Three technologies stand at the forefront of making the 21st century uniquely different from any other: e-commerce, mobile communications, and biotechnology. Although each of these technologies actually began in the late 20th century, they've truly become a way of life for billions of people over the last 17 years.
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We asked three of our Motley Fool investors to pick growth stocks for the 21st century. It's not surprising that they chose companies that focus on e-commerce, mobile communications, and biotech. Here's why MercadoLibre (NASDAQ: MELI), American Tower Corporation (NYSE: AMT), and Vertex Pharmaceuticals (NASDAQ: VRTX) stand out as top growth stocks for the future.
An e-commerce king
Tim Green (MercadoLibre): There's no stopping e-commerce from soaking up an increasing percentage of global retail sales in the coming decades. Traditional retailers with strong omnichannel capabilities, marrying physical stores and e-commerce, can survive and thrive, but most of the growth will be happening online.
MercadoLibre, an online commerce and payments company in Latin America, is one beneficiary of this shift to e-commerce. The company doesn't sell products directly, instead opting for a marketplace model where it facilitates transactions and collects fees in return. Total gross merchandise volume through its platform was $2.7 billion during the second quarter alone, up 55% year over year adjusted for currency. That translated into $317 million of revenue.
MercadoLibre has over 191 million registered users, with 14.6 million unique buyers utilizing the platform during the second quarter. The company is on its way to becoming the overwhelmingly dominant e-commerce player in Latin America. What's more, MercadoLibre is already producing impressive profits, with operating margins around 20%. The stock is far from cheap, trading for around 80 times 2016 earnings, but the company's growth potential in the coming years and decades is tough to beat.
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Riding the wave of global mobile data growth
Matt DiLallo (American Tower): Mobile data usage is expected to grow at a torrid pace over the next several years. According to one estimate, U.S. mobile data usage will increase by a 34% compound annual growth rate through 2021, while global data should grow at an even faster pace of 37%. That growth will drive the need for additional communications tower infrastructure, which plays right into the hands of leading tower operator American Tower.
However, don't let the company's name fool you. American Tower is a global company with more than 107,000 international towers to go along with 40,000 towers in its namesake country. That international focus is important because the company not only earns higher returns on tower investments in foreign countries, but those markets are expanding at a faster rate than the mature American market. That has been evident in American Tower's financial results over the past decade as the operating profit from its international tower portfolio has grown by a 24% compound annual growth rate, while the domestic tower portfolio has only generated 13% compound annual operating income growth over that same timeframe.
Given that global focus, American Towers expects to continue growing at a torrid pace in the coming years. That's clear from comments by CEO Jim Taiclet, who said last quarter:
As a result of the ever-increasing consumer appetite for mobile broadband and our strategic positioning in key markets spanning five continents, we believe that we are on track to sustain strong growth in Consolidated AFFO per Share and our dividend for many years to come.
This forecast suggests that American Towers will be an excellent way for investors to ride the global wave of mobile data growth.
Keith Speights (Vertex Pharmaceuticals): There's one number investors should keep in mind when they think about Vertex Pharmaceuticals: 68%. That's the consensus annual earnings growth rate that Wall Street projects for the biotech over the next five years. Can Vertex pull off that kind of remarkable growth? I think so.
Vertex hasn't had any earnings to report until the first quarter of 2017. But the company is now on a roll, with sales for its cystic fibrosis drugs Kalydeco and Orkambi growing more than 21% year over year in the first half of this year. You might be wondering how 21% sales growth can drive earnings growth of more than three times that rate. There's a good answer.
In March, Vertex announced strong results from a couple of late-stage studies of a combination of tezecaftor and Kalydeco in treating additional genetic mutations that cause cystic fibrosis. Assuming this two-drug combo wins approval, it could expand the biotech's potential market from 29,000 patients to 44,000 patients. But that's just the beginning.
Vertex announced more impressive results in July from phase 1 and phase 2 studies of three different triple-drug combinations for treating cystic fibrosis. If these combos gain approval, the market could increase to around 68,000 patients. Vertex is realistically looking at the potential to expand its addressable market by more than 100% -- and the company is well ahead of its competition. This biotech appears to be one of the hottest growth prospects on the market.
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Keith Speights has no position in any of the stocks mentioned. Matthew DiLallo owns shares of American Tower, MercadoLibre, and Vertex Pharmaceuticals and has the following options: long January 2018 $80 calls on American Tower and short October 2017 $120 calls on American Tower. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends American Tower and MercadoLibre. The Motley Fool has the following options: short October 2017 $120 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.