With the bull market now over 9 years old, it might seem tough to find stocks that can still generate multibagger returns. But today, a trio of our Motley Fool contributors will highlight three stocks -- JD.com (JD +2.08%), Kinder Morgan (KMI 0.88%), and Oaktree Capital Group (OAK +0.00%) -- that all still have the potential to double your money over the long term.
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Hidden in Alibaba's shadow
Leo Sun (JD.com): JD.com is the second-largest e-commerce player in China after Alibaba. The company has posted more than 30% year-over-year sales growth over the past three quarters, but its profitability remains unstable due to ongoing investments in its automation, logistics, and tech platforms.
Concerns about this, exacerbated by headwinds from escalating trade tensions between the U.S. and China, has caused the stock to tumble more than 20% this year. However, JD's stock now trades at less than 0.7 times this year's estimated sales -- which seems far too cheap relative to its sales growth. Analysts currently expect its sales to rise 30% this year and for its non-GAAP earnings to grow 8%.
Moreover, the bears often overlook JD's healthy growth figures. Last quarter, its number of online merchants grew 31% annually to 170,000, its active customer accounts climbed 21.5% annually to 313.8 million over the past 12 months, and its total gross merchandise volume jumped 30% to 437.4 billion RMB ($63.6 billion).
They also often downplay the fact that JD's two biggest corporate investors are Tencent and Walmart. JD's ecosystem is tightly tethered to Tencent's WeChat, the top mobile messaging app in China, as well as Walmart's brick-and-mortar stores across China.
I believe that JD's investments in expanding its logistics network -- which it's monetizing by providing services to third-party retailers -- and automation efforts like warehouse robots, drones, and autonomous delivery vehicles will eventually pay off. When that happens, JD's stock could shake off the bears and soar.
The market won't punish this company forever
Chuck Saletta (Kinder Morgan): As recently as 2015, pipeline giant Kinder Morgan traded above $44 per share. In more recent times, its stock price has been cut by more than half, closing recently below $18. The reason: its balance sheet. Because it had gotten over-leveraged, that once-great dividend growth company was eventually forced to cut its dividend by 75% to protect its balance sheet and stave off a debt rating cut to junk status.
While the company's stock justifiably collapsed on the news, Kinder Morgan didn't sit still and accept its fate. Instead, it spent the next few years using its still substantial cash flow, along with some asset sales, to both clean up its balance sheet and figure out how to fund much of its expansion from its operations. The net result is that today's Kinder Morgan is significantly financially stronger than the company was in 2015 before it cut its dividend, yet its shares still largely reflect the pain of that cut.
Thanks to that renewed vigor, Kinder Morgan has begun restoring its dividend -- hiking it 60% in 2018 and projecting 25% increases in both 2019 and 2020. While it won't have fully restored that dividend to its pre-cut levels by 2020, it expects to be well on its way to doing so. Armed with its healthier balance sheet and newfound ability to better self-fund its expansion, its dividend will be better covered than it previously was.
At its recent market price of $17.91 per share, Kinder Morgan's anticipated 2020 dividend of $1.25 per share represents a nearly 7% future yield on current prices. That alone provides decent reason to believe its shares have upside potential. Add to that the prospects of continued dividend increases past that level as its expansion plans start generating revenue for the business, and the path to potentially doubling your money begins to emerge.
A stock that will pop in a bear market
Jordan Wathen (Oaktree Capital Group): The world is awash in cash, employment is the strongest it's been in a long time, and GDP growth recently ticked up to an estimated 4.1% in the second quarter. If you make your money snapping up distressed assets, as Oaktree Capital Group does, all the good news is bad news, indeed.
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Oaktree Capital Group is an alternative asset manager that makes its money managing other people's money. It's best known for its distressed debt funds, which have generated incredible returns of 16% annually, on average, after fees. That record puts it in a league of its own.
An incredible investment record through economic cycles over multiple decades gives Oaktree the credibility to raise capital at a moment's notice. When other asset managers see money pour out of their funds in times of crisis, Oaktree has no problem raising billion-dollar funds on which it earns outsize management and incentive fees for good performance.
Shares trade for about $41 per share, but the company is sitting on about $5.72 per share of accrued incentives it will be able to distribute as it realizes profits on investments held in its funds. In addition, it has about $13.64 per share of investments it holds on its own balance sheet. Backing out these items, investors are valuing its world-class operating business at only 14 times earnings, despite the fact its earnings power is arguably depressed by the strength of the global economy and its inability to put capital to work.
Asset prices won't go up forever, but Oaktree Capital shares are priced as if it will. I think it makes sense to take the other side of that bet.
