3 Buy and Hold Stocks for 2020

Congratulations, you’re about to discover three companies to watch that could be huge winners in the years ahead… regardless of which direction the market takes.

Dear Reader,

2020 has been a wild year for the markets.

The longest – and most lucrative – bull market in history hit new all-time highs early in the year. Then it crashed to lows not seen for near on a decade. Ten years of market gains wiped out in a matter of weeks.

Then a massive bounce. Volatility is now wilder and more terrifying than the markets have ever seen. No one knows exactly where they’re heading next. Do they press on to new higher highs? Or are we in store for another market rout?

You know what, it doesn’t matter.

Let me be clear: the purpose of this report is not to predict where the wider market is heading.

That’s why this report aims to identify three buy and hold stocks which have the potential to be winners in the long term, regardless of whether the market shoots up, down or sideways in the short term.

To do that with any degree of accuracy, I believe there’s only one option.

Find a huge industry undergoing a fundamental step-change.

Right now, no sector fits the bill better than the $2.2 trillion energy market.

Then tap into those who are shaking up the story. The kinds of companies that are breaking through to capture market share, rip profits away from the incumbents – the companies that will be the giants of industry tomorrow, but investing in them today as relative unknowns.

To do this means to identify and tap into the industry undergoing rapid change.

The good news for you is that we live in a time when change is one of the few constants in the world. And it means there are multiple industries going through radical change. Which also means radical opportunity for the small-cap investor.

You see you don’t have to invest in the “blue-chip” giants of industry when it comes to potential-packed buy and hold stocks. There are hundreds, thousands of stocks to choose from on the UK markets and many of them exist on the AIM submarket.

AIM is the London Stock Exchange’s market for small and medium size growth companies. More importantly it is the world’s most successful growth market – making it the perfect hunting ground for UK investors.

And after extensive research and analysis of what’s been going on not just over this year, but for several years now, I’ve identified three huge industry opportunities and three stocks that are all AIM stocks, I think investors should be looking at when it comes to long, buy and hold stocks to consider adding to a portfolio.

Just to be clear: I’m not laying out these three buy and hold stocks as recommendations.

This is analysis I’ve put together over time – which any investor should find useful.

But with all investments, I recommend you do some follow-up research into these companies before making any decisions on investing – make sure you’re comfortable with the risks involved and draw your own conclusions before taking action.

For example, these are new companies in a young, emerging industry, and don’t have the same long track record as many bigger and better-established companies. That makes them inherently riskier. If you’re unsure, you should seek further advice.

However, as a starting point here are three industries and companies who I believe you need to keep your eye on for 2020…

1G, 2G… 5G, 6G

1G wireless technology was a game changer. It pioneered wireless telecommunications — and brought us those analogue bricks weighing two pounds!

2G introduced a digital standard, circuit-switched technology. And it expanded on the range and quality of what was still primarily voice call-focused tech.

While 1G and 2G pushed forward modern communication it was 3G that was the huge breakthrough leap forward.

In 2008, Apple’s 3G iPhone was twice as fast as its predecessor, was half the cost, and had built-in GPS. Furthermore, 3G enabled the first iterations of mobile broadband.

3G was released in October 2001 when NTT DOCOMO (Japanese telco) debuted the first commercial 3G network. Just 19 years ago.

In those 19 years that single generation leap in wireless technology sparked the creation of a US$6.3 trillion industry.

In 2017 it was predicted that the “app economy” is forecast to top US$6.3 trillion in 2021. And it’s expected that 6.3 billion people will be using apps next year. About 83% of the world will be app users — a technology that didn’t exist 20 years ago.

Then in December 2009, 4G hit the masses.

Today 4G is the current standard. It allows us to catch an Uber, post new photos to Facebook, connect on FaceTime, and stream movies on Netflix. It’s true mobile broadband. And it has fast become the bedrock of the modern world.

Today, we’re another ten years on from 4G’s debut and 5G is just getting started.

There is, of course, great pushback against it. And some conspiracy theorists think 5G will be the end of days…

But 5G rollout isn’t stopping. It’s only going to accelerate over the next decade. And in another nine or ten years, we’ll get 6G. New generation networks come along about every nine or ten years.

And while the sceptics get hung up on 5G, 6G is already coming. If you don’t believe it, well NTT DOCOMO who pioneered the first commercial release of 3Gis already looking at it.

But we’ve got an opportunity over the next nine to ten years to really capitalise on the release of 5G hyper-connectivity and all the spoils that come with it.

One company I think is perfectly poised to benefit from 5G communications technology that you should be looking much closer at is, Gamma Communications plc (LSE:GAMA).

Gamma trades on the London Stock Exchange on the AIM submarket. Its specialty is the delivery of “unified communications as a service” (UCaaS).

That’s a fancy way of describing different telecommunications services such as Ethernet, broadband, network and mobile as well as cloud connectivity and infrastructure.

Gamma has switched on to the impact 5G communications is going have. In its Annual Report for the full year 2019 it noted,

… we anticipate significant disruption through the launch of 5G services and ‘Unlimited’ data bundles. This reinforces our decision in 2018 to move to a light [Mobile Virtual Network Operator] model with an appropriate partnership model that allowed us to exploit this disruption.

Gamma is fast adapting to fit into a 5G-capable world. It already has a deal with Three UK in place to access Gamma data services via 5G mobile networks. It expects that to go live in 2021 and see cost benefits by the end of 2021.

This is a sign of things to come. And I would expect more of this kind of development leveraging the hyper-connectivity of 5G and the services Gamma has to offer customers. If there’s a UK company that’s relatively under the radar to focus in on as a buy and hold stock to benefit from 5G, Gamma Communications is one to watch.

