Apple‘s (NASDAQ: AAPL) knack for churning out hit product after hit product has allowed to it grow into one of the largest companies in the world. However, the megacap multiplier obstacle is going to make it hard for Apple to post substantial returns from here.
So which stocks are likely to leave Apple in the dust from here? We asked three Motley Fool investors to weigh in and they picked Editas Medicine (NASDAQ: EDIT), A.O. Smith (NYSE: AOS), and BlackLine (NASDAQ: BL).
An early but huge opportunity
Keith Speights (Editas Medicine): Over the last 15 years, Apple stock has skyrocketed roughly 15,140%. But Apple is simply too big and too mature to generate those kinds of returns going forward. There’s one stock that I think could potentially do it, though. That stock is Editas Medicine.
Editas is a pioneer in CRISPR gene editing, one of the most important biotechnology advances in history. CRISPR gene editing, which uses bacterial enzymes to edit targeted sections of DNA, is still only in the early stages of research. However, being early to invest in a new technology can be a good thing for long-term investors, especially a technology that holds the potential to cure genetic diseases.
The biotech is currently targeting seven genetic diseases in addition to using CRISPR gene editing to engineer T cells to fight cancer. Editas’ lead candidate focuses on treatment of Leber congenital amaurosis (LCA) type 10, the leading cause of inherited childhood blindness.
Editas plans to submit an application to the Food and Drug Administration soon to request authorization to begin phase 1 clinical testing of its LCA type 10 therapy in humans. If all goes well with clinical studies, the company could enjoy a monopoly in treating the rare eye disease in a few years. Editas licensed a group of key patents for use of CRISPR gene editing in humans, which means that it could also benefit from royalties on sales of CRISPR-based therapies developed by rivals in the future.
Buying Editas stock comes with significant risks because it’s still early for CRISPR. However, the huge opportunity for gene editing could enable this stock to blow away Apple’s returns going forward.
You’d never believe this stock is beating Apple already
Neha Chamaria (A.O. Smith): To outdo Apple’s return is no joke, but there’s one stock from an industry that’s as boring as can be that has handily beaten Apple in the past decade: water heater manufacturer, A.O. Smith.
If Apple has created an unparalleled brand image for itself, A.O. Smith isn’t too far in the global water heater industry. Here’s the thing: While Apple’s flagship iPhone, which brings in a major chunk of its revenue, is still a status symbol in two of the most populous nations in the world — China and India — A.O. Smith is penetrating these two markets rapidly with products that are more of a necessity. And that’s where the company will see real growth in the coming years, so much so that I wouldn’t be surprised if A.O. Smith shares continue to race ahead of Apple’s.
To give you an idea, A.O. Smith’s sales from China hit $1 billion last year and contributed a whopping 35% to its total revenue. Sales from that country grew at a compound rate of 21% in the past decade, reflecting the massive underlying demand for hot water systems, backed by urbanization and a booming middle class.
After closing 2017 on a record note, A.O. Smith is targeting double-digit growth in sales and earnings per share this year. What’s more, the company recently gained entry into the elite Dividend Aristocrat group, having increased its dividends for 25 consecutive years. So with A.O. Smith shares, you get the benefit of both income and growth. It has proved its mettle over the decades, and all it needs to do now is to maintain, or even better, its torrid pace of growth by tapping opportunities in international markets to mint more and more money for itself and its shareholders.
Bringing order to a chaotic process
Brian Feroldi (BlackLine): The period-end close is a labor-intensive, confusing, and time-consuming process that accountants have to go through on a regular basis. Since data often needs to be pulled from multiple sources, many accounting departments remain completely dependent on manual processes to compile financial statements that management teams and investors need to make critical decisions.
This is an arduous process that bothered a former accountant named Therese Tucker so much that she decided to venture out on her own many years ago to create a better solution. Tucker’s idea was to use sophisticated software to aggregate data from multiple sources and then reconcile it in real time. Doing so would save accounting departments countless hours of manual labor and allow them to focus their time on strategic decisions.
Fast-forward to today and Tucker is still running the show at her company, which she named BlackLine. Her software solution is now actively used by more than 2,300 companies worldwide.
BlackLine uses a software-as-a-service business model, so it exhibits many traits that investors should find attractive. The vast majority of revenue is recurring in nature and BlackLine continues to roll out add-on features that keep its current customers spending more and more with each passing year. With $190 million in annual revenue over the last year, the company has also grown large enough to start producing cash flow and profits.
Looking ahead, BlackLine believes that its total addressable market is $18 billion annually, so the company has barely scratched the surface of what’s possible. With a winning business model in place and ample room to grow, I think that this company is poised to continue producing strong returns for investors for years to come.
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Brian Feroldi owns shares of Apple and BlackLine, Inc. Keith Speights owns shares of Apple and Editas Medicine. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Editas Medicine. The Motley Fool has a disclosure policy.