Tesla Motors, First Solar, and Netflix May Have The Most Upside
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the stock market recovering, almost every investor needs to buy some high-growth stocks to take advantage of it.
One of the most important things to remember in a market pullback is that they are very temporary. The underlying macroeconomic picture is largely intact: slow GDP growth, reasonable rates of inflation, and consistent declines in unemployment. In other words, things are getting better on—Main Street.
My three picks
Since we want high rates of growth and price appreciation, I believe that investors should consider Tesla Motors (NASDAQ: TSLA), First Solar (NASDAQ: FSLR)), and Netflix (NASDAQ: NFLX). These three companies are likely to outperform due to underpinning economic factors that are heavily favorable, along with having unique products and ideas.
The three stocks that I have picked out have outperformed the market significantly.
Tesla Motors a huge winner
During the market pullback, I was an optimist on Tesla Motors, and since the release of my original bull-thesis article, the stock has been able to advance by an astounding 20%.
The company has a lot of pent-up potential internationally. I estimate Tesla will be able to reach 2% in global vehicle market share by 2020. This will also mean that the company will generate $2 billion in net income. If the company can generate $2 billion in net income and trades at a 20-to-30 times earnings, the stock could easily fetch a $40 to $60 billion market capitalization over the next 10 years. Because of this, investors should try to position themselves by owning what could be one of the most rapid growth stories we will ever get to witness in the 21st century.
The company’s electric vehicles have phenomenal range (208 miles, before needing a charge-up). Its competitors don’t even come close. The company plans to distribute its cars through the use of show-rooms in up-class mall locations. The average mall location has an up-class consumer base that generates a household income of about $73,000 according to Macerich. The company’s distribution and products are superior to the competition.
First Solar has some upside potential too
I believe that the stock is largely under-rated. The company has moved from being dependent on the sale of solar to governments to selling solar to both commercial users and households. Demand for solar is growing at an unexpected pace internationally.
The number of competitors has dwindled because European governments have cutback support to alternative energy. This was driven by the austerity measures, which is why spending in developed countries had declined from $186 billion to $132 billion between 2011 and 2012. I believe that spending on alternative energy will stabilize and grow in the future.
To be well-positioned, investors should consider First Solar as I have estimated that the company’s production costs can decrease by 14% per-year by 2015. The module efficiency is expected to increase from 13.1% to 16.2%. With module efficiency expected to rise and cost of production to decline, the amount of solar investment may grow at faster rates than what was anticipated. Not only that, the costs associated with building coal-fire power plants are expected to go up in developed markets due to added regulation in the European Union and the United States.
Because of this, First Solar is in a position of overwhelming strength against alternatives like coal. The company may be able to beat analyst expectations significantly as First Solar only needs to sign a couple major contracts from major solar projects in order to generate substantial surprises in growth.
Netflix the global television provider
Netflix will become an increasingly powerful brand in online movie streaming going forward. For now, it has the most superior content library at just $8 per month. The company has been able to sign contracts with Walt Disney, Warner Brothers, and DreamWorks Animation. The company’s content library will receive a boost just when it is ramping-up its international segment.
The size of Netflix’s addressable market will grow exponentially, as Procter & Gamble estimates that the middle class will increase by 1.4 billion people, and 98% of that will come from the emerging markets. Microsoft, on the other hand, estimates that the number of Internet users will be 4 billion by 2020.
Netflix was able to grow membership in its international segment by more than 100% in the past year alone. This rate of growth is sustainable, especially because the company has been able to increase its content collection. Movies from Walt Disney and DreamWorks Animation have been able to attract international acclaim, so there’s no way that Netflix’s movie portfolio only appeals to people within the United States.
That being the case, the company doesn’t really try to provide guidance beyond a quarter. So our best guess at growth right now is the analysts’ consensus projected 375.9% earnings growth for 2013, and 121.7% growth for 2014.
Investors should anticipate substantial growth from electric vehicles, alternative energy, and online-movie streaming in the years ahead. The underpinning economics largely indicate that these companies may have been undervalued or under-appreciated by the stock market.
All three companies should be bought on the broader market recovery. These three names are known to have high beta, so I’d feel more comfortable if buyers would buy while the momentum is still present.
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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Netflix and Tesla Motors . The Motley Fool owns shares of Netflix and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!