Growth investing can be incredibly lucrative, with growth stocks, as a category, generally outperforming the rest of the market over the long term. There are pitfalls, however, and companies that seem like surefire bets can fall flat and lead to big losses for investors. But at the same time, one or two others that do very well will more than make up for the occasional loser -- at least for investors willing to ride out the ups and downs and risk owning a few losers in order to find the biggest winners.
One way to offset some of the risk is to invest in companies that have already shown that they're capable of big things, but still have long runways of growth ahead. Three Motley Fool investors have done some of the work for you, identifying Cheniere Energy, Inc. (LNG 3.43%), Mazor Robotics Ltd-ADR (MZOR +0.00%), and Trex Company Inc (TREX +5.62%) as high-growth stocks that are just getting started.
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The most important energy source of the 2020s
Maxx Chatsko (Cheniere Energy): While much of the media covers the awesome growth in renewable energy, such as the fact that the majority of net generation capacity added across the globe in recent years has come from wind and solar (an encouraging trend, to be sure), much less attention is given to the incredible boom unfolding in liquefied natural gas (LNG). Like it or not, it's likely to be the most important energy source of the next decade for reasons spanning decarbonization to geopolitical. And when it comes to LNG, Cheniere Energy stands out from the crowd.
The company took on incredible risks betting on LNG exports from the United States -- and is being handsomely rewarded, especially as it becomes clear that the U.S. will be a dominant energy exporter within 10 years. In fact, Cheniere Energy is a big reason why America will go from having LNG export capacity of just 0.8 billion cubic feet per day (Bcf/d) at the beginning of 2016 to over 9.5 Bcf/d at the end of 2019. For those of you keeping score, the company is expected to boast capacity of roughly 4.5 Bcf/d by that time. But it's just getting started toward that level of output.
Cheniere Energy's first significant commercial-scale operations only came online in 2017. That allowed it to post eye-popping growth compared to the prior year. For instance, full-year 2017 revenue came in at $5.6 billion compared to just $1.2 billion in 2016. The LNG exporter also delivered operating income of $1.3 billion last year compared to a loss of $165 million the previous year.
All of that came from a single facility, the Sabine Pass export terminal, which still has some juice left in the tank. But shareholders are patiently awaiting the startup of a new facility, the Corpus Christi export terminal, which will come on line before the end of the decade. Since most of the production capacity is entered into long-term contracts, the business is guaranteed to become a cash cow. That's good, considering it has a hefty debt load spread across its own balance sheet and those of its subsidiaries. There should be healthy handfuls of cash to go around, however, and keep long-term investors happy.
Newly emerging profits give investors concrete reason to believe
Chuck Saletta (Mazor Robotics): Robotic-surgery company Mazor Robotics recently delivered an exceptionally important feat in the life of a public company. It delivered its first ever profitable quarter. That milestone matters because once a company becomes profitable, it has a much greater chance of surviving and thriving because it can self-sustain its operations.
In many respects, that profitability can feed upon itself, particularly in Mazor's case. The robotic-surgery equipment it sells is very expensive, with its Mazor X clocking in at $849,000 per unit along with $1,500 of "disposables" that need to be regularly replaced. In addition to that upfront and recurring cost, hospitals need to invest in training its surgical staff in the use of the company's systems. That takes additional time and money.
As a result, many hospitals only are willing to invest in such systems if they believe two things are true. First, that the tools and equipment help improve surgical outcomes for patients, making them worth the investment from a health perspective. And second, that the company supplying the tools will be around long enough so that the hospital can recoup the investment in equipment and training to justify the costs financially.
Achieving profitability helps allay fears on that second part, likely opening more hospitals' purchasing departments to the possibility of buying Mazor Robotics' equipment. Add to that strong clinical-study outcomes favoring Mazor's systems, and you have a one-two punch that indicates Mazor Robotics may very well be a high-growth stock that's just getting started.
Building something much bigger
Jason Hall (Trex Company Inc): Over the past five years, Trex has grown sales by 75% and established a commanding lead, with nearly 50% market share in the wood-alternative decking category it dominates. Over that same five years, its stock price has surged an amazing 470%, making for one of the best investments in the market over that period and delivering four-times better returns than the S&P 500:
Even with those incredible returns and massive market share, Trex's future looks incredibly bright. To start, Trex's market share in the recycled-decking category can be a little misleading. This is because the biggest opportunity isn't getting more people to buy its decking instead of other brands of faux wood -- the real prize is getting people to buy Trex instead of actual wood. When compared against all decking, Trex commands only 8% of the market, while wood accounts for over 80%.
With a spotless balance sheet, award-winning products, and the best distribution/installation network in the industry, Trex is well-positioned to keep growing sales (and profits) at double-digit rates and taking share from wood for many years to come.
