Over a long-term horizon, investors endeavour to buy stocks of companies that are anticipated to record sustained revenue growth and considerable earnings potential. Companies that have a wide, diverse client base and possess a competitive advantage are often favoured. An attractive valuation, favourable analyst outlooks and high levels of institutional interest are also important metrics, worthy of investors’ attention.
The companies listed below demonstrate some of the above criteria, and have been grouped according to the qualitative or quantitative metrics they best exhibit, based on stock screeners on Tradingview.com, Whalewisdom, and Stockrover.
The companies include Align Technology [ALGN], a stock that is witnessing exceptional growth — trend analysts expect this to continue; The Trade Desk [TTD], which has grown its profits by more than 50% a year over the past three years; Intuitive Surgical [ISRG], which is reshaping the healthcare industry by introducing surgical robots at hospitals around the world; and Medifast [MED], which has historically offered twice the growth of the S&P 500..
Leading in expected growth (four stocks)
These are companies that have been profitable for at least two years and analysts consensus estimates on Yahoo Finance, whalewisdom.com, stockrover.com show growth of at least 20% year-on-year over the next five years, while the average trading volume of the stock is at least 500,000 shares per day.
Align Technology [ALGN] — medical and healthcare
Align Technology makes the Invisalign dental brace system and is the leading company in the invisible braces space. It has an 80–85% market share, giving it a strong economic moat. The company has increased its earnings per share (EPS) and revenues for the past 10 years, and EPS is expected to grow by 21.7% per year over the next five years, according to Zacks.
The use of clear braces is on the rise, and the total addressable market is expected to continue growing at 20% for the next six years. The stock has a long-term uptrend in price and positive sentiment. In Q2 2021, 57 hedge funds included the stock in their portfolio — an all-time high for Align Technology, according to Insider Monkey. The company also commands diverse appeal, with its products being used by children and adults alike.
Netflix [NFLX] — entertainment
Netflix distributes movies and TV shows via its streaming service, and also produces its own original content. With a 27% share of the US streaming market, Netflix is the current market leader, although increased competition in the digital entertainment space has seen that number fall in recent years. It is one of the world’s most recognised brands.
Netflix has the strongest long-term sales growth among its competitors, and analysts forecast the company will continue growing EPS at an average of 42.6% per year over the next five years, according to StockNews. Netflix has an excellent track record of increasing yearly sales and earnings per share over the past 10 years.
The stock is in a long-term uptrend, showing strong positive sentiment and price performance. That said, it has been dropping since mid-November. Netflix is used by people of all ages from all over the world. It is popular among institutional investors and hedge funds, which own 79.47% of the company’s stock.
Etsy [ETSY] — ecommerce
Etsy was a disruptive innovation company when it launched, allowing artists to sell directly to consumers via its ecommerce platform. The site is now mainstream, however, and the company has a market cap of more than $25bn. Etsy is one of the top 10 ecommerce platforms in the world, according to WebRetailer.
The company has seen strong sales and revenue growth since 2015, with EPS more than tripling from 2019 to 2020. Analysts expect this upward trend to continue, with EPS forecasted to increase by an average of 20.6% per year over the next five years, according to Zacks. Etsy also has a long-term uptrend in share price performance and sentiment, but it has been pulling back since late November. Institutions are still bullish though, with 774 of funds holding stock, compared with just 354 in 2020.
Charter Communications [CHTR] — entertainment
Charter Communications is the cable and entertainment company that acquired Time Warner Cable and its sister company Bright House Networks in the mid-2010s. It provides cable, phone and internet services to approximately 40% of the US.
Analysts at Zacks forecast growth of 36% per year over the next five years for the company. It has already seen strong EPS growth over the past several years, with EPS more than doubling from 2019 to 2020. The company’s size gives it pricing power and bolsters its market share against competitors. In 2020, Charter’s revenue increased more than its rivals AT&T and Comcast.
The stock has experienced a long-term uptrend, but has been pulling back since September. The pullback in its share price suggests weak short-term sentiment and might present a dip buying opportunity for long-term investors. Institutions still like the stock; the number of firms holding the stock has increased over the past two years.
Top in recent growth and sales (five stocks)
These are companies that have averaged at least 30% sales and EPS growth over the past one and three years (on average). Many investors watch for entry points in stocks where the company has shown strong recent performance. If it continues, the share price may also continue to outperform.
