Few companies have done more for their shareholders over the last decade than Netflix (NFLX 0.50%). The streaming giant has provided investors with a total return of 6,740%, which is big enough gain to create life-changing amounts of wealth.
So which stocks do we think are capable of producing similar returns from here? We asked that question to a team of investing experts, and they picked Tesla (TSLA +0.73%), Freshpet (FRPT +0.90%), Mazor Robotics (MZOR +0.00%).
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Similar qualities, different industry
Daniel Miller (Tesla): Back before Netflix changed how we consume streaming content and it was such a household name, the company had a growing business, a valuable brand, global ambitions, and was still young enough to have explosive growth potential. These are rare qualities for one young company to possess, and it's why few companies turn into the powerhouse investment that Netflix has become. But one recent company in a wildly different industry has these exact same qualities: Tesla.
Tesla's deliveries increased 53%, to 22,026 units during the second quarter, which is a drop in the bucket compared to a mainstream automaker such as Ford Motor Company, which delivered more than 1.6 million cars. But despite the disparity in the number of vehicles sold, Tesla has managed to grow its brand image enormously as a state-of-the-art tech and automotive company combined -- and consumers are willing to pay exuberant prices to be an early adopter of its electric vehicles.
The electric-vehicle automaker has also worked diligently to build out both its supercharger network to alleviate consumers' range concerns, and expanded its store and service locations to 300 globally at the end of the second quarter. Its worldwide network and distribution is growing, and this will be key for long-term growth, as many anticipate China to become Tesla's largest market -- and sooner rather than later. This year, Tesla is targeting a production run rate of 100,000 vehicles and anticipates ramping that production rate to 500,000 next year to appease initial demand.
Tesla is by no means in the clear, as it's losing money and burning through cash. And its ambitious acquisition of SolarCity had some investors pressing the pause button. But its business is growing -- revenue was up almost 120% during the second quarter, to $2.79 billion -- its brand image is phenomenal for such a young automaker, and its worldwide network is setting the stage for explosive growth if its Model 3 is as successful as investors hope.
Those are all factors Netflix had way before it made many investors wealthy. Hopefully, Tesla's long-term investment story ends just as well.
A paw-tentially attractive growth stock
Sean Williams (Freshpet): Repeating what Netflix has done over the past decade is going to be exceptionally difficult, but if I really like the developing story surrounding Freshpet, a retailer of natural and organic foods for companion pets.
If we needed any proof of the money-making opportunity behind companion pets, look no further than data from the American Pet Products Association. Between 1994 and 2017 (this year's sales forecast is estimated), total expenditures on family pets has grown from $17 billion to $69.4 billion. Despite two steep recessions, pet expenditures have increased every single year since 2001, which is when the APPA began keeping annual sales logs). This year alone, Americans will spend an estimated $29.7 billion on food, up almost $1.5 billion from the previous year. That's where Freshpet comes in.
Freshpet's focus on organic and natural refrigerated products speaks to the trend of consumers willingly spending more on organic and natural foods for themselves, since they're believed to be more nutritious. But will consumers step up their spending for their pets?
Chances are they will, since a Harris poll in 2012 found that 91% of respondents considered their pet a part of their family. As someone who's spent more than $20,000 on veterinary bills since 2014 to make sure his pets are well taken care of, I can attest that consumers will pay to keep their family members as healthy and happy as possible.
More specific to Freshpet, its latest quarter delivered $40 million in sales, which represented 21% year-over-year growth, and the number of Freshpet fridges in supermarkets and grocery channels increased by 9.9%, to 17,357. Those are particularly strong numbers when you consider that Freshpet only had 35% customer awareness and 1.4% penetration as of 2016, which is well below its competitors, but not surprising for a newer brand. An aggressive marketing campaign utilizing TV and digital advertising is currently being used to get the Freshpet name in front of consumers, allowing its penetration and awareness levels to increase.
What's more, Freshpet is really improving its repeat customer rates. A happy customer doesn't need discounts or marketing to bring them back to the brand. Between 2015 and 2016, the repeat-customer rate exploded to 71% from 62%. These are potentially high-margin customers who could be critical in helping Freshpet improve consumer awareness of the brand by telling their pet-owning friends.
I could foresee double-digit sales growth from Freshpet for years to come, which could allow this upstart in organic and natural pet foods to give Netflix a run for its money.
A leader in a market primed for hyper-growth
Brian Feroldi (Mazor Robotics): One reason why Netflix has been such a great performer is that it was the established leader in a market that was entering hyper-growth mode. When I think about the companies today that share those same traits, I can't help but think of Mazor Robotics.
Mazor is a leading provider of robotic surgical systems that are used during spine and brain procedures. The company's products greatly enhance a surgeon's ability to place implants with accuracy. That leads to lower complication rates, less exposure to radiation, and much lower post-surgery pain.
Given the advantages of robotic spine and brain surgery, some analysts believe that the market is primed to enter a hyper-growth period. Last year, the total market for robotic spinal procedures was about $26 million. This figure is expected to jump to more than $2.77 billion by 2022. That's a 100-fold increase in about six years.
While there are plenty of companies trying to grab a piece of the action, my money is on Mazor for two reasons. First, Mazor offers a battle-tested solution. The company has been selling its system for several years, and it already boasts a worldwide install base of more than 145 machines. With dozens of peer-review papers already published and 23,000+ procedures performed since launch, Mazor is the top dog in its field.
Second, the company signed a deal with Medtronic that greatly enhances its marketing muscle. Having the world's largest medical-device company give your technology the thumbs up should go a long way toward winning over the skeptics.
Despite its leadership position and huge opportunity for growth, Mazor is still a sub $1 billion company today. While there are plenty of risks to consider, Mazor could be a home-run stock for investors from here.
