No one can definitively tell you which stocks will be the biggest winners a decade from now. But we can certainly make educated picks based on a long-term view of current technological and industry trends.
So we asked three top Motley Fool contributors to each discuss a stock that they believe has the potential to generate market-beating returns for investors in the 2020s. Read on to learn why they chose payments technology giant Mastercard (NYSE:MA), Japanese robotics specialist Fanuc (OTC:FANUY), and molecular diagnostics leader Exact Sciences Corporation (NASDAQ:EXAS).
The key to the world's financial future
Steve Symington (Mastercard): Considering that an estimated 85% of the world's retail payments are still in cash and check, few businesses stand to benefit as much as Mastercard while consumers steadily migrate toward our cashless future. But it's not only its flagship plastic cards that will pave the way: Mastercard is investing heavily in digital payments initiatives, taking market share in commercial payments and business services including consulting, safety and security, information services, data analytics, and loyalty and rewards programs. Mastercard will also participate in direct-to-bank account payments through its pending acquisition of VocaLink.
And Mastercard's recent performance is a testament to the strong foundations of its business. Despite a bevy of headwinds ranging from Brexit to decelerating global economic growth and the strong U.S. dollar, revenue in 2016 climbed 11% (13% adjusted for currencies) to $10.8 billion. Earnings per share also rose 10% (11% at constant currency) to $3.69, and would have climbed 19% adjusted for discrete tax benefits in 2015. The company generates plenty of cash, with free cash flow last year increasing 10.4% to $4.27 billion. Couple this with its healthy net margin, and it seems safe to bet Mastercard will also continue to return capital to shareholders through both share repurchases and dividend increases in the coming years. In the end, I think investors will be handsomely rewarded if they buy now and watch Mastercard's story play out well into the 2020s.
Meet (and welcome) your new robotic overlord
Between aging populations in developed world economies (strangling labor supply) and the high cost of paying salaries and providing health insurance to those workers who are still in the labor force, more and more often, we'll see companies turn to robots to do the work that humans used to do. And the time to start preparing our portfolios for this eventuality is now.
So which company do you buy if you want to invest in robots? If you ask me, the leading name in the space right now is Japan's Fanuc. With $1.1 billion in annual income, it's the most profitable robot maker in the world. And unusually for a heavy industry company, it's also a consistent cash generator. Fanuc has reported positive free cash flow in each of the past five full fiscal years and in every semiannual report save last year's fiscal H2, when Fanuc invested a massive $660 million in capital expenditures -- to position itself at the head of the coming robot boom.
While that investment depressed cash flow in the short term, I think it was a wise move -- and with Fanuc sitting on $6.9 billion in cash, without a lick of debt on its balance sheet (two facts that provide further evidence of its robust free cash flow), it was an investment Fanuc could easily afford. Not all of the company's rivals have the wherewithal to make such investments in the future, and that's one big reason that I think Fanuc will be a stock market winner in the 2020s.
Testing that saves lives
Keith Speights (Exact Sciences): Over 50,000 Americans will die this year from colorectal cancer. That number could go up in the next decade with more people ages 50 and over, the demographic group more likely to be diagnosed with the disease. However, one company that could help avoid an increase in deaths from colorectal cancer is Exact Sciences.
Colorectal cancer can often be treated effectively if detected early enough. The Journal of the National Cancer Institute has said that it's "the most preventable, yet least prevented form of cancer." Nearly half of Americans who should be screened aren't. One major reason this number is so high is that many people don't want to undergo colonoscopies to check for the disease. That's why there's a tremendous opportunity for Exact Sciences' Cologuard DNA screening test.
Cologuard is an easy-to-use stool DNA test that individuals with low risk for colorectal cancer can use at home. No special preparation or invasive exam is required. The DNA test is also highly accurate at early detection of colorectal cancer.
Exact Sciences estimates a potential U.S. market opportunity of $4 billion annually. The company's revenue soared more than 150% last year, with Cologuard experiencing the most successful launch in its first three years on the market of any DNA test. More DNA tests could be on the way: Exact Sciences is working with the Mayo Clinic to develop biomarker tests for multiple types of cancer.
The molecular diagnostics company's stock has more than tripled over the last 12 months. With a huge market potential for Cologuard and perhaps even larger opportunities ahead, Exact Sciences definitely looks like a great investment for the 2020s.