Software giant Microsoft (NASDAQ:MSFT) is one of the greatest stock stories of all time. Following nine splits since Feb. 1986, ole Softy has a split-adjusted starting value of just $0.09 per share. Yet, the company behind the rapidly growing Azure cloud platform, Xbox gaming system, and iconic Windows operating system, closed at nearly $86 per share on Jan. 2. That's a gain of nearly 90,000% in just shy of 32 years. With returns like these, investors are always on the hunt for the next Microsoft.
But, the next Microsoft may not be a tech company -- at least according to three of our Foolish investors. We asked our investors to name a company that they felt embodied the same traits as Microsoft back in 1986. The companies they came up with were: Aratana Therapeutics (NASDAQ:PETX), a specialty drug developer for companion pets, Boston Omaha (NASDAQ:BOMN), a financial holding company engaged in the billboard and insurance industries, and Geron (NASDAQ:GERN), a clinical-stage drug developer focused on treating blood cancers.
Man's best friend could be man's best profit potential
Sean Williams (Aratana Therapeutics): While finding the next Microsoft could prove exceptionally difficult, I believe that Aratana Therapeutics, a biotechnology company focused on developing specialized medicines for companion pets, might become a dominant force in the veterinary industry.
Why specialty medicines for companion pets? According to the American Pet Products Association, the amount of money that owners have spent on their pets has more than quadrupled from $17 billion in 1994 to an estimated $69.4 billion as of 2017. Of this $69.4 billion, more than $31 billion is a mix of veterinary care and supplies, which includes over-the-counter medicines.
To add, a Harris Poll conducted in 2012 found that 91% of survey respondents affirmed that their companion pet was a member of their family. This suggests that these families will spend whatever money is necessary to ensure the health and well-being of their "family member."
Aratana Therapeutics currently has three products approved by the Food and Drug Administration -- Entyce, Nocita, and Galliprant -- with the latter being the most exciting. Aratana actually has a licensing partnership with Eli Lilly's (NYSE:LLY) Elanco, the company's animal-health division, for Gallpriant, a first-in-class treatment for canine osteoarthritis. The deal provided Aratana $45 million in upfront cash, as well as the potential to earn $83 million in future milestone revenue, along with net-sale royalties. Plus, it gets the marketing expertise of Eli Lilly aiding in the growth of Galliprant.
Aratana has also been aggressively investing in its pipeline, which could lead to the type of organic growth that was reminiscent of Microsoft back in the late 1980s and early 1990s. Even with some speed bumps -- the company announced on Dec. 15 that AT-016, an adipose-derived allogeneic stem-cell therapeutic candidate to control the clinical signs of osteoarthritis, failed to meet its clinical endpoint -- Aratana looks to be on solid footing. AT-003 for post-operative pain in cats, as well as AT-002 for the management of weight loss in cats with chronic kidney disease, could both be big winners if they're successful in clinical studies.
With profitability expected within the next two to three years, Aratana is an up-and-comer worth watching.
A familiar business model (and family name)
Steve Symington (Boston Omaha): The underlying businesses of Boston Omaha and Microsoft don't exactly have much in common. But just as Microsoft had became a publicly traded company in 1986, Boston Omaha only recently held its own initial public offering in June of 2017.
As a financial holding company that operates in multiple industries -- currently including billboard advertising through its Link Media business, surety insurance through its General Indemnity operations, and real estate -- and with plans to grow both organically and through strategic acquisitions, Boston Omaha is openly following a proven business model similar to the one employed by Warren Buffett through Berkshire Hathaway. And that's no coincidence; Boston Omaha co-CEO Alex Buffett Rozek is none other than Warren Buffet's grandnephew.
But don't expect the Oracle of Omaha to directly lend his talents to the company. Though Boston Omaha stock skyrocketed last week after The Wall Street Journal highlighted the familial connection and business model, the elder Buffett was careful to insist that he doesn't own Boston Omaha shares, and he has no say in how the company is operated. He did, however, note he thinks the world of Rosek, who has "a very good mind" and "certainly has good values."
So in the end, Boston Omaha would prefer to let its business performance speak for itself. And after the recent rise, shares certainly don't look cheap today trading at roughly 2.8 times book value. At the very least, I think investors would do well to add Boston Omaha stock to their watch lists and build a position on any pullback. If it's able to consistently grow its intrinsic per-share value over time as planned, Boston Omaha could easily deliver life-changing gains for patient shareholders in the process.
Buy the doubt
George Budwell (Geron Corp): The clinical-stage biotech Geron is in an eerily similar position as Microsoft in 1986. The crux of the situation is that the market has next to no faith in Geron's telomerase inhibitor, imetelstat, as a potential blood cancer treatment. If it did, after all, Geron's share price wouldn't be sitting at $1.86 at the time of writing.
The more data that comes out on imetelstat, though, the more comfortable I feel owning this speculative biotech stock. And after the company's recent presentations at the American Society of Hematology meeting, and its investor/analyst update on Dec. 19, I'm cautiously optimistic that Geron is, in fact, grossly mispriced at this point.
The quick rundown is that imetelstat is starting to appear to be an important new therapy for low-risk myelodysplastic syndromes (MDS) patients that are naïve to lenalidomide and hypomethylating agents, and that lack the del(5q) mutation. And some quick, back of the envelope math suggests that even this subset of the MDS target market could generate at least $240 million in annual sales for imetelstat (assuming a middle of the road price tag of say $10,000 per infusion and a modest penetration rate of 22%).
As such, I think far too much emphasis has been placed on imetelstat's lead indication, myelofibrosis (MF), where the drug has yet to show clear signs of an approvable risk-to-reward ratio (although it still might). So, at this point, I no longer think that Geron is an "all-or-nothing" play that's heavily dependent on imetelstat's fate in MF. If Geron's partner Johnson & Johnson walks out because imetelstat fails in MF, there should be plenty of suitors willing to jump in for the drug's potential in MDS in the near-term, and its prospects in acute myeloid leukemia later down the road.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. George Budwell owns shares of Geron. Sean Williams owns shares of Geron. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Johnson & Johnson. The Motley Fool recommends Boston Omaha. The Motley Fool has a disclosure policy.