The Trade Desk [TTD] — internet of things
The Trade Desk is an online advertisement platform. The company provides a cloud-based service where marketers can create and manage ads across multiple devices and social channels.
The company’s EPS has grown 68% per year on average for the past three years, and it is expected to continue growing at around 24% for the next few years, according to Zacks. The stock is outperforming its competitors in sales, EPS growth, net margins and return on equity.
As for share price performance, it is in a long-term uptrend but the stock has fallen since November. Institutional ownership and buying has increased over the past two years.
Dexcom [DXCM] — medical and healthcare, healthcare innovation
Dexcom makes a continuous glucose monitoring system for diabetics. Diabetes is unfortunately a growing problem around much of the world, so this company’s products are being used by an increasing number of people.
Dexcom grew EPS and sales by 360% and 30.5%, respectively, in 2020. While its EPS was nearly 10% lower in 2021, analysts at Zacks expect a further 22.75% rise in EPS in 2022 and 18.5% growth over the next several years. The company is far outpacing industry averages in profitability categories such as returns on equity, net margins and gross margins.
It is the top glucose monitoring system company in the US by market share, with a stock price that is in a long-term uptrend. The stock price has been in a short-term decline since November, but institutional ownership in the stock has remained steady over the past year.
Advanced Micro Devices [AMD] — semiconductors
This chip maker returned to profitability in 2018. Its processors are found in personal computers as well as gaming consoles. AMD has grown its EPS and sales figures by 113.9% and 31.8% on average per year for the past three years.
Analysts at Zacks are calling for 25% EPS growth for 2022 and 46.2% average EPS growth over the next five years as the demand for microchips continues to expand.
While there are many microchip companies, AMD’s chips are widely used and it is a recognised global brand in computer and gaming console processors. The share price has seen a long-term uptrend since 2018 and institutional ownership is at multi-year highs.
Amazon [AMZN] — ecommerce, cloud computing
Despite already being one of the world’s largest companies, Amazon has grown its EPS and sales by an average of 107% and 29.7% over the past three years.
Amazon is forecasted by Zacks to grow EPS by 22.10% in 2022 and average 24.7% growth over the next five years. This is partially due to its online ecommerce platform, but it also has a strong presence in web services such as data storage and cloud computing, while offering credit card and advertising services as well. International sales at Amazon only represent 26% of its total revenue, meaning the global market still offers room for the company to grow with its strong brand penetration.
There is a long-term uptrend in the stock, but it has been moving sideways for more than a year. Institutional ownership has also been holding steady over the past year, but it increased over the past two.
Fortinet [FTNT] — cybersecurity
Cybersecurity is a growing field and Fortinet is an industry leader. The firm services businesses as well as governments around the world with software and subscriptions to its services. It has had strong sales growth since 2012, and its EPS and share price have been on the rise since 2017.
EPS and sales have averaged growth of 67.9% and 22.2% per year over the past three years. Growth is expected to continue, according to analysts, with a 17.9% EPS jump next year and 17% increases per year over the next five. Fortinet is beating industry averages in terms of gross margin and return on equity, as well as sales and EPS growth.
Institutional interest has also steadily grown since mid-2019 as the share price has continued in its long-term uptrend.
Top in disruptive innovation with growth (four stocks)
These are companies shaking up their industries, or creating brand new ones, that have already experienced growth and success. That they have already experienced growth helps eliminate highly speculative companies that may or may not gain traction. Disruptive companies possess the potential for outsized growth because, over time, they can start to dominate market share, removing legacy incumbents that are slow to adapt, or even obsolete.
Tesla [TSLA] — electric and autonomous vehicles
While there are many other electric vehicle companies popping up, Tesla remains the market leader, and is expected to benefit from increasing electric vehicle adoption throughout developed economies. Tesla makes electric automobiles as well as charging stations, but it is also involved in the solar industry and sells regulatory credits to other companies.
Tesla grew sales by an average of 41.9% per year over the past three years. The company became profitable in 2020 and EPS is expected to escalate going forward, with analysts at Zacks calling for a 32.61% increase in 2022 and a 38.4% yearly average increase over the next five years. It appears ahead of peers in profitability ratios such as gross margin and return on assets and equity, and is far outpacing peers in terms of growth.
