From a split-adjusted stock price near $0.10 per share in the mid-1980s to its dot.com peak north of $58 a share at the end of the millennium, Microsoft (NASDAQ:MSFT) stock enjoyed a run for the ages. It was a run probably no other stock will ever duplicate in such a short timespan. (Unless the stock names itself “bitcoin.bitcoin.com” and wrangles the ticker symbol “COIN,” that is — and even then, only maybe.)
Simply put, investors looking to invest in “the next Microsoft” are probably on a fool’s errand. Then again, here at The Motley Fool that’s kind of what we do. Without further ado, here are a few stocks our Foolish investors think have the potential to produce Microsoft-like returns: Raven Industries (NASDAQ:RAVN), Geron Corporation (NASDAQ:GERN), and … I don’t want to ruin the surprise for you on the last one.
This stock could rocket into space, quite literally
Neha Chamaria (Raven Industries): When I first wrote about how drones could revolutionize the agriculture industry last year, one company that caught my attention was Raven Industries. The company’s progress since tells me this stock could fetch you exponential returns in the long run.
Founded in 1956 as a maker of “high-altitude research balloons” to assist space exploration programs, Raven’s technology has now extended to diverse products and fields such as polymer films, aerospace radar systems, and precision agriculture. Each of these has strong growth potential, part of which is already reflecting in Raven’s numbers.
For the six months that ended in July, Raven’s net sales jumped 33% and its net income more than doubled year over year to roughly $21 million, driven by double-digit growth in sales from each of its three divisions: applied technology, engineered films, and aerostar. Raven’s operating margin for the six-month period jumped to 16.6% from only 10.8% in the year-ago period.
Of course, Raven may not deliver such stupendous numbers consistently, but the company is aiming for “double-digit earnings growth” in the long run even as it strives to “[solve] great challenges” of the world with its technologies. If you’ve heard about Google’s Project Loon, you might be surprised to know that the tech giant is using Raven Aerostar’s Super Pressure Balloon to provide internet access to remote areas under the project.
From what I see, Raven’s offbeat aerospace technology and aggressive approach to precision farming could be game-changers and big drivers for the stock in the coming years.
Setting up to blast off or sink into oblivion
George Budwell (Geron): Companies that can mimic the otherworldly returns of tech giant Microsoft are exceptionally rare, but the small-cap cancer specialist Geron may have what it takes. Geron is currently three years into a licensing deal with Johnson & Johnson (NYSE:JNJ) for its one and only drug candidate, imetelstat.
The key issue is that imetelstat — a first-in-class telomerase inhibitor — has shown encouraging signs during its exploratory trials, hinting that it could be the first disease-modifying therapy for life-threatening blood disorders such as myelofibrosis and myelodysplastic syndromes. Unfortunately, the drug hasn’t been replicating those initial game-changing results in its current clinical trials under J&J’s stewardship. But imetelstat has at least shown enough promise to keep the pharma titan’s interest three years into the process.
Looking ahead, J&J is set to decide on whether imetelstat is worthy of further clinical development in the second half of 2018. And if imetelstat does get a “go” decision, Geron’s stock should appreciate significantly based on both the drug’s megablockbuster potential and the strong likelihood that J&J will lock up imetelstat’s remaining commercial rights via a buyout. Geron, after all, is essentially set up to be bought out by its development partner in the case that imetelstat lives up to its promise as a well-differentiated and highly effective blood cancer therapy.
How much could Geron fetch in a buyout? That question is fairly difficult to answer at this stage, because imetelstat’s target market appears to be shrinking as its clinical trials unfold. But the biotech’s price tag should be well north of its current market cap of $327 million, perhaps by several orders of magnitude.
The downside, however, is that Geron’s stock will probably be worthless if J&J walks away. The biotech lacks the financial resources necessary to license another drug candidate in the event imetelstat fails after all. And that’s a significant risk that investors shouldn’t hastily brush aside — despite the biotech’s enormous upside potential.
Everything old is new again
Rich Smith: (Microsoft): Calling Microsoft itself a stock “with Microsoft-like return potential” is kind of a tautology — but so be it. I like Microsoft stock today, and here’s why I think you should, too:
Despite much weeping and lamentation over computer users shifting from PCs to tablets and smartphones, Microsoft’s business has stubbornly survived, and even thrived. Its operating system, now in its tenth edition, retains the No. 2 spot in global market share across all devices, despite competing against Android software that Google gives away for free. Meanwhile, among desktop PCs, various flavors of Windows continue to absolutely dominate the market with a combined market share of 88%.
In short, Microsoft may not be growing like it once was, but it’s not in any hurry to go away, either. This fact can be further seen in the estimates analyst post for Microsoft’s earnings. According to data from S&P Global Market Intelligence, most analysts who follow Microsoft expect the company to precisely double last year’s $2.10 in per-share earnings by 2020.
Granted, much of that growth is already baked into this year’s results, which are on track to grow 29% in comparison to 2016’s numbers. But even so — over a four year timespan, that’s some pretty impressive growth for a tech company now entering its 42nd year of life. Google is only 21 — barely old enough to drink — and its earnings are “only” expected to grow 99.7% by 2020.
By all of which I mean to say, if you’re looking for a stock “with Microsoft-like return potential,” you might want to look at Microsoft itself.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. George Budwell has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Raven Industries. The Motley Fool has a disclosure policy.