InvestorPlace contributor Stavros Georgiadis recently recommended five up-and-coming stocks to buy in red-hot sectors.
All five of the names on Georgiadis’s list are all household names. All of them should produce over the long haul.
I’m tasked with putting together a list of 10 up-and-coming stocks for the savvy investor’s radar. Unlike my colleague, some of the names on my list will be less familiar to the average blue-chip investor.
That said, whenever I put names out there, I do so knowing that readers might act on my words, and so each of these names will be excellent businesses in their own right.
How and what will I pick?
There will be four large-caps (market capitalization of $50 billion or more), three mid-caps ($10-$50 billion), two small-caps ($1 billion to $10 billion), and one micro-cap (less than $1 billion).
In addition, I will pick the names on the list from cap-specific exchange-traded funds (ETFs). I’ll also try to ensure that the list of names is diversified by sector (at least six) and geography (at least three non-U.S.).
Here’s my list of up-and-coming stocks:
- Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B)
- Apple (NASDAQ:AAPL)
- Estee