3 Stocks We Can't Wait to Buy on Sale

By Todd Campbell, Brian Stoffel, and Keith Noonan Markets Fool.com

Celgene Corp. (NASDAQ: CELG), Xilinx Inc. (NASDAQ: XLNX), and Elli Mae, Inc. (NYSE: ELLI) are three top stocks that our Motley Fool contributors would love to be able to buy if share prices dip. The companies operate in very different sectors, but they all have something in common: Each has a competitive advantage that makes it the go-to player in its industry.

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Expanding its moat

Todd Campbell (Celgene): OK. I admit it took me less than 10 seconds to settle on Celgene as my pick. I already own shares in the biotech Goliath, but I'd love to see shares retreat so that I can add to my position.

Image source: Getty Images.

Celgene is the market-leading maker of drugs used to treat multiple myeloma, a form of blood cancer. Recently, the company has been moving into new indications to diversify its revenue.

In 2014, management launched Otezla, an oral drug for treating psoriasis, and the launch has been one of the most successful ever in the indication. Last year, Otezla's sales already eclipsed the billion-dollar blockbuster mark, and with fourth-quarter sales up 67%, momentum doesn't appear to be slowing.

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The company also recently announced positive results from a late-stage trial for ozanimod, an oral multiple sclerosis (MS) drug. The study results were strong enough for Celgene to target filing an application for approval wth the Food and Drug Administration soon, and personally, I think the drug's safety profile could position it as best in class. If I'm right, then it could carve away a meaningful stake in an indication valued at $19 billion.

Overall, Celgene thinks that its revenue and earnings per share (EPS) will hit $13 billion and $7.10, respectively, in 2017, and in 2020, they're forecasting sales and EPS of at least $21 billion and $13, respectively. With top-notch drugs on the market already, and the chance for another blockbuster launch in MS next year, this is one of my favorite stocks to buy.

A leader in programmable chips

Keith Noonan(Xilinx Inc.):Xilinx is a semiconductor company that specializes in field programmable gate array (FPGA) chips. FPGAsare core components of wireless communications towers that appear to be gaining favor in data centers as well, because they allow accelerated processing and network speeds and can be reprogrammed to accommodate changes in a system. A leading position in the space allows Xilinx to benefit from the maturation of the Internet of Things (IoT) and other computing and communications technologies.

The company is providing solutions for the 5G networks that will facilitate IoT connectivity across network standards, and stands to see substantial sales momentum in conjunction with next-generation network rollouts in 2019 and 2020. It's also betting big on the Industrial Internet of Things, with chips tailored for machine vision and predictive-maintenance applications, and building a customer base that will give it a big role in shaping other emerging technologies.

Xilinx recently signed a deal with Chinese internet company Baidu to deliver machine-learning applications, and its FPGAs will also be used in connected autonomous cars -- the fastest-growing consumer IoT category. Amazon also recently announced that it will be using Xilinx FPGAs in its cloud servers.

With some of the world's biggest internet companies demonstrating increased need for programmable logic chips to meet the demands of cloud, networking, and IoT technologies, Xilinx looks like an attractive portfolio addition. Trading at roughly 26 times forward earnings, Xilinx doesn't appear unfairly valued compared to its growth potential, but it certainly stands out as a good stock to buy on the next dip.

When mortgage rates rise, I'll be licking my chops

Brian Stoffel(Elli Mae, Inc.): Immediately following the November election, real-estate investors panicked. Mortgage rates jumped over 4.1% for the first time since 2014.That caused shares of Ellie Mae to fall nearly 25% in a matter of weeks.

The company offers Encompass -- a subscription-based platform for mortgage professionals to connect with one another. With higher rates, the thinking went, home buying and refinancing would screech to a halt, dampening the results at Ellie.

The concerns weren't completely unfounded, as Ellie gets incrementally more money when transactions take place via its platform. But so far, they have proven overblown: In the fourth quarter, revenue was up 48%, net income jumped 126%, and revenue per active Encompass user grew 24%.Shares responded by jumping 25% from their November lows.

The underlying story here is that Encompass benefits from two huge moats. The first -- high switching costs -- makes it unlikely that a mortgage professional would start looking for a competitor. It's too costly, in terms of time, money, and headaches, to do so. Just as important, a secondary moat is provided by the network effect. For professionals who are in any way involved in the real-estate market -- including underwriters, appraisers, and agents -- Encompass is the best place to drum up business.

Put those two factors together, and I'll be licking my chops the next time mortgage rates jump and Ellie Mae investors get spooked.

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Brian Stoffel owns shares of Amazon, Baidu, and Ellie Mae. Keith Noonan has no position in any stocks mentioned. Todd Campbell owns shares of Amazon and Celgene. His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Amazon, Baidu, Celgene, and Ellie Mae. The Motley Fool has a disclosure policy.