While it's risky to focus too much on the next quarter or year, looking at where a company could be headed over the next three to five years is considered a reasonable time frame that smooths out randomness and allows for accurate goal-setting.
But looking out 10-plus years is a whole different ball game.
A decade from now, artificial intelligence (AI) will likely play a far greater role in our daily lives. The world will feature more electric cars and associated infrastructure. It will nearly be 2035, a year for which many companies and countries have set ambitious climate-related goals to come to fruition. Some hope to be net zero by then. But the typical target is 2050. These are just some of the major trends an investor could choose to focus on for ultra-long-term investing.
GE HealthCare Technologies (GEHC 0.34%) is a bet on increasingly sophisticated healthcare solutions. LanzaTech Global (LNZA 7.73%) is a far smaller company focused on sustainable carbon refining. And NextEra Energy (NEE -1.36%) is a regulated electric utility that also owns and operates one of the world's largest portfolios of renewable projects. Here's what makes each stock a compelling buy now.
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A world-class healthcare company with plenty of growth potential
Lee Samaha (GE HealthCare): It's no secret that General Electric (GE 0.68%) wasn't the best-run company over the last decade. A combination of unfortunately timed acquisitions in the power and energy sectors and poor performance led to a significant debt load that constrained the ability of better businesses, like healthcare, from fulfilling their full potential.
However, that was then, and this is now. The company was spun out of GE in January, and its management has several growth drivers in place.
First, as the only imaging equipment company selling pharmaceutical diagnostics, GE HealthCare is ideally placed to benefit from growth in theranostics. In other words, radioactive tracers are used to diagnose and precisely target the treatment of an affected area with a drug, a significant benefit in oncology treatment.
Second, GE HealthCare's management is now free to invest in growing its business actively, including investing in AI.
Third, it has a host of new product introductions in play, including 40 launched in 2022.
Fourth, the company suffered significant cost increases and difficulties in procuring supplies in 2022, and as those headwinds ultimately ease, a margin growth opportunity lies ahead.
Finally, as one of the leaders in imaging and ultrasound equipment, GE HealthCare has a strong base in medical centers from which it can develop relationships to see its patient care and pharmaceutical diagnostics solutions.
It all indicates a long growth runway ahead, and GE HealthCare's stock remains a good value.
Dedicated to carbon capture, LanzaTech can capture growth investors' hearts
Scott Levine (LanzaTech): It's hard to imagine what the world will look like in 2033. For example, 10 years ago, 3D-printing enthusiasm was running rampant, leading many growth investors to pile them into their portfolios. Clearly, they were wrong. One forward-looking company that seems like a more measured -- yet compelling -- growth opportunity focuses on carbon capture. With the potential to provide market-beating returns over the next decade, LanzaTech, a specialist in carbon capture solutions, should attract the interest of patient growth investors.
Recognizing that one person's carbon trash can be another's carbon treasure, LanzaTech has developed a system for capturing carbon transmissions and converting them to fuels and chemicals that can be used in manufacturing products like fabrics and packaging, among others. Currently, LanzaTech operates its carbon capture solution at three facilities and plans to expand to three more facilities in 2023.
The company's achievements aren't seen as a novelty; they're being taken seriously by renewable energy stalwarts. Brookfield Renewable, for example, has invested $50 million in LanzaTech, with the potential for an additional $500 million in investments if certain milestones are met.
While LanzaTech represents an exciting opportunity, it's important to remember that it's operating in a nascent industry, and there's no certainty that the company will flourish as it expects. Therefore, investors should carve out a portion of their holdings for this growth stock based on how comfortable they accept risk.
NextEra Energy is ahead of the curve
Daniel Foelber (NextEra Energy): NextEra Energy is the largest U.S.-based utility by market cap. The company is Florida's largest regulated electric utility through its Florida Power & Light (FPL) business. FPL provides steady returns and cash to help fund NextEra Energy Resources (NEER), the company's unregulated power-generation arm. But the bulk of NEER projects are financed with debt.
NextEra Energy caught Wall Street's attention over the last decade by being the most aggressive operator when it came to retiring fossil fuel generation and replacing it with renewable energy -- which led to outsized returns for shareholders. But NEER is a double-edged sword for NextEra Energy because it provides an outlet to benefit directly from renewable energy growth.
To make these projects profitable, NextEra has to finance them at a manageable rate and execute on the project and planning side. That side of the equation has gotten far harder to tackle with rising interest rates, which are straining NextEra Energy's debt-heavy balance sheet.
NEE Financial Debt to Equity (Quarterly) data by YCharts.
The above chart shows that NextEra's leverage ratios have been increasing, and its total net long-term debt position has ballooned to $68.4 billion. The silver lining is that NextEra has been taking on projects at a breakneck pace and could easily slow its investments to keep a lid on its interest expenses and leave room for dividend increases.
For investors who believe in sustained regulatory support for renewable energy projects through tax credits and other incentives, NextEra Energy and its 2.6% dividend yield look like an excellent all-around value.
