Market momentum can be a powerful wealth-building tool. From successful turnaround stories and underappreciated business models to up-and-coming disruptors, skyrocketing share prices can be an early sign of far greater things to come.
Not every rising stock is destined for long-term success, of course, so we asked a few of your fellow investors here at The Motley Fool to share some of the best momentum stocks on the market right now. Micron Technology (NASDAQ:MU), Shopify (NYSE:SHOP), and Interactive Brokers (NYSEMKT:IBKR) have gone above and beyond 20% returns in 2017. Read on to see why you should expect them to keep rising.
A long-term bet in e-commerce
Chris Neiger (Shopify): Shopify's shares have shot up more than 130% higher since the beginning of this year, largely because of the company's explosive growth in both customer acquisition and sales -- and the expanding e-commerce market indicates there's likely more growth ahead.
In 2015 the Shopify service had about 200,000 customers, but that number has skyrocketed 150% in just two years. Shopify's e-commerce platform gives small and medium-sized businesses cloud-based solutions for everything from making sales to tracking inventory. Shopify is not only creating a great product that companies are flocking to, but it's doing it at a time when e-commerce growth is also growing. Online sales in the U.S. only represent about 9% of total retail sales right now -- and will make up just 14.6% of worldwide sales in 2020. All of this means Shopify's platform still has a lot of room to grow as e-commerce sales expand.
Consumers in the U.S. will spend about $632 billion online by 2020, and Shopify's revenues show that the company is already tapping into this growing market. The company's total sales spiked 72% year over year in the third quarter, and subscription revenue is up 65% and merchant solutions revenue is up 79% from last year.
Shopify's management believes the company will grow its top line by an additional 59% at the midpoint next quarter, on a year-over-year basis. That growth, and the facts that the company has virtually no debt and about $120 million in cash, mean that Shopify should continue on its growth trajectory. The worldwide e-commerce market will be worth more than $4 trillion by 2020 (up from $2.3 billion this year), and Shopify's current growth is positioning this e-commerce play to benefit for years to come.
Don't worry about another memory price war
Anders Bylund (Micron Technology): Investors in this memory-chip maker, including yours truly, have seen our holdings double in value this year. There's more growth to come.
The computer-memory market is known as a highly cyclical business. Whenever Micron and its sector peers experienced a boom, the bust was never far behind. Share prices more than tripled from 2009 to 2011, then took a 50% haircut over the next six months. Micron repeated the cycle a couple of years later, rising fivefold in two years before losing two-thirds of 2015's peak prices in a matter of months.
Once again, the stock has gained 450% from the last trough. Skeptics expect another price war to excoriate the memory market again, taking Micron shares down just like the price wars of 2011 and 2015.
But I'm not selling, because things are very different this time.
The last two meltdowns were not Micron's alone, but sectorwide panics driven by oversupply and weak demand. Many memory-chip suppliers did not survive these shakeouts, and were scooped up on the cheap by healthier rivals. Some factories have been reassigned to making solar panels or camera chips, and the remaining memory manufacturing lines are controlled by a very small handful of disciplined companies. Micron is among these, and is doing a great job of controlling the supply-demand balance.
In short, there is little reason to expect another all-out price war this time, because the usual instigators have so little to gain from triggering one. In the meantime, Micron's shares are trading for less than 7 times forward earnings estimates. There's a lot of risk baked into that price, and most of it is based on a misunderstanding of the new memory-market dynamics.
So yes, Micron's stock has more growth ahead of it, as investors adjust to this bizarrely mature memory market.
A broker with a durable competitive advantage
Jordan Wathen (Interactive Brokers): Online discount broker Interactive Brokers has seen its shares gain nearly 50% this year, but I think the best is still to come for investors who buy and hold this fast-growing broker.
Clients turn to Interactive Brokers for a simple reason: It has the lowest prices on most trades in stocks, futures, options, and currencies. Low prices beget scale, which brings lower prices and more customers, a powerful flywheel.
Interactive Brokers is adding new clients at an impressive pace, and growth is accelerating. In October, client accounts jumped to 465,000, a 24% increase from the year-ago period, and the fastest year-over-year increase in the data going all the way back to 2009:
To be sure, new clients aren't as valuable as its legacy clients, given that new customers tend to trade less frequently. That said, brokers can make money from clients who aren't active traders, earning interest spreads on margin loans and client cash balances, and by loaning out stock.
Though sentiment around the brokerage industry may change from week to week, the underlying growth story remains intact: Interactive Brokers is a low-cost producer in an industry where prices are everything to the customer. Accounts should grow at a double-digit clip for a very long time to come.
Anders Bylund owns shares of Micron Technology. Chris Neiger has no position in any of the stocks mentioned. Jordan Wathen owns shares of Interactive Brokers. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.