Legendary investors may have different strategies and preferences. But one thing that all great investors have in common is the coveted multibagger -- a position that increases several-fold over time.
We tend to think of multibaggers as small companies that have plenty of room for exponential growth. But multibaggers can also be hiding in plain sight. For example, Warren Buffett-led Berkshire Hathaway (BRK.A 0.03%)(BRK.B +0.14%) began loading up on Apple (AAPL +2.08%) stock in 2016. Over the last seven years, Apple stock is up a staggering 650% even though Apple was established when Berkshire began buying shares.
Deere & Company (DE 0.93%) and PTC (PTC 0.68%) are similar in that they are well-known, arguably undervalued positions that could become multibaggers over time. On the other hand, Joby Aviation (JOBY +8.59%) is a smaller company that falls more into that traditional "hidden gem" category. Here's why all three stocks could help foster generational wealth for patient investors.
Image source: Getty Images.
Greener pastures ahead for Deere stock
Daniel Foelber (Deere): Despite Deere putting up quarter after quarter of impeccable results, investors remain skeptical about the company's sustained success. That skepticism has cast a cloud over Deere, which has seen its stock tumble as of late. However, context is key, as Deere is still up big over the last few years, trouncing the performance of the S&P 500 and Nasdaq Composite.
NYSE: DE
Key Data Points
Deere reported a monster quarter on Friday, May 19, crushing top- and bottom-line expectations. The report was initially met with optimism before Deere stock began selling off, representing a volatile day of trading where the stock swung by over $31 per share from peak to trough.
Deere stock is beginning to look too cheap to ignore and is arguably one of the best low-risk opportunities out there today. Deere's updated guidance calls for a staggering $9.25 billion to $9.5 billion in net income for fiscal 2023. To say that Deere is enjoying a favorable time in the cycle would be an understatement.
DE Net Income (Annual) data by YCharts.
In fiscal 2021, Deere's net income more than doubled in a single year to $5.96 billion, eclipsing its previous all-time high net income of $3.54 billion all the way back in fiscal 2013. Deere followed up fiscal 2021 with a new record of $7.13 billion in fiscal 2022. It was a good run, and even Deere was initially cautious about its outlook in fiscal 2023. But its updated guidance illustrates Deere's combination of pricing power, industry leadership, and ability to capitalize on a great time in its end markets.
This fiscal year, Deere is on track to make an amount of money that used to take three or four years to make. If it hits even the low end of its goal, Deere will make more net income in the three-year period from fiscal 2021 to fiscal 2023 than it did in the prior eight years combined.
These outsized profits could benefit investors in the short term through dividend raises and stock repurchases. But longer term, Deere will have even more dry powder to fuel its investments in sustainability, automation, and artificial intelligence.
Trading at a forward price-to-earnings (P/E) ratio of roughly 11.6, Deere stock is inexpensive. Although cyclical stocks tend to have low P/E ratios at the top of a cycle, Deere's valuation is particularly low and leaves a nice margin of error for the stock to remain cheap even if earnings fall.
All told, Deere has the makings of a lifelong investment for patient investors.
Take flight with Joby
Scott Levine (Joby Aviation): It's not everyday that the transportation industry is disrupted. But that's exactly what Joby is flying toward. Over the past 10 years, the company has developed electric vertical take-off and landing (eVTOL) aircraft which will be used to provide ride-sharing services for up to four passengers at a time. This innovative approach to transportation may seem like a pie-in-the-sky idea, but Joby is making real progress in executing its plan, and investors have a great opportunity to hitch a ride with the growth stock.
Nearly complete with the third of five stages in the Federal Aviation Administration's certification process, Joby plans on producing the first aircraft in 2023 that will adhere to the standards and design guidelines for the aircraft, which will be used for commercial operations. Should Joby remain on schedule with its development, it will commence commercial operations in 2025.
While the company's operations haven't taken off yet, it's still garnering considerable attention from a variety of sources. Providing a $55 million contract extension to Joby, the United States Air Force expects to receive two of Joby's eVTOL aircraft in 2024. In total, the U.S. Air Force's contract with Joby is valued at $131 million.
In addition to customers, Cathie Wood has taken note of Joby's potential. The Ark Autonomous Technology and Robotics ETF has consistently picked up shares in March and April, adding another 719,904 shares in May.
Still in the early phase of its development, Joby won't start generating revenue until 2025 if everything goes according to schedule. Consequently, only those committed to exercising patience -- and comfortable with a more speculative investment -- should consider hitching a ride with the disruptive ride-sharing company.
NYSE: JOBY
Key Data Points
This growing company is only just getting started
Lee Samaha (PTC): The fourth industrial revolution, or industry 4.0, is real, and it pays investors to get early exposure to the theme. The grandiose title refers to the fusion of the physical and digital worlds in the industrial world. Digitally connecting the physical and digital world allows the latter to iteratively analyze, model, and improve behavior in the former. For example, think of a manufacturing plant digitally modeled to predict failures in service equipment sooner.
Digitization plays across all of PTC's solutions. For example, instead of its computer-aided design (CAD) and computer-aided manufacturing (CAM) software being used to design a part for an airplane, digitization allows the CAD/CAM user to redesign, analyze, and model a new version of the part before it's produced.
PTC's product-lifecycle management (PLM), an area in which PTC is the clear market leader, digitally manages the physical world. At the same time, its Internet of Things (IoT) software connects the physical and digital worlds. Finally, augmented reality (AR) solutions help optimize performance.
It's a compelling mix of technologies, and it is the future of industrial manufacturing -- a viewpoint backed up by PTC's expectation for 22% to 24% growth in annual run rate (ARR) in 2023. ARR refers to the "annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period."
While a valuation of 27 times the estimated free cash flow (FCF) for 2023 may seem high, note that the Wall Street consensus calls for 28% annual FCF growth over the next few years. If PTC hits these targets for FCF (it raised its full-year 2023 FCF guidance on its last earnings call), the current share price could look like a great buying opportunity.
