After suffering the worst six months for stocks to start a year in more than half a century, investors received a bit of a reprieve in July. Some may be wondering if they missed the boat, and others may still be fearing the worst is yet to come for their portfolio. But the best course of action is to continue putting your money to work by buying shares in great companies at good prices.
Pulsing with potential
Keith Speights (Novocure): Like many biotech stocks, Novocure has been beaten down a lot over the past 12 months. But despite considerable volatility, its shares are outperforming the market so far this year.
I think Novocure is poised to skyrocket soon. The company already markets its tumor treating fields (TTFields) therapy for treating glioblastoma, an aggressive type of brain cancer, and mesothelioma, a type of cancer caused by exposure to asbestos. Novocure expects to announce results from a late-stage study evaluating TTFields in treating non-small-cell lung cancer (NSCLC) later this year.
The company's TTFields therapy works by using electric fields to pulse through the skin and disrupt the division of tumor cells. This approach seems likely, in my view, to be effective in NSCLC. But success in this indication could be just the tip of the iceberg.
Novocure is on track to report results from three other late-stage studies over the next couple of years. In 2023, the company expects to wrap up phase 3 studies targeting recurrent ovarian cancer and brain metastases. In 2024, Novocure anticipates data from a phase 3 study of TTFields in treating pancreatic cancer.
These four late-stage indications together represent a market opportunity that's 14 times larger than Novocure's current market. With realistic prospects of greatly expanding its addressable market, this biotech stock is pulsing with potential.
Digital advertising isn't going anywhere
Chris Neiger (The Trade Desk): Investors on the lookout for a fast-growing tech company that's betting big on digital advertising need to look no further than The Trade Desk.
The company's business model is pretty straightforward: It connects companies who want to buy digital ad space with companies that are selling it. The Trade Desk's platform makes it easy for these two groups to do business together, and then it collects fees on the ads that are purchased.
That model has been working very well for the company. The Trade Desk has been profitable for the past nine years, and in the first quarter (as reported on May 10), non-GAAP earnings increased nearly 50% to $0.21 per share. The company's sales are also growing at a healthy clip, with first-quarter revenue rising 43% to $315 million.
And The Trade Desk isn't done growing its advertising platform reach. The company recently expanded a deal with Disney to automate targeted ads across the media giant's linear TV offerings, including Hulu, ESPN, and ABC, and could even be used for a new ad-supported Disney+ tier.
That's great news for The Trade Desk as it taps further into the broad U.S. digital ad space, a market that eMarketer estimates will be worth $315 billion three years from now.
Like many other stocks in the tech sector, The Trade Desk's share price has been on a wild ride lately. But don't let the short-term drop scare you away from the company's long-term potential as a digital advertising platform leader.
An entertainment powerhouse at a five-year low
Matt Frankel, CFP (Walt Disney): Entertainment conglomerate Disney has been beaten down severely in the recent market declines, with shares down by nearly 50% from their 2021 highs. But if you've been to a Disney theme park or attended the opening weekend of its most recent blockbuster, you might be shocked.
To put it mildly, although it was severely affected by the COVID-19 pandemic's onset, Disney's business has rebounded strongly in 2022. In the segment of Disney's business that includes the cash-machine theme parks, revenue more than doubled year over year in the first quarter. As I write this, at least two of Disney's four Florida-based theme parks are sold out every day for the rest of the week. The company's iconic film franchises and merchandise sales are extremely strong as well, and its cruise line is starting to normalize.
To be fair, there are some legitimate concerns about the streaming side of Disney's business, as there are clear signs growth may be slowing. The Disney+ streaming service has a staggering 137.7 million subscribers less than three years after its launch, and Hulu and ESPN+ add millions more to the total. But the stock trades for more than 25% less than it was when Disney+ launched, so I'd call this a bit of an overreaction.
In a nutshell, Disney's "legacy" businesses are emerging as strong as ever as pandemic restrictions wind down, and the streaming side of the business has created a multibillion-dollar recurring revenue stream that should get significantly larger over time.
The new leader in wireless
Adam Levy (T-Mobile): T-Mobile reported earnings after AT&T and Verizon last month, and it saved the best for last. The company's total postpaid subscriber net additions surpassed its two biggest rivals combined.
Those net additions were fueled by an improvement in its subscriber retention rates. T-Mobile was the only one of the three major carriers to see a year-over-year improvement in its churn rate. Management attributed that trend to a "flight to value" during the company's earnings call, but it should not be lost on investors that it also coincides with the shut down of the legacy Sprint network. (Sprint customers historically switched at higher rates than other carriers.)
On top of strong customer additions, T-Mobile is seeing improvements in average revenue per user. The metric increased 2.8% -- better than AT&T and Verizon -- despite the carrier's promise not to raise its rates on customers, as its competitors did last quarter. It did so by signing up more subscribers for its premium service plan. Management now expects average revenue per user to climb 2% for the full year, up from its previous guidance of 1%.
At the core of T-Mobile's improving position in the wireless industry is its leadership in 5G. It bet early on mid-band spectrum to support 5G while AT&T and Verizon were focused on millimeter wave. As a result, it's about two years ahead in its buildout, covering more than 100 million more people with its network than its closest rival. On top of that, it has the depth of spectrum in most markets to ensure it has the capacity to serve more customers than the competition. T-Mobile appears to be set for growth for years to come.
Quietly dominating this niche market
Tyler Crowe (Rexford Industrial Realty): Every once in a while, you come across a company that has such a unique, profitable niche that you become fascinated by the business. Rexford Industrial Realty is high up on that list of niche businesses to which more investors should pay attention.
The industrial real estate investment trust (REIT) owns and operates facilities exclusively in Southern California. This market is unique because it plays such an outsize role in exports and imports -- about 40% of shipping container traffic goes in and out of the L.A./Long Beach Port complex. Moving that many goods puts industrial space at a premium. According to Rexford, more than 99% of all industrial properties in Los Angeles County are leased and occupied. What's more, land in the county zoned for industrial use is shrinking as it gets repurposed for other use.
This high-demand, shrinking supply dynamic translates to off-the-charts rental growth for Rexford. In the most recent quarter, comparable rental rates for new and renewed leases were 81% higher than this time last year. While this is extraordinarily high, Rexford has been able to increase its net operating income 31% annually over the past five years.
Rexford's stock trades at a bit of a premium to most of its industrial real estate peers, but that is largely because it has grown shareholder value at a considerably higher rate for some time. With few changes in the supply demand dynamic in the SoCal region, it looks as though Rexford is well positioned to succeed for many years to come.