NVIDIA shareholders likely have a permanent grin on their faces enjoying what has been nothing short of a stellar year. The graphics processing unit (GPU), artificial intelligence, and Internet of Things (IoT) leader is on a roll, with its stock up more than 80% this year. That's a tough act to follow, but there are other stocks poised for an even better future than NVIDIA.
We asked a few of our investors for three stocks that won't only match but put NVIDIA's returns to shame. The three that made the grade are fast-growing connectivity provider CalAmp (NASDAQ:CAMP), NVIDIA memory chip partner Micron Technology (NASDAQ:MU), and natural gas giant Energy Transfer Partners (NYSE:ETP).
Right place, right time, right solutions
Tim Brugger(CalAmp): By most accounts, IoT already represents a $100 billion plus opportunity. One conservative estimate suggests IoT will balloon to a more than $560 billion market by 2025.
Connecting the billions of IoT "gadgets," mobile or stationary, and seamlessly amassing the reams of data it produces is CalAmp's calling card. CalAmp hasn't matched NVIDIA's performance in 2017, but its stock is up 50% this year and it boasts multiple growth drivers that positions it for an outstanding 2018 and beyond.
Last quarter's $89.8 million in revenue was a 7% improvement over last year, less sales from the now divested satellite unit. But CalAmp's fiscal 2018's second-quarter top-line growth isn't why it will outperform NVIDIA, it's the momentum CalAmp is gathering in all the right places. CalAmp's specialty lies in the industrial IoT and automotive markets, and it hit major home runs in both last quarter.
Caterpillar is one of CalAmp's customers and the $10.5 million in sales the partnership generated was a new record and up 7.4% sequentially. CalAmp also began shipping solutions to another global industrial giant that will begin paying dividends this quarter. Another "win" was inking the largest software-as-a-service (SaaS) contract in CalAmp's history, along with two smaller deals.
A core revenue generator is CalAmp's mobile resource management (MRM) telematics unit, which soared 29% to yet another record of $38.1 million and there are no signs of slowing. NVIDIA shareholders will continue reaping their rewards, but up-and-coming CalAmp will put its returns to shame in the years ahead.
Another great AI play
Keith Speights (Micron Technology): Yes, NVIDIA is a fantastic stock for cashing in on the artificial intelligence (AI) boom. But I think one of its partners could be an even bigger winner. Actually, so far in 2017, it already has. This great AI play is none other than Micron Technology.
Micron stock has soared more than 90% year to date. Its performance was even better just a few weeks ago. Even with the pullback, though, Micron is handily beating NVIDIA's gain in 2017.
In some respects, Micron and NVIDIA are joined at the hip. NVIDIA uses Micron's memory chips in its own graphic cards. Micron's new products announced earlier this year made the company even more attractive to NVIDIA. However, Micron is also forging its own path in AI. In September, the company announced innovative high-performance memory chips specifically geared toward the autonomous vehicle market. The chips are now in the hands of several automakers.
Micron also addressed security concerns associated with AI powering self-driving cars. The company announced plans to roll out software and hardware development kits for its Authenta security solution by the end of 2017. This should be ideal for customers working on limiting vulnerability to hackers trying to take control of autonomous vehicles.
In addition to outperforming NVIDIA this year, Micron has another advantage over its partner: valuation. While NVIDIA trades at nearly 40 times expected earnings, Micron stock's forward earnings multiple stands at a little over 6. That's dirt cheap for a stock with Micron's growth potential.
This high-risk gamble could pay off handsomely
Matt DiLallo (Energy Transfer Partners): Midstream giant Energy Transfer Partners has gotten walloped over the past three years, losing more than half its value over that time frame, including 27% this year. That's after sinking oil prices caused a wave of destruction across the oil patch, which impacted the volumes flowing through Energy Transfer's systems and its ability to access the money it needed to finance expansion projects.
However, the company's financial situation has started to turn the corner. Cash flow began rebounding in the second quarter thanks to an improvement in the oil market and the start-up of several growth projects. Meanwhile, it's been able to cobble together the financing needed to continue expanding. As a result, it has a slew of additional growth projects slated to enter service over the coming year, which should drive cash flow much higher.
That said, despite those bright prospects, Energy Transfer's valuation is absurdly cheap these days. That led CEO Kelcy Warren to quip last quarter that "our unit price will recover. I think at some point, there's got to be some sanity to come back into the market." That recovery could be significant since units trade for a more than 50% discount to the peer group, and that doesn't even factor in the growth coming down the pipeline. While it could be quite some time before that rebound occurs, and there's no guarantee it will ever happen, it's possible that Energy Transfer could more than double if oil market conditions keep improving and its growth projects deliver as promised.
Keith Speights has no position in any of the stocks mentioned. Matthew DiLallo has no position in any of the stocks mentioned. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends CalAmp. The Motley Fool has a disclosure policy.