Investors willing to take on risk and aim for market-beating gains over the next decade could start by identifying trends of the future. Of course, identifying the next market-thumping stock is far easier said than done. So here are three Motley Fool contributors who think NIO (NIO 8.72%), The Trade Desk (TTD 1.67%), and First Republic Bank (FRCB) warrant your consideration and why.
Driving pollution solutions
Daniel Miller (NIO): If you're looking for stocks poised for massive growth over the next decade, you should start by finding a serious problem that isn't close to being solved and then find which companies are poised to provide solutions. One of the Chinese government's top priorities is to solve its massive pollution problems, and one way to start alleviating pollution is to put more electric vehicles on the roads. That's where NIO comes into play for investors.
NIO, if you haven't heard, is a Chinese manufacturer of premium electric vehicles, and its name, which translates to "Blue Sky Coming," gives you an idea of its vision. The good news for investors is that China's electric vehicle market is still in the very early stages. In fact, in 2014, there were only 50,000 electric vehicles sold in the country, which increased by 10 times during 2018. In the years ahead, the sector is expected to grow market share by 40% annually, according to Jacob George, J.D. Power's general manager of Asia Pacific, in an interview with CNBC. Only time will tell whether China can meet lofty goals, including total annual sales of 2 million electric and hybrid vehicles by 2020 or 7 million by 2025, but the direction is clearly supporting electric vehicles.
NIO's ES6 SUV. Image source: NIO.
Looking more closely at NIO, the company topped its delivery guidance in 2018 and is poised to boost deliveries later in 2019 with its all-new ES6 SUV, which was unveiled as the company's second mass-market model at a Shanghai event during mid-December 2018. NIO certainly has its work cut out for it, as plenty of electric vehicle makers are popping up in anticipation of an EV boom in China, but it has an excellent brand image, a compelling new SUV, and visibility to investors through its IPO on the New York Stock Exchange. Only time will tell if NIO can become China's Tesla, but it's certainly positioned to have a huge opportunity.
A digital advertising champ
Jeremy Bowman (The Trade Desk): When investors think of online advertising, Google and Facebook are likely the first companies to come to mind. Indeed, both companies have come to dominate digital advertising, but another stock focused on a picks-and-shovels approach to digital advertising may be a better choice for investors looking for a piece of this fast-growing market.
The Trade Desk provides a cloud-based, proprietary, programmable platform that helps ad buyers create, manage, and optimize their digital ad campaigns, and the company has been delivering blowout growth in recent years.
Trade Desk just capped off a year in which revenue rose 55% to $477.3 million, accelerating from 52% growth in 2017. Its results in the fourth quarter were even more impressive, as revenue jumped 56%, up from 42% a year ago. Even better for investors, Trade Desk is the rare fast-growing tech stock that is also profitable, as online advertising lends itself to high margins. In 2018, Trade Desk delivered an adjusted profit of $123.8 million, or a profit margin of 26%, up from 23% in 2017.
In addition to the secular growth in the global digital advertising market, which is expected to expand from $229 billion in 2017 to $360 billion, according to International Data Corporation, the company should benefit from emerging areas like connected TV, China, and other initiatives. While it will be hard to maintain 55% annual revenue growth over the next decade, The Trade Desk should have plenty of room to run in the coming years.
A banking model that works
Jordan Wathen (First Republic Bank): There are hundreds of publicly traded U.S. banks, but few have a growth runway as clear as First Republic's. The bank has managed to grow both deposits and loans at a double-digit annualized clip for years by stealing the best and most-profitable customers from other banks that don't give their wealthy customers the attention they deserve.
First Republic goes where the money is, operating primarily out of large cities including San Francisco (Silicon Valley), New York City, and Los Angeles. These areas are home to more ultra-wealthy, multimillionaire households that are ideal bank customers because they have large deposit accounts, large borrowing needs, and large investment accounts, which First Republic can manage for a fee.
What I like most about First Republic is that it doesn't swing for the fences in its loan portfolio because it doesn't have to. In the most-recent quarter, the bank paid just 0.51% in annualized interest on its deposits, enabling it to earn high returns even from a low-risk loan book that, on average, yields about 3.64% per year. Low-risk real estate loans make up most of its loan portfolio.
Shares rarely trade cheap, with the stock recently trading at 21 times last year's earnings. But First Republic can grow into that multiple over time by retaining all its income to support a larger balance sheet and drive earnings growth on a per-share basis.
Check out the latest First Republic and Trade Desk earnings call transcripts.