Over 5,000 stocks are traded on the two major U.S. stock exchanges. I own shares of 20 of them, in addition to holding positions in several exchange-traded funds (ETFs). Most of these stocks I held throughout 2017. And most of them were solid winners last year.
One that didn't perform well, though, was Celgene (NASDAQ:CELG). I also replaced a couple of stocks with new choices -- Align Technology (NASDAQ:ALGN) and NVIDIA (NASDAQ:NVDA). My hunch is that these three could turn out to be the top stocks in my portfolio in 2018. I won't be surprised if they also turn out to be among the top stocks in the S&P 500. Here's why.
Align Technology ranked as the best-performing stock of the S&P 500 for 2017. Could it be a repeat winner? It's not out of the question. Demand continues to surge for the company's Invisalign clear aligners. Align Technology set new revenue records every time it reported quarterly results in 2017. I fully expect more of the same this year.
Despite its tremendous growth, Align still only claims around 10% of the addressable orthodontic market. Many patients still use traditional wire-and-metal braces to correct malocclusion (misalignment of teeth). But the word is getting out about Align's clear aligners, which are practically invisible to other people.
The company is also working hard to expand its market. First, Align is developing new aligner technology to address harder-to-treat cases of malocclusion. This could increase the addressable market for Invisalign by around 40%. Align is also experiencing success in international markets, including Europe and Asia.
Invisalign isn't Align's only product, though. The company also supplies clear aligners to SmileDirectClub, an at-home program for affordable, cosmetic teeth straightening. In addition, Align markets a successful line of intra-oral scanners that dentists and orthodontists use. I think sales will continue to grow for these products in 2018, along with sustained momentum for Invisalign.
There were a couple of reasons Celgene stock fell nearly 10% in 2017. The big biotech was doing great last year until October, when it announced the failure of a once-promising Crohn's disease drug in a late-stage clinical study. Celgene followed up that bad news with a third-quarter revenue miss and a cut to its full-year 2017 and long-term outlook.
But Celgene remains a great stock with great prospects. The company expects to grow revenue by a compounded annual growth rate of 14.5% through 2020. Adjusted earnings per share should grow by 19.5% annually over the next few years.
Those projections are based on continued sales growth for several drugs, particularly Revlimid. The blood cancer drug ranked as the No. 2 top-selling drug in the world last year and could reach annual sales of $14 billion by 2022. Celgene should also see solid growth for multiple myeloma drug Pomalyst and autoimmune disease drug Otezla. The biotech's pipeline looks strong, too, with potential blockbusters including ozanimod and luspatercept waiting in the wings.
There's also another way Celgene can and almost certainly will grow: acquisitions. The company announced that it was buying Impact Biomedicines recently. Celgene is also in discussions to buy its partner, Juno Therapeutics (NASDAQ:JUNO), to get a leg up in the fast-growing area of cell therapy, according to The Wall Street Journal. Whether or not the Juno deal happens, I think Celgene stock is in good shape to move much higher in 2018.
NVIDIA stock soared more than 80% in 2017. Although I didn't enjoy that nice gain, my prediction is that the stock is in store for another banner year in 2018.
The company got its claim to fame as a maker of graphics chips for gaming. That's still an impressive growth market for NVIDIA. Along the way, though, it was discovered that NVIDIA's chips were ideal for artificial intelligence (AI) applications. I think the AI boom experienced last year will pick up even more steam this year, which should drive NVIDIA stock even higher.
In particular, there are a couple of AI-related stories that should benefit NVIDIA in 2018. One is the continued migration of major internet companies and cloud-service providers to the company's Volta architecture. NVIDIA calls Volta the "new driving force behind artificial intelligence" that will "fuel breakthroughs in every industry." Hype? Yes, but it's also probably true.
The other major AI story for NVIDIA will be its DRIVE PX Pegasus platform. Pegasus is the first AI computer designed for fully autonomous vehicles. I look for automakers to chomp at the bit to get NVIDIA's new platform, which should be available in the second half of this year.
What if 2018 is a bust?
It's possible, of course, that something happens on the world scene that causes the stock market to tank, bringing Align Technology, Celgene, and NVIDIA down also. Any of these three companies could also report disappointing quarterly results in 2018. This year could turn out to be a bust, and if so, that's OK with me.
While I think these three stocks will be my top performers for the year, I didn't buy them just to hold for 2018. I'm convinced that Align Technology's clear aligners will continue to gain popularity in the U.S. and abroad. I think Celgene's current products and pipeline candidates will fuel the biotech's growth for a long time to come. And I think that the AI revolution is only just beginning, with NVIDIA at the center of it.
These are top stocks, in my view, because they're great businesses in high-growth industries. Whatever stocks you like out of the 5,000 or so trading on the major U.S. stock exchanges, find ones that meet the same criteria -- and you should do well over the long run.