The housing market is on fire, and real estate information services provider Zillow Group (ZG +2.71%) (Z +1.98%) has benefited in a big way. Since going public in the summer of 2011, Zillow's stock has returned nearly 330%! The company's solid market share and niche services has played a big role in rewarding investors.
It also has investors on the hunt for the next stock with Zillow-like return potential. With this in mind, we asked three of our Foolish contributors to name a company they believe offers share price growth that could rival Zillow. Rising to the top of the pack were clinical-stage cancer-drug developer Geron Corporation (GERN +5.48%), asset manager Affiliated Managers Group (AMG 0.97%), and China-based internet value-added services and advertising provider Tencent Holdings (TCEHY +1.66%).
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A drug stock with springboard potential
Sean Williams (Geron Corporation): A 300%+ return in six years is no easy task, but if there's any company out there that has a shot to deliver such impressive growth, it's clinical-stage biotech company Geron.
Geron is certainly not for the faint of heart. It has just one drug currently in development, imetelstat, for two separate indications: myelofibrosis (MF) and myelodysplastic syndromes (MDS). As a clinical-stage drug developer, Geron is living off of its remaining cash on hand, and if imetelstat flops, the company will be in some serious trouble.
But Geron has two key factors working in its favor. First, it has Johnson & Johnson (JNJ +0.02%) in its corner. In late 2014, Geron and Johnson & Johnson worked out a deal worth as much as $935 million that allowed J&J to license imetelstat. It provided $35 million upfront to Geron, as well as $900 million in development, regulatory, and sales-based milestones. J&J has a seasoned sales team that understands how to effectively market prescription drugs in the U.S. and abroad.
Perhaps even more impressive is what Geron has done in clinical trials. Prior to Geron's hook-up with J&J in Nov. 2014, it reported early stage clinical data that showed both partial and complete responses in MF patients. This is noteworthy because no other drug had ever led to clinical responses in MF patients. In fact, the only other drug currently approved to treat MF, Jakafi, is only designed to alleviate symptoms of the disease, such as enlarged spleen, and does nothing to slow disease progression. Geron's imetelstat gives genuine hope that there may soon be a drug designed to slow disease progression.
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Though Geron's investors got a bit of a scare when J&J scrapped its lower dose (4.7 mg/kg) of imetelstat in MF during a phase 2 interim analysis, the higher dose (9.4 mg/kg) has been demonstrating intriguing efficacy via those same interim analyses. Investor should soon have top-line data from both its MF and MDS trials to assess.
If eventually approved, imetelstat could have peak annual sales well north of $1 billion just in MF alone. An additional approval in MDS could push the drugs' peak sales even higher, perhaps approaching $2 billion annually by the latter-half of the 2020s. If phase 2 studies find their mark and imetelstat goes onto succeed in phase 3, it could quickly eat into Jakafi's MF market share, and its share price could head a lot higher.
Left behind on Wall Street
Jordan Wathen (Affiliated Managers Group): One of the cheapest asset managers on the market today, Affiliated Managers Group shares trade for about 11 times adjusted earnings, well below multiples the market assigns to what I believe to be inferior asset management companies.
Make no mistake about it, the asset management industry is taking its lumps from the rise of low-cost passive funds and ETFs, and about one-fourth of Affiliates' assets under management are in global equity funds, which have broadly lagged the performance of U.S. stocks in recent years. Investors turned on the company following first quarter earnings results, which showed a modest outflow in assets under management despite rising stock prices across the world.
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But Affiliated Managers isn't your traditional asset management company. It primarily acquires stakes in smaller, successful asset managers and provides assistance in the form of operational and distribution support. Companies in its portfolio include well-known names like AQR, ValueAct, and Third Avenue Management. Roughly 75% of its affiliates' assets under management are institutional, which tend to be stickier than retail investors who primarily invest by way of actively managed mutual funds.
Investors have multiple ways to win. There's an argument that a cash cow business like asset management is deserving of a higher multiple, particularly one exposed to overseas markets that haven't had the same post-crisis surge as domestic stocks. Secondly, Affiliated can take advantage of lower prices for asset managers, snapping up minority stakes in well-run companies that have seen their valuations compress as the market turns on all things actively managed. Finally, barring any substantial acquisition activity, increased dividends are likely, as its newly instituted dividend puts it on pace to distribute only about 5-6% of its earnings to shareholders.
A diversified internet giant
Keith Noonan (Tencent Holdings): If you're on the hunt for explosive growth, it's probably a good idea to devote at least some of your research time to companies that are stationed overseas -- particularly those in the world's largest internet market. China's leading web companies have been posting tremendous gains on the strength of connectivity growth, increased advertising spending, and user engagement, and Tencent Holdings looks to be one of the companies that's best positioned to continue delivering wins for investors.
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Tencent is well diversified across leading digital industries, and is benefiting from momentum in video games, online payment apps, cloud services, and other businesses. Its most recent quarter saw the company deliver 55% year-over-year sales growth and a 57% increase in profits, as its video games performed better than anticipated and popular WeChat and Weixin messaging platforms delivered strong ad sales and grew monthly active users 23% year over year to reach 938 million.
The company has a stellar lineup of content and development assets, and now owns leading video game studios Riot Games and Supercell, as well as a roughly 48% stake in Epic Games, and is creating synergies by tying its leading messaging and payment platforms to key game releases. The Chinese internet giant also been finding success in Hollywood, co-producing hit films Kong: Skull Island and Wonder Woman, and it's looking to expand its position in the film industry through acquisitions and internal development.
Tencent stock has gained nearly 45% year to date and trades at roughly 49 times trailing earnings, but its combination of leading positions in entertainment and social media platforms suggests the company still has stellar growth potential.