The $16 trillion “brain”

In January 2020 before the world shut down, I managed to get across to Las Vegas for the annual CES tech expo and conference.

It’s the biggest collection of new and breakthrough consumer technologies in the world. The biggest names in tech, automotive, robotics, drones and consumer electronics (TVs, smart devices, AV gear, gaming) all attend.

I got to have eyes on everything that’s coming this year, next and in the subsequent years to come. And if there’s one thing that stood out more than anything about this coming decade, it’s the rise of real artificial intelligence (AI).

Speaking about AI in one of the conference sessions, Ritika Gunnar, vice president of Data and AI Expert Labs and Learning from IBM, said that over the next decade it’s expected the economic impact of AI will be more than US$16 trillion.

Just take a moment to think about the significance of that…

US$16 trillion of economic impact just from AI alone. It took the “app economy” 19 years to develop to a forecast US$6.3 trillion industry.

AI will achieve more than twice that in half the time.

That is truly transformational change. And I think it’s one of the biggest investment opportunities you will see this decade.

There’s not a single industry on Earth that’s not going to be touched by AI in some shape or form. The challenging part is trying to identify the specific companies that will truly tap into that US$16 trillion and deliver profits to shareholders.

This might come in the form of companies building the hardware like neural networks to power the next decade’s AI. It might come in the form of software and analytics to process and make all the AI data useful.

It might come in the connectivity companies that enable the AI data to move from place to place to be useful. Or it might come in existing companies that are taking AI to deliver cost-cutting and growth.

One company I think could stand to really profit from the coming decade of AI is Renalytix AI plc (LSE:RENX).

Renalytix is a healthcare company that also trades on the London Stock Exchange AIM submarket. It’s utilising AI for use in clinical diagnostics for kidney disease.

AI in diagnostics is one of the current leading use cases for the breakthrough technology. It’s important to understand we’re really still in the early stages of AI. But indications are that it holds the potential right now to be equal to the task of humans in medical diagnosis.

As I say, it’s still early days and there haven’t been sufficient clinical trials and test to prove for now that AI will do a better job than humans. But that’s the end game here, that applying AI technology and deep learning into medical diagnosis supporting the work of physicians will lead to better outcomes.

AI in support of experienced physicians has the potential to make faster, more accurate decisions in diagnostics. This leads to more effective treatment, faster time frames from detection to diagnosis to treatment and ultimately with the hope that lives will be saved.

But it’s early stages, and Renalytix is one of those early-stage companies leading the way with its implementation of AI in its diagnostic speciality, kidney disease. If there’s a company that could benefit as we progress with the advances in AI over the decade, I think it might just be Renalytix.

The No. 1 Investment for 2020

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From theory to reality

The last of these industry opportunities is the $2.2 trillion energy market.

The energy market is seeing a disruptive shift away from fossil fuels into renewables. Just look at what’s happening in the oil industry right now – price volatility for fossil fuel commodities is higher than during some of the oil wars.

Who thought we would actually see negative oil prices play out in reality? It used to be theory… not any more.

One of the oldest industries on the planet is being reborn. With that rebirth comes big opportunity.

As countries and companies rebuild in the aftermath of this oil crisis, the fact the renewables are often the cheapest source of electricity, and the best source of returns on investment, means that this could be a defining turning point in the great energy transition.

But it’s far more than just solar, wind and hydro energy. Those are the obvious plays. There’s more to this complex market than electric cars and a hydrogen-powered future. While these are all crucial and important areas of this renewables boom – opportunity also lurks where you might not necessarily think to look.

One company I think you should run the ruler over deeper as a potential buy and hold stock is Velocys PLC (LSE:VLS).

Velocys is a pioneering, exciting, tiny company traded on the London Stock Exchange on the AIM submarket. It could be one of the most exciting renewable and green energy stocks on the AIM market.

The world creates an immense volume of waste. But what if we could harness the potential power and energy by creating sustainable fuels from waste?

In a world where transportation is looking to be more efficient, more economical, have a smaller carbon footprint and be more climate conscious, we need to find alternative ways to generate power.

But what if a plane could be run on sustainable fuel made from the waste that we create? That’s the vision of Velocys. Its proprietary technology is a commercially ready reactor to turn waste into biofuels.

As it notes on its website explaining the reactor process,

By combining our reactor with gasification, purification and hydrocracking technologies that have been demonstrated at commercial scale, we can provide an integrated end-to-end process that converts solid wastes, first to synthesis gas and then to liquid transport fuels.

As airlines start to take passengers, as they look to figure out ways to be more economical, cost efficient and how to be profitable again, I think there will be a shift to these kinds of technologies and “clean energy” fuels.

The world will again return to mass, free transportation. Maybe not right away, but over the course of the decade? For sure. And as we leave 2020 behind us and move deep into the decade, I believe green energy companies like Velocys will get increasing attention from investors.

In terms of a long, buy and hold stock, I believe this is one that investors must take a deeper look at and consider adding to a portfolio.

A golden age for tech investing

It is certainly a very exciting time. One that could make savvy investors very rich right now, regardless of which way the wider market turns.

For my money, any investor looking to grow their portfolio in 2020 and beyond, should take these 3 innovative companies into serious consideration:

  1. Gamma Communications plc (LSE:GAMA)
  2. Renalytix AI plc (LSE:RENX)
  3. Velocys PLC (LSE:VLS)


Sam Volkering
Editor, Exponential Investor

Apple, Google, Microsoft, Samsung, Sony…
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