Wall Street may obsess over the where the stock market is going in 2018, but the real investor returns are measured in decades rather than years. With that in mind, three Motley Fool contributors offer up a few companies that appear set for market-beating returns over the long term.
Demitri Kalogeropoulos (iRobot): The machines are coming, so why not profit from their proliferation? Robotic cleaning specialist iRobot recently posted market-thumping sales growth, with revenue climbing 24% in the fiscal second quarter. Its lineup of Roomba vacuum machines continued to attract healthy demand, and new mopping devices also enjoyed strong growth, as unit sales shot up to 134 million from 110 million in the year-ago quarter.
iRobot's profitability improved to 52.1% of sales from 49.1%, which suggests the company is succeeding at fending off low-price rivals with its premium products. Continued success here might allow the company to keep a large chunk of its current dominant market share as the robotic cleaning niche moves into the mainstream over the next decade.
CEO Colin Angle and his team lifted their 2018 sales and profit outlook in late July, and the current forecast makes it likely that iRobot will cross $1 billion in annual sales in 2018. Assuming the tech specialist can continue pushing the industry forward with its innovative new releases, there could be many more years of record revenue results ahead for investors.
Keep on chuckin'
John Bromels (Berkshire Hathaway): "How much wood could a woodchuck chuck?" asks the famous tongue twister. But in the world of investing, we might ask, "How many bucks could Buffett chuck?" (Try saying that 10 times fast.) The answer, right now, is close to a half-trillion: the market cap of billionaire Warren Buffett's iconic Berkshire Hathaway.
Berkshire has grown big during Buffett's tenure, and there are good reasons to think it will continue to grow over the next 25 years. For one thing, its operations keep spitting out healthy amounts of cash. According to Buffett's most recent annual letter to shareholders, the company is currently sitting on about $116.4 billion in cash, and Buffett plans to make at least one major acquisition with some of that. What will Buffett get for chucking those bucks at a business? More bucks in the door, to chuck at future investments.
This investment cycle is largely driven by Berkshire's cash-cow insurance businesses, but all of Buffett's investments that become part of the fold help to churn out cash that the master investor can then spend on new businesses ... which then churn out more cash. Lather, rinse, repeat: It's simple and incredibly effective, and should continue to generate market-beating returns (i.e., more bucks to chuck) for the next quarter-century and beyond. Investors should be confident that Buffett and Berkshire will keep on chuckin' bucks into their portfolios.
An eye on the future
Rich Duprey (Axon Enterprise): Over the past decade, Axon Enterprise has seen its shares soar more than 1,240%, largely on the basis of the value that law enforcement finds in its Taser electrical weapons, but more recently with its Axon body cameras and its Evidence.com evidence management database.
It will be those two latter divisions that also drive Axon forward. And now that it has agreed to acquire its primary competitor in the space, Vievu, it will completely dominate the market.
Tasers have become ubiquitous in law enforcement agencies around the country and increasingly the world. Body cameras are just starting to get the same kind of acceptance as departments clamor for accountability for their officers and to the public. And more often than not, it's Axon they turn to. It has 45 of the largest 69 cities in the country under contract, and with Vievu, it now has a near monopoly.
Yet body cameras are still not worn by a majority of police officers in the country, which gives Axon a huge runway for growth. Moreover, managing the mountain of evidence that such systems create gives Axon a potential stream of revenue through its evidence management systems, which also tend to be sticky -- once a department adopts Evidence.com's technology, it's not likely to switch to another vendor afterward.
That powerful combination will help fuel Axon Enterprise's growth over the coming decades.
Demitrios Kalogeropoulos owns shares of Berkshire Hathaway (B shares). John Bromels owns shares of Berkshire Hathaway (B shares). Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Axon Enterprise and iRobot. The Motley Fool recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.