Toy and board game giant Hasbro (HAS -0.26%) has been crushing the market in the long run. Over the last decade, its share price has more than tripled to a 220% return -- or 350% if you reinvested Hasbro's dividends along the way.
But that's all in the rearview mirror now. Where's the next Hasbro and its huge long-term returns? That's what we asked a panel of your fellow investors here at the Motley Fool, and they were glad to share some great investing ideas for the long haul. Read on to see why they selected First Solar (FSLR 2.19%), Alibaba (BABA 0.35%), and Pioneer Natural Resources (PXD 0.25%).
Pass go and collect $200 with this bright idea
Sean Williams (First Solar): Hasbro isn't playing around. Shares of the gaming giant are up in the neighborhood of 220% over the trailing 10-year period. While it could be tough to find another company that could match or top such gains, solar industry giant First Solar would be my pick.
By all accounts, 2017 was expected to be just as rough on solar companies as 2016. A number of solar panel manufacturers have struggled with oversupply, falling prices, and high debt levels that were induced by previously strong prices and the perception of endless solar expansion in China, the U.S., and other countries. More specific to First Solar, it guided toward full-year adjusted EPS of between $0.25 and $0.75, which is well below its recent norm of $3-$4 in adjusted full-year EPS.
But one year of poor results does not make a trend -- and that trend is of growing solar usage among utilities, businesses, and residential customers. Even with Donald Trump pushing domestic fossil fuels, the outlook for solar remains relatively strong in the U.S., China, India, and elsewhere around the globe.
Two factors make First Solar stand out from its peers. First, the company's balance sheet. Whereas most of its solar peers have been on the defensive and looking for ways to pare down their debt, First Solar anticipates ending the current fiscal year with between $1.5 billion and $1.7 billion in net cash. That currently works out to about 35% of its market cap. First Solar has the cash to make accretive acquisitions, should it see fit, or to simply keep its competitive advantages in place with regard to innovation.
The other way First Solar stands out is that aforementioned innovation. Last year, the company announced that it would be focusing entirely on its next-generation products, known as Series 6. New upgrades in its Series 6 panels will reduce costs by up to 40%, which is great news considering that solar pricing power has been better than expected thus far this year. Series 6 products should begin shipping next year, with 3 gigawatts of capacity possible for 2019, along with considerably higher margins.
With arguably the best track record, innovation, and balance sheet in the solar industry, First Solar could allow you to pass go and collect $200, to borrow a page from Hasbro's Monopoly.
It's all about the cash flow
Matt DiLallo (Pioneer Natural Resources): Shale driller Pioneer Natural Resources recently unveiled its 10-year vision to grow production up to 1 million barrels of oil equivalent per day (BOE/d) by 2026. For a company that produced 249,000 BOE/d last quarter, that's an ambitious target and would require maintaining its current 15%+ production growth pace for nearly a decade. But given the company's low-cost oil resources in the Permian Basin and cash-rich balance sheet, Pioneer believes it has what it needs to keep up its current pace.
That said, while the focus is on the production growth that Pioneer can get out of its oil-rich position in the Permian, an even more remarkable number is the cash flow growth it expects this plan will produce. According to the company's projections, it can grow cash flow at a 20% compound annual rate over the next decade as long as oil averages $55 per barrel. That's top-tier cash flow growth that only a handful of companies have achieved in the past.
In fact, according to an analysis by JP Morgan, only 15 companies in the Russell 1000 Index were able to increase cash flow at a 20%+ clip over the past decade. More importantly, those cash flow compounding machines delivered market-thumping returns of 662% on average, which, incidentally, trumps Hasbro's nearly 250% return over the past ten years. While it will be tougher for Pioneer to achieve such robust returns given the volatility of oil prices, the company certainly offers investors compelling growth potential since it could deliver outsized returns even if oil doesn't do much, with the potential for more upside if crude rebounds.
The shape of global e-commerce to come
Anders Bylund (Alibaba): Hasbro's story is all about solid returns, one year after another. The ideal investing period for a stock like that is basically forever, as you let your winning bets run. In a nutshell, it's the long-term magic of compound returns.
In my view, Alibaba is poised to repeat Hasbro's fantastic long-term returns for decades to come.
The China-based online retailer and provider of back-end services for other e-commerce businesses is building a beast for the ages. Alibaba already manages an annual total of $550 billion in gross merchandise volumes (GMV), making it one of the largest retailers on the planet. Founder and chairman Jack Ma hopes to reach GMV of a cool $1 trillion by the year 2020. That should give the company a strong start to that long-term growth trek.
Beyond that, it's important to note that only 10% of Alibaba's revenue comes from markets not named China. The company is already exploring ways to expand its reach beyond the borders of the Middle Kingdom. Jack Ma is unlocking a global e-commerce strategy for the long run, and he's just getting started today.
I realize that Alibaba already boasts a $390 billion market cap, and it's asking a lot if I'm forecasting the cap to triple on top of that. We're watching a true giant taking its first uncertain steps out into the world, and I wouldn't be surprised to see the triple arriving much faster than 10 years down the road.