Intuitive Surgical [ISRG] — robotics, healthcare innovation
This company is the market leader in the robotic surgery equipment space, holding 80% of the market, according to BIS Research. Its main product is the da Vinci system, which assists in minimally invasive surgeries. ISRG then provides all the service and tools needed for using the equipment.
The US represents two-thirds of the company’s sales, but it is also developing a strong global presence and seeking to tap into a very large market.
It has had long-term steady sales growth and is expected to average EPS growth of 10% per year over the next half decade, according to Zacks.
The company benefits from a lack of competitors in the sector, and usually outpaces industry average in financial statistic such as growth, margins and returns.
Share price performance has also been very strong, rising in a long-term uptrend, although since September the price has moved sideways. As on close of 3 February, nearly 2,000 institutional investors held the company’s stock. Around 220 of those were ETFs.
Upstart Holdings [UPST] — fintech
This company is reshaping finance by offering a cloud and AI-based lending platform. Upstart makes most of its money by being paid fees from banks; it receives referral fees and platform fees for each loan, as well as loan servicing fees when customers repay their loans.
The company floated on the Nasdaq at the end of 2020 and performed well initially, but the stock has fallen from a high of $401.49 in October to $92.72 by 21 January. However, according to Zacks, sales growth in 2022 is expected to exceed 50% and the five-year forecast annual average growth rate for EPS is 178.8%. New companies often don’t even have analyst coverage, let alone five-year estimates. The analyst coverage itself helps set this newer company apart from many other recent IPOs.
NextEra Energy [NEE] — clean energy, solar
This utility company has been around since 1984 and is one of the largest in US. One thing that separates NextEra from other utility companies is that it has invested heavily in renewable energy and is the largest solar and wind energy producer in the US. This gives it a pricing advantage over competitors, because the ongoing costs to produce energy sources such as wind, for example, are lower — although upfront costs for infrastructure can be high.
NextEra is beating industry averages in gross margin and net margin, and the long-term outlook for the stock appears to be promising, particularly as the industry tends to be less volatile than others. The EPS growth estimate from Zacks is 8.9% per year for the next five years.
Except for when Covid hit, NextEra stock has had a steady rise over the past five years. In January, the stock experienced a pullback. As of close of 3 February 2,795 institutions like funds held the stock, and this has remained steady for the past year.
Top in strong growth at a value (two stocks)
These are companies that have been showing strong growth, which is expected to continue, and are currently trading at a competitive price-to-earnings (P/E) ratio. Looking for stocks that seem affordable based on P/E alone can be a trap, because the company may be shrinking. To avoid this, this scan looks for stocks that are growing — not shrinking — as well as being priced attractively.
Medifast [MED] — healthcare innovation
This company provides nutritional products for weight loss. Over the past three years, it has averaged 50% EPS and 45% revenue growth per year. This is expected to slow somewhat over the next five years, stabilising EPS growth of around 8%, according to Zacks. That is still strong growth for a stock that is now trading at a P/E and forward P/E of around 15. For reference, the S&P 500 has a long-term average P/E of between 13 and 15, with a median growth rate of 10.98%, according to Multpl.com.
Analysts have a consensus buy rating and a price target of $349 — well above the current $192.03 share price it recorded on 21 January. The stock’s 52-week high is $336.99, which some investors may view as an opportunity.
Even though the stock price has pulled back in the latter half of 2021, the number of institutions holding the stock has remained steady.
Daqo New Energy [DQ] — solar
Daqo is a China-based company that provides polysilicon products to the solar power industry. The company is seeing strong growth, but the firm’s share price has been weighed down by uncertainty in China. The company has grown EPS and sales by 74.9% and 59.7% per year over the past three years, respectively. This is roughly in line with the EPS growth analysts expect over the next five years — 74.9%, according to Yahoo Finance.
The average analyst price target for the stock is $84.52, more than double the current $40.53 price as of 21 January. That said, the share price has been tumbling from above $120 to below $45 since the start of 2021. This has created a potentially attractive P/E of 4.6 and forward P/E of 3.5.
There is the risk that China will continue to crack down on companies, and that could mean the EPS forecasts may not come to fruition, or that current EPS could drop.
Daqo is beating industry averages in most financial metrics including margin, return on assets and return on invested capital. It has a strong cash position with minimal debt. The number of funds holding the stock increased significantly from 2019 to 2021, and has only decreased slightly as the stock has slid lower.
* Data sourced from whalewisdom.com, stockrover.com and Yahoo Finance.
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