It's been about 32 years since Microsoft (NASDAQ: MSFT) joined the public stock market. At the time, the company had just publicly released Windows 1.0, and the billionaire-making juggernaut we know today was nowhere in sight. But early investors could have cashed in some magnificent returns over the years: Microsoft shares have gained a staggering 93,500% so far, and would have returned 141,000% if you reinvested your dividends.
Those extreme gains are in the rear view mirror now, but the next Microsoft is surely out there, somewhere. So we asked a handful of your fellow investors here at The Motley Fool to point us toward some less-known companies that could be similar giant winners over the long run.
Read on to see why Canopy Growth Corp. (CGC 20.65%) (WEED), Universal Display (OLED 0.65%), and Square (SQ -1.97%) remind our panelists of Microsoft in its early days.
Image source: Getty Images.
Already one step ahead of Redmond
Anders Bylund (Universal Display): In 1986, Microsoft had been around for more than a decade, but Windows was a brand-new product and the company's graphical user interface was playing catch-up to Apple's (AAPL -0.57%) Macintosh. The glory days of game-changing success still lay far ahead, and annual sales came up just short of $200 million.
I would argue that Universal Display is better positioned today than Microsoft was then.
The display technology researcher was founded way back in 1994, entered the stock market in 1996, and reports annual sales of $294 million today. Universal Display is a solidly profitable cash-generator, and has established long-term contracts with every high-definition screen maker that matters. You can find its patented organic light-emitting diode technology in every major brand of smartphone, including best-sellers like the iPhone X and the Samsung (NASDAQOTH: SSNLF) Galaxy S8.
Its next major growth market lies in big-screen television sets, where street prices are coming down to mainstream levels in a hurry. After that, OLED elements should start making their way into everyday lighting equipment as manufacturing capacities ramp up and product costs come crashing down.
Come back in 30 years, and we expect you'll see that Universal Display invested the windfalls from those early successes into next-generation technologies. No longer a small fish in the huge technology market, you'll be looking at a familiar name whose products are found in every household, every business, every public space.
There are no guarantees of course, but Universal Display is poised to follow right in Microsoft's storied footsteps. It's just that the target market looks a little bit different.
Get your portfolio higher
Jeremy Bowman (Canopy Growth Corp.): In 1986, Microsoft had just IPO'ed, and the world was on the cusp of the personal computing revolution. Thanks to some clever maneuvering and a partnership with IBM, MS-DOS had become the leading operating system at the time, and Microsoft would parlay its advantage into a PC empire that included the Windows operating system and its suite of office software.
Today, one industry that reminds me of PC's in the 1980s is marijuana. Though it's not a tech product, legal marijuana has the potential to revolutionize broad swaths of American society and culture the way technology has, and some estimates say it could be worth $50 billion by 2026. By comparison, the alcoholic beverage market is worth more than $200 billion. While it's still a controversial political issue, marijuana's eventual legalization seems likely as even a majority of Republican voters now favor it.
There are a number of competitors angling for position, but one that has a head start is Canopy Growth Corporation. Based in Canada, it's primed to take advantage of the expected boom when marijuana becomes legal in that country in July. Canopy owns Tweed, the most recognized marijuana production brand in the world that's targeted at the recreational market, as well as medical-grade and international medical brands Bedrocan and Spectrum.
The company has forged a strategic partnership with Constellation Brands (STZ 0.53%), the U.S. importer of Corona and other Modelo beers, which includes exchanging knowledge and potentially developing cannabis-based beverages together. Constellation took a 9.9% stake in Canopy.
With a market cap now at more than $5 billion, Canopy's valuation is premised on it gaining a significant piece of the marijuana market, but if it executes effectively, the stock will be worth several times what it is today.
The 21st-century payment platform
Travis Hoium (Square): Microsoft's success in the 1980s and 1990s was driven in large part by the fact that it was a platform businesses used to improve productivity. Once customers got used to using Microsoft products at work, they brought them home, creating a network effect that drove growth and profitability. Square is doing something similar with its products for small businesses.
Square isn't just a payment processor: It provides services like appointment handling, payroll, scheduling, and more. This makes the platform valuable for those who are building a business, and those entrepreneurs have been adopting Square at a rapid rate.
SQ Revenue (TTM) data by YCharts
You can see that Square isn't highly profitable, which Microsoft was in 1986, but its margins are beginning to improve as it grows. Look for that to continue as the operating expenses it incurred to build out the platform start to pay off and Square leverages a higher revenue base.
What makes me really excited about Square is its Square Cash app, which could act as a money exchange system without the credit card and banking fees that eat away at Square's bottom line. If Square can expand its platform for business, and get more consumers to use the Square Cash app, the company could have Microsoft-like potential for investors.
