If you are investing money in stocks today, chances are you aren't looking for a payout this year, next year, or even a few years down the road. The real potential for profits comes when you hold those stocks for a decade or more, which puts your investment time horizon well into the 2020s.
We asked three of our contributors to highlight stocks with immense payout potential in the next decade. Here's why they picked Cheniere Energy (LNG 1.78%), National Beverage (FIZZ 0.32%), and Cott (COT +0.00%).
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The biggest growth opportunity in fossil fuels
Tyler Crowe (Cheniere Energy): Fossil fuel demand is still growing, but not at a fast enough pace that would really excite investors. If you look at some of the individual markets within fossil fuels, though, you will find some pockets growing at a very rapid clip. One of those pockets is liquefied natural gas (LNG). As recently as 10 years ago, natural gas prices varied greatly depending on geographic location, and the small amount of LNG out there didn't really help that situation.
Today, LNG is becoming an ever larger component of the global fossil fuel trade. Countries looking to lower their carbon emissions quickly are making the switch from coal to gas, and the recent ability to access shale in the United States has opened a cheap, abundant supply that is completely changing the way natural gas is priced internationally.
One company that is at the vanguard of this change is Cheniere Energy, and there is a pretty good chance that the company will be an absolute cash cow for investors in the coming years.
Cheniere has already brought three of its LNG processing trains on line at its Sabine Pass facility, and expects that its remaining four trains under construction will be complete by the second half of 2019. A four-train expansion is also in the works. More than 85% of the production capacity from these facilities is supported by 20-year take-or-pay contracts that have no commodity price risk. Once the trains are fully operational, Cheniere expects to generate $3.8 billion to $4.1 billion in annual EBITDA. This is the kind of cash-generating business that could produce fantastic returns.
The company is still a couple of years away from realizing this potential, but there is certainly an opportunity for a payoff in the 2020s if you look at shares today.
The fizzy stock pick
Travis Hoium (National Beverage Corp.): If there's one trend that's not going to slow down in the next decade, it's the move away from sugary sodas toward healthier drinks. The first phase of this trend was when consumers moved to bottled water, but now National Beverage's LaCroix brand has captured the demand of those who want a healthy option with a little sparkle. La Croix is the fastest-growing natural sparkling water brand in the U.S., and the company's health-focused "Power+" brands (which include La Croix, Shasta, juice brands, and energy drinks) are booming. In fiscal Q3 2017, total case volume was up 17.5%, but Power+ brands saw a 48.6% increase, resulting in a big jump in revenue and earnings.
FIZZ Revenue (TTM) data by YCharts.
National Beverage is just now starting to reach a scale that gives it a little operating leverage. Operating margin has jumped from 11.5% in fiscal 2015 to 18.2% in the trailing 12 months ended Jan. 28, 2017. And if price increases continue and volume continues to grow, the company should be able to leverage the bottom line even more.
National Beverage doesn't have a lot of brands like many of its larger competitors, but with Power+ brands like La Croix and Shasta growing at nearly 50%, investors are getting great performance from the brands it has. And operating margins and earnings are improving at an even faster pace because the company can increase prices and benefit from higher volume. I think the healthier drink trend will continue and that therefore this is a stock that will dominate well into the 2020s.
No-name potential
Rich Duprey (Cott): I have to agree with Travis on the huge potential for companies capitalizing on the move away from soda and toward bottled water. But I think there's a way to give the returns a caffeinated jolt by adding in coffee and throwing in no-name branding to boot.
Cott is the biggest private-label beverage maker in the country, producing most of the store-brand beverages you find in retailers today, not least among them Wal-Mart, which generates 16% of its total revenue. In fact it makes all of Wal-Mart's carbonated soft drinks in the U.S. But soda and juice sales are on the decline industrywide, so the beverage maker has made a marked push into bottled water and coffee delivery for homes, offices, and the food-service industry. In the past year alone it made three acquisitions that have caused that segment's revenue to surge from 1% just two years ago to more than 45% today.
And with good reason. Industry analysts expect the bottled water market to grow from $170 billion in 2014 to $280 billion by 2020, an 8.5% compounded annual growth rate. Additionally, daily coffee consumption is on the rise, with the percentage of Americans drinking coffee every day rising from 57% last year to 62% this year, and the largest increases are being seen among 13- to 18-year-olds, which bodes well for having a robust group of future coffee drinkers.
With its acquisitions, Cott enjoyed gross margin expansion as it increased to 34.6% of revenue in the first quarter compared to 30.6% last year. The company also trades at just a fraction of its sales and goes for around 13 times the free cash flow it produces, a fairly discounted valuation that should help its stock bubble up over the coming decade.
