Anybody like growth stocks? Chances are you're a happy camper if you do, because growth stocks have handily outperformed value stocks (which is a break from the historic norm) since the Great Recession, according to research from Bank of America/Merrill Lynch. Low lending rates have offered growth stocks easy access to cheap capital, which they've been able to use to expand, acquire, and innovate.
Investors might be under the impression that the fastest growing stocks can only be found by perusing small- and mid-cap stocks. However, some of the robust growth stories can be found among large caps and even megacap stocks.
While megacap stocks don't have an exact definition, they're often categorized as having market caps in excess of $100 billion. Today, I'm going to fudge this definition a bit (since it's not concrete, after all) to include four companies with market caps of $60 billion or higher that are on track for average full-year earnings per share (EPS) growth between 2016 and 2020 of 642%. That's not a misprint. These are brand-name companies you'll be very familiar with that are bringing serious EPS growth to the table.
Image source: Getty Images.
Netflix: 1,040% EPS growth
Among the giants, no Goliath stands taller than streaming content provider Netflix (NFLX 1.74%), which is slated to grow its EPS from $0.43 in 2016 to $4.90 by 2020, per Wall Street -- a 1,040% improvement.
Despite an increase in streaming content competition, Netflix's management team seems to have few worries about its market share or long-term potential, and neither does Wall Street. International streaming is a massive long-term opportunity for Netflix, even if laying the groundwork for overseas expansion has taken time and money -- in the first quarter, Netflix actually recorded a $43 million profit from its international operations after recognizing $309 million in aggregate losses from overseas markets in full-year 2016. Since Q1 2016, Netflix has added 13 million international paid memberships, and another 2.8 million are expected to be added during the second quarter.
Netflix also has tremendous pull and pricing power given its proprietary content, such as House of Cards. Given the growing size of its content library, Netflix's pull among consumers should give it the ability to pass along price hikes without disrupting new paid memberships. The company is reportedly tinkering with price hikes in Australia, which could signal that U.S. increases are around the corner.
Long story short, you'd struggle to find a faster-growing industry giant.
Image source: Pixabay.
Chevron: 556% EPS growth
Unlike Netflix, which is growing like a weed, integrated oil and gas giant Chevron (CVX 1.04%) is expected to deliver 556% EPS growth between 2016 and 2020 as a result of a rebound from a miserable 2016 that saw it earn just $0.94 per share.
As you might have rightly surmised, Chevron's earnings weakness stems from its reliance on upstream production. Last year, oil spent some time below $30 a barrel, which hurt Chevron a bit more than its similarly sized peers. However, a rebound in crude prices, which have stabilized between $45 and $55 per barrel over much of the trailing year, has investors turning a bit rosier on Chevron.
While crude supply issues are nowhere near resolved, Chevron's cost-cutting and non-core asset sales are lightening the load by generating cash to meet its dividend and debt obligations. Remember, Chevron is a Dividend Aristocrat, meaning it's raised its dividend for at least 25 consecutive years, and management would really like to not lose that designation. Between the beginning of 2016 and through Q1 2017, Chevron jettisoned $2.7 billion in assets, and has plans to dump an aggregate of $10 billion in assets by the end of next year. This, along with more than a halving in capital spending since 2014, have given Chevron more breathing room.
Nonetheless, investors are going to need to see further commitments from OPEC to lower production, or a major surge in oil demand, to alleviate crude oversupply concerns in the near- and intermediate-term. Until this happens, Chevron's EPS estimates come with a major asterisk.
Tesla Model 3. Image source: Tesla Motors.
Tesla Motors: 498% EPS growth
Some of you may have heard about this Elon Musk guy? Turns out he's got a pretty good idea about how to effectively disrupt a number of industries. His company, Tesla Motors (TSLA 4.96%), is on track to grow its EPS from a loss of $2.87 per share in 2016 to more than an $11 profit per share by 2020, translating into just shy of 500% EPS growth.
A majority of Tesla's growth is expected to come from its electric vehicle segment, which was built on sales of the Model S, but will soon be driving strong because of the expected launch of the Model 3, a more affordable EV. The unveiling of the model 3 is expected to happen in July, but the company counted more than 400,000 reservations for the car, via deposits, in mid-2016! With the Model S and X having price tags that can top $100,000, the Model 3 will be a breath of fresh air for the common car consumer. The question is, can Tesla deliver its Model 3 orders on time and meet that surge in demand?
Tesla is also more than just cars these days. The construction of its gigafactory and acquisition of Solar City make it a serious energy player. Musk's bet is that homeowners will opt for solar power as the push to reduce our carbon footprint grows, and as solar panel production costs lessen. It remains to be seen if Musk's vision will prove accurate, as Solar City was losing quite a bit of money prior to its acquisition.
Despite its strong growth prospects, this Fool is personally skeptical.
Image source: Getty Images.
Amazon.com: 472% EPS growth
Last, but certainly not least, e-commerce retail giant and burgeoning cloud services player Amazon.com (AMZN -1.65%) is expected to grow its EPS from $4.90 in 2016 to more than $28 per share by 2020.
How on Earth has Amazon kept up such a torrid growth pace, you wonder? Its business design is a big reason why it's been such a disruptor in the retail industry. Operating as an e-commerce portal means having lower overhead costs than brick-and-mortar retailers, along with a broader product selection. Consumers have been able to enjoy the convenience of shopping Amazon's products from their home or office, and can often buy goods for a cheaper price than they can in brick-and-mortar stores. The addition of the Amazon Prime membership, which offers free two-day shipping on select items, is just the icing on the cake that keeps customers loyal to the brand.
Amazon has also done well with its efforts to branch out beyond e-commerce. For example, Amazon Web Services (AWS), which comprises its cloud services geared at small businesses, saw sales grow to $3.66 billion in Q1 2017 from $2.57 billion in the prior-year period. More importantly, it generated $890 million in operating income from its AWS sales, compared to just $115 million for its e-commerce sales, where margins are much lower as a result of business reinvestment. In other words, AWS may only represent about 10% of Amazon's current sales, but it's generating nearly all of its margin and profit.
Despite recently crossing the $1,000 share price barrier, Amazon's stock could be tough to slow down.
