Many innovative companies are “building the future”. These stocks also offer the best returns to investors. Some future innovations that could affect daily life are virtual reality, augmented reality, electric cars, autonomous driving, and robotics.
While there is no scale to measure innovation, the SPDR FactSet Innovative Technology ETF (XITK) can shed some light on the performance of stocks of innovative businesses. The ETF gained 56.3% year-to-date compared to the tech-heavy Nasdaq Composite’s 24.7% return over the same period. With the increasing use of cutting-edge technology in almost all sectors and stiff competition, companies that break the mold might come into the spotlight and witness massive long-term growth.
Companies like Facebook, Inc. (FB), Tesla, Inc. (TSLA), Snap Inc. (SNAP), and Intuitive Surgical, Inc. (ISRG) have been constantly innovating and evolving keeping the realities of the future in mind. In addition to fundamental strength, ‘out-of-the-box’ advancements should help these stocks witness massive gains in 2021 and beyond.
Facebook, Inc. (FB)
Founded in 2004, the social media giant FB has completely revolutionized how people connect, share, and communicate with each other online. Leveraging its huge number of users, the company primarily earns from the advertisements on its various social media platforms. In addition to growing organically, FB has grown inorganically over the years, acquiring Instagram, Whatsapp, Oculus VR to name a few.
FB’s recently-reported third quarter (ended September 2020) results were impressive. Total revenue increased 21.6% year-over-year to $21,470 million. Revenue from advertisement alone increased more than 22% year-over-year to $21,221 million. Daily active users (DAU) increased by 12% year-over-year to 1.82 billion. EPS increased by 27.8% year-over-year to $2.71.
Analysts expect FB’s revenue to increase by 13.8% in 2020 and 24.4% in 2021. The company’s EPS is expected to increase 25.7% this year, 27% next year, and at a rate of 21.6% per annum over the next five years. FB’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.
While the company has been making headlines following the House Judiciary subcommittee’s antitrust report, it has failed to sway investors’ confidence. There is a significant amount of market uncertainty, but the company expects to see higher ad-revenue growth in the coming months driven by strong advertiser demand during the holiday season. The stock gained 36.8% year-to-date.
How does FB stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
B for Overall POWR Rating
The stock is also ranked #9 out of 58 stocks in the Internet industry.
Tesla, Inc. (TSLA)
A pioneer in the Electric Vehicle (EV) market, TSLA needs no introduction. The company not only designs, develops, manufactures, leases, and sells EVs but also builds infinitely scalable clean energy generation and storage products. TSLA’s mission is to accelerate the world’s transition to sustainable energy. TSLA is on track to deliver 1 Million EVs in 2021.
TSLA’s total revenue increased 39% year-over-year and 45% sequentially to $8,771 million for the third quarter ended September 2020. This can be attributed to the significant growth in automotive revenues which increased 42% year-over-year and 47% sequentially to $7,611 million. The company’s operating income increased 147% sequentially to a record level of $809 million, resulting in a 9.2% operating margin. The energy storage business also reached record deployments of 759 MWh in the third quarter.
Analysts expect TSLA’s revenue to increase by 36.2% for the ongoing quarter and 42.6% next year. The company’s EPS is expected to increase 5,375% in the current year, 75% next year and at a rate of 354% per annum in the next five years. TSLA has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters.
TSLA, which is synonymous with technology and innovation, announced a new style of battery cell during its battery day held last month which would allow TSLA to produce cells that were more energy-dense, safer, and reduce costs. The stock rallied on Thursday even though it dipped recently following the waning market confidence amid rising numbers of coronavirus cases in the United States. The stock gained more than 391% year-to-date.
Under POWR Ratings, TSLA has been accorded a “B” rating for Trade Grade and Industry Rank. In the 29-Auto & Vehicle Manufacturers industry, it is ranked #11.
Snap Inc. (SNAP)
The social networking giant SNAP describes itself as a camera company, but advertisement is its major source of revenue. SNAP offers innovative features and also developed some popular AR apps recently. The company boasts of 249 million daily active users as of September 30, 2020. The stock gained more than 404% since hitting its 52-week low on March 18th.
SNAP’s third-quarter financial results released on October 20th exceeded all expectations. The company’s revenue increased 52% year-over-year to $679 million for the third quarter ended September 2020. Global daily active users (DAU) increased by 18% year-over-year to 249 million. SNAP is becoming more effective in increasing the average revenue per user (ARPU). It increased by 28% year-over-year globally to $2.73.
The stock is expected to further rise in the upcoming months with people spending more time at home due to the possibility of a second wave of coronavirus and low temperature outside. Analysts expect SNAP’s revenue to increase 50.6% for the fourth quarter ending December 2020, and 39.7% next year. The company’s EPS is expected to increase 100% in the fourth quarter, 322.2% next year, and at a rate of 67.4% per annum over the next five years. The company’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.
SNAP announced new developer products and partnerships across Snap Minis, Snap Kit, Bitmoji, and Snap Games in June which have been contributing to revenue growth for the company.
SNAP’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. Among the internet industry, it’s ranked #2.
Intuitive Surgical, Inc. (ISRG)
The global leader in minimally invasive care, ISRG brings more than two decades of leadership in robotic-assisted surgical technology and solution. Known as the maker of the da Vinci surgical system and Ion endoluminal system, there are around 5,582 Da Vinci systems around the world now. The da Vinci surgical system became one of the first robotic-assisted systems approved by the FDA. Over the years the company has been making innovations transforming “science fiction” into reality.
ISRG’s installed base of the da Vinci Surgical System increased 8% year-over-year to 5,865 systems for the third quarter ended September 2020. The instruments and accessories revenue for the company increased 4% year-over-year to $631 million, primarily driven by roughly 7% year-over-year growth in da Vinci procedure volume. While the health care giant is also adversely impacted by the Covid-19 pandemic in terms of lower revenue growth, the company remains committed to product and process innovation in the short and long term.
Analysts expect ISRG’s revenue to increase by 4.6% for the quarter ending March 2021 and 17.3% in the fiscal year 2021. The company’s EPS is expected to increase by 37.8% in 2021 and at a rate of 6.9% per annum in the next five years. ISRG has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. The stock gained 16.4% year-to-date.
On October 27th, ISRG launched Intuitive Ventures, a $100 million venture capital fund that will invest in the future leaders of minimally invasive care. Julian Nikolchev, the president of Intuitive Ventures brings more than 30 years of experience in the development and commercialization of therapeutic medical devices.
ISRG’s strong fundamentals are reflected in its POWR Ratings, it has a “Buy” rating with an “A” in Trade Grade and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. Within the Medical – Devices & Equipment industry, it’s ranked #14 out of 142 stocks.
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FB shares were trading at $265.53 per share on Friday afternoon, down $15.30 (-5.45%). Year-to-date, FB has gained 29.37%, versus a 2.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
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