According to a recent study conducted by Bank of America/Merrill Lynch, growth stocks and value stocks have both been solid performers since 1926, with growth stocks up an average of 12.6% and value stocks up 17%. However, the study also notes that growth has been handily outperforming value of late, which is probably a reaction to lending rates that have remained near historic lows and companies that have cheap and ready access to capital that they can use to expand.
The implication is simple: This could be growth stocks' time to shine.
So what growth stocks should you have on your radar? We posed this very question to three of our contributors, and the following three growth stocks ranked high on their list of must-watch companies.
A portfolio full of blockbusters
First, Celgene can grow the most traditional way possible: organically. Celgene's main organic growth driver is Revlimid, the premier first- and second-line multiple myeloma therapy. Celgene is benefiting from a growing number of multiple myeloma diagnoses, longer treatment timeframes, and pricing power.
Adding more fuel to the fire, Celgene also reached an agreement with generic-drug distributors regarding the entrance of generic Revlimid into the market. Under the terms of the deal, only Natco Pharma will be able to sell a limited supply of generic Revlimid beginning in March 2022, but a full-fledged generic flood isn't going to occur until January 2026. This means Revlimid is set up to become a cash cow for the next decade. Sales of Celgene's key drug have been growing at between 15% and 20% per year.
Secondly, Celgene can grow inorganically by means of acquisitions. For example, in 2010 it acquired Abraxis BioScience in order to get ahold of metastatic breast cancer drug Abraxane, which had $315 million in sales in 2009. In the subsequent years following the purchase, Abraxane's label was expanded to advanced pancreatic cancer and advanced non-small-cell lung cancer (NSCLC). This year, Abraxane sales could touch $1 billion, even though they've been slowed a bit by the emergence of cancer immunotherapies in advanced solid tumor diseases such as NSCLC.
Celgene's new hope rests with its $7.2 billion buyout of Receptos, which allowed it to gain hold of ozanimod, a next-generation multiple sclerosis and ulcerative colitis medicine with $4 billion to $6 billion in peak annual sales potential.
Finally, Celgene can use collaborations to its advantage. Celgene understands that it can't be everywhere at once, so it's leveraging its R&D by partnering with more than 30 different drug developers to discover first-in-class treatments for cancer, immunology, and inflammation. If Celgene sees promising data, it can choose to fully license the developing product. Being a collaboration-heavy company means putting its resources toward only the most promising pipeline products.
Looking ahead, Celgene anticipates its 2020 sales will exceed $21 billion, and that its full-year EPS will eclipse $13. By comparison, Celgene's fiscal 2015 generated only $9.26 billion in sales and $4.71 in adjusted EPS. Pretty much, we're looking at a better than doubling in sales and a near-tripling in profits over the next five years. That's the type of growth investor should be salivating over!
Black gold, Texas tea
Matt DiLallo: The oil market is in its deepest downturn since Ronald Reagan was president, but that hasn't fazed Pioneer Natural Resources (PXD) one bit. While most of its peers are just trying to keep their oil production flat this year, Pioneer is planning for double-digit growth.
Two factors allow Pioneer Natural Resources to grow production while its peers are not. First, it has a pristine balance sheet. As of the end of the first quarter, its net debt-to-book capitalization was a mere 10%, with anything below 30% considered good. Meanwhile, its net debt-to-operating cash flow was a minuscule 0.1, which is almost unheard of in the oil sector. The reason is that Pioneer avoids using debt to fund growth and instead issues equity or sells assets anytime it needs capital.
The other critical factor driving Pioneer Natural Resources' ability to grow despite weak oil prices is its prime position in the Permian Basin. Because of the relatively low drilling costs and hydrocarbon-saturated rocks, some wells in the Permian can deliver before-tax internal rates of return above 50% in the current environment. Those returns are why Pioneer continues to invest capital in the play and plans to accelerate its production growth next year even if oil prices don't budge.
Pioneer Natural Resources is one of the few oil stocks growing production at the moment, which is setting it up for robust returns now that the oil market is starting to turn the corner.
There's no gloom in this cloud
Daniel Miller: Investors might have missed a great opportunity to buy salesforce.com (CRM) during early February, after the price dropped roughly 30% from when the calendar kicked off 2016. While that's true, investors might have an opportunity if concerns of the Brexit vote send the stock lower -- Europe generates a chunk of the company's revenue.
Salesforce is a software-as-a-service company that offers customer relationship management applications revolving around sales, marketing, analytics and customer service. It generates about 74% of its total revenues from the Americas, 17% from Europe, and 9% from the Asia-Pacific region -- and you can throw Brexit fears aside when looking at its track record of growing revenues.
Looking back at the three regions, there is no laggard in the bunch. Consider that during the first quarter of fiscal year 2017, the Americas grew revenue by 27% year over year, Europe did the same, and Asia-Pacific grew at a 28% clip -- and that isn't using constant currency, which would have sent the percentages even higher.
For the full year, the company is guiding for revenue to jump between 22% and 23% to reach between $8.16 billion and $8.20 billion, and investors shouldn't be surprised if Salesforce tops $10 billion in annual revenue sooner rather than later. It's not a growth story solely revolving around the top line, either, as the company grew its cash flow 43% during the first quarter compared with the prior year, and its non-GAAP operating margin grew 283 points during the same time, which was its eighth consecutive quarter of year-over-year improvement.
If you like growth, Salesforce is begging you to deep-dive into its products for a better understanding, because it's growth story shouldn't end anytime soon.