If there's one thing harder than finding great stocks, it's holding on to those stocks after they've already delivered big gains. But sometimes, that's exactly what you should do.
To that end, we asked three top Motley Fool investors to not only find a stock that climbed at least 50% in 2017, but also -- taking into account their performance so far in 2018 -- to tell us whether those stocks are still worth buying today. Read on to learn what they had to say about Adobe Systems (NASDAQ: ADBE), Netflix (NASDAQ: NFLX), and Wynn Resorts (NASDAQ: WYNN).
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Creating even greater market-beating gains
Steve Symington (Adobe Systems): When Adobe stock was trading at its 52-week high in early 2017, I went out on a limb to suggest that it was still worth buying for patient, long-term investors. Sure enough, the stock went on to climb 70% last year, and has even jumped another 38% so far in 2018 as of this writing.
In short, Adobe's transition away from perpetual software licenses and toward a cloud-based subscription model has succeeded exactly as management suggested it would. In its most recent quarter, revenue jumped almost 24% year over year to just under $2.2 billion, including 22% growth from its now-core digital media segment to $1.55 billion. And on the bottom line, Adobe's profits grew even faster, with adjusted net income per share soaring 63% to $1.66.
But I think Adobe is still worth buying even after its rise. During last quarter's call, the company predicted it will sustain its momentum into the second half of the fiscal year as users continue to embrace its new cloud products. After all, around 89% of Adobe's revenue now comes from recurring sources. And its deferred revenue most recently climbed a solid 27%. What's more, after Adobe agreed in May to pay $1.68 billion to acquire Magento Commerce -- a move that will allow it to integrate cutting-edge commerce solutions into its creative product portfolio -- the company should be poised to become an even stickier end-to-end solutions provider for creative professionals.
Netflix is just getting started
Anders Bylund (Netflix): The streaming video giant had a banner year in 2017. The global subscriber count rose from 94 million to 118 million, driving top-line sales 32% higher while earnings tripled. Investors enjoyed a 55% return as the market embraced Netflix's monumental growth trends.
Can Netflix copy that performance in 2018? Well, don't look now but the stock has already left 2017's returns far behind, with a soaring 104% year-to-date gain.
For some, that might be a signal to cash in your chips and go home with a tidy profit. That's a perfectly natural reaction to skyrocketing gains, and there's nothing wrong with rebalancing your portfolio every once in a while.
But it would be a huge mistake to sell out your entire Netflix position.
Netflix always looks overvalued by most of the traditional metrics. But the company is knee-deep in a game-changing strategy shift that throws all of those numbers out the window. You can't base Netflix's true value on what you see in the rearview mirror -- you have to look at a very different future.
It's not the first time Netflix has pulled this stunt. Moving the core business from red DVD mailers to online video streams was excruciatingly painful for a while. Now, the Qwikster fumble that seemed so sure to doom the company in 2011 is a tiny footnote in a fantastic success story.
The next dramatic shift came when Netflix expanded into nearly every corner of the globe. That move is still going on, as Netflix works to figure out the best way to drive subscriber growth followed by profitable operations in nearly 200 unique markets.
And before even clearing that hurdle, Netflix has moved on to explore the content production market. It's all about Netflix Originals nowadays. If I woke up from a 10-year coma in 2028, I would not be shocked to find that people thought of Netflix more as a content producer than a distributor of media. That is, unless the company has moved on to another business model by then, entirely unknown to us relics from 2018.
Long story short, Netflix has a lot of new ideas and business growth left to explore. Feel free to hold out for a lower entry price, but don't complain if that day never comes. It's entirely possible that the stock may never be significantly cheaper than it is today.
A roll of the dice
Rich Duprey (Wynn Resorts): Compared to other world-class casino operators, none performed better in 2017 than Wynn Resorts, which nearly doubled in value as it cashed in on the recovery in Macau, China; bought new property that set the stage for additional growth in Las Vegas; was poised to open a new casino in Boston; and was naturally considered a frontrunner for winning a license in Japan, as that country moved toward legalizing casino gambling.
And then it all came apart in 2018 as Founder and Chairman Steve Wynn was accused of inappropriate conduct, which eventually forced him out of the company and had him sell all his shares of stock in the casino that still bears his name. It also created a climate where gaming regulations here and abroad began investigating the company and its licenses. In Boston, it was even forced to change the name of its new casino, and with its concession in Macau coming up for renewal soon, many are fearful of what regulators may do.
After rising another 20% early in 2018, Wynn Resorts crumbled and lost all of those gains. Today, the stock is treading water, down less than 1% through the first six months, though, surprisingly, it is not the worst performer (MGM Resorts earns that distinction, even without a scandal). The risk that still hangs over Wynn is whether regulators will determine its board of directors did enough, or were complicit in, the allegations made against Steve Wynn.
Because his ex-wife now runs the casino and is installing new directors, it's likely the worst has passed for Wynn Resorts, and because it is still a world-class gaming company, it's long-term growth prospects remain intact.
The bottom line
As the saying goes, past performance is no guarantee of future returns. But whether we're talking about the sustained momentum of Adobe's cloud-based creative products, Netflix's plethora of options to drive future growth, or taking advantage of Wynn Resorts' recent pullback, we think these three companies have what it takes to continue generating ample value for shareholders.
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Anders Bylund owns shares of Netflix. Rich Duprey has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems and Netflix. The Motley Fool has a disclosure policy.