were buying shares of this company after the successful release of the Witcher TV series by Netflix. The Witcher series of games produced by CD Projekt RED was selling like hotcakes. It is a good indicator for the future sales of CD Projekt RED games in the Witcher universe.

Even though CD Projekt increased by six and a half per cent, the other companies were the stars in December 2019. 11 Bit Studies went up by 14.76%. In this video, I analysed the company in more detail. So check it out if you want to hear more about that company and its prospects. Finally, Tencent went up by 13.90%.

So what are my choices for January 2020 for Stocks To Buy Now series? Well, the same companies.

Now, I will present you the calculation of Facebook company valuation. In this calculation, I use current Earnings Per Share for Facebook. The data are taken from the Yahoo Finance website. EPS for next year is estimated to be $9.15. For the next four years, I assume a 20% growth in earnings. Then three years with the growth of 10% annually and two years with the growth of 8%. 

The past five years EPS growth was equal 42.12% per annum. 20% for the next few years does not seem to be too excessive. It will not be easy, but that is achievable taking into account how useful Facebook is in generating value and converting ads into sales for advertisers. First, let's see the calculation for the discount rate of 15%. In very simple words, the discount rate is the % of return you seek as an investor. For example, if you invest $100 today and you expect to earn $15 in 12 months from this investment, your discount rate is 15%. The discount rate is the return you earn as an investor to compensate for the risk you take when you invest money.

As you can see from this calculation, the current price reflects exactly 15% return over the next ten years with the assumptions to the growth as I put to this simple calculation.

Let's see how the change of the discount rate to 10% affects our calculation. 10% is still a reasonable return if you look at the current levels of the overall stock market.

For such inputs to this model, the current share price is discounted by 50%; the fair value should be around $315.
It is up to every investor what return you expect from your stock market investing - you need to decide if it is 5%, 10%, 15% or 20% annually. Of course, we do not know the future. We do not know what the real earnings growth rate for Facebook is going to be. But Facebook is definitely in a perfect place to benefit from the transition to more social interaction. The Facebook platform, Messenger, WhatsUp as well as Oculus are excellent products which people want to use.

Another aspect we need to look at is the management of the company. Mark Zuckerberg is a great CEO. He adapts to changing situation quickly. He was ready to pay the price of a few quarters of slower earnings growth to improve the Facebook platform. It paid off, and Facebook came back to rapid growth with a stronger moat. After the implementation of new policies, it will be more difficult for every new platform to compete and meet the same standards.

The company has a great financial situation. Around 10% of its market capitalisation is covered by cash.
I hope that this short analysis gave some value. Let me know in the comment what are the most significant positions in your stock market portfolio. 
You need to know that every investor calculation will be different. That is why you should not listen to analysts or vloggers in deciding which company's shares to buy. Always make your judgement.





Music: Leonell Cassio




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