The best growth stocks generally represent businesses with formidable market advantages in important industries. Sometimes those industries are flashy and exciting, and sometimes they’re so boring they’re overlooked. For instance, Apple built an empire by designing sleek consumer gadgets that provided tremendous utility to users and became one of the best growth stocks of the last two decades. But since 2011 its shares have actually underperformed those of A.O. Smith, which sells water heaters, industrial boilers, and home air purifiers.
Then again, you’re probably prioritizing the returns from your portfolio, not its excitement level. That’s why we asked three contributors at The Motley Fool for their best growth stocks of the next decade, regardless of whether or not they’re household names. Here’s why they chose…
A biotech company with an important (and diverse) niche
Maxx Chatsko (Codexis): It’s common for the word “biotech” to be used interchangeably with “biopharma,” but that’s incorrect. Biology-based technologies span agriculture, industrial chemicals, food ingredients, animals, mining, and even digital data storage, just to name a few. Codexis has the unique advantage of being positioned to serve multiple biotech sectors with its technology platform.
The company engineers enzymes, which are biologic molecules that power all living things. They help chemical reactions within cells to occur faster, with less energy and fewer steps — and enzymes work just as well in an industrial setting as they do in single cells. Codexis sells enzymes that help manufacture pharmaceutical ingredients and food ingredients, as well as licenses to its enzyme engineering software platform. It’s also developing diagnostics for various healthcare and genetic analysis applications, in addition to a pipeline of biologic drug candidates in which the enzyme is the medicine.
The business is still developing, but it’s on a promising trajectory. Codexis reported total revenue of $60.6 million in 2018, up 21% from the year before, and delivered product gross margin of 50.7%. That high-margin growth helped to reduce its operating loss from $23 million in 2017 to $11.3 million last year. Management expects the growth to continue in the year ahead.
Codexis issued full-year 2019 guidance that calls for at least $69 million in total revenue, which would mark year-over-year growth of 14% at the low end of the range. While product revenue is only expected to comprise $26 million of the total this year, the business has been diversifying its revenue base and replacing revenue lost from aging contracts in recent years. So the flat total product revenue totals don’t tell the whole story. That could soon change, however.
Codexis has teased promising updates for the diagnostic products it’s been market-testing recently. Leading companies in DNA sequencing and healthcare have approached the enzyme leader to help co-market the portfolio, which is set to debut in 2019. Throw in the potential to receive up to $336 million in pre-commercial and commercial milestone payments from its first drug candidate, which successfully wrapped up a phase 1a trial months ago, and this sleepy enzyme engineering company could be valued at much more than…
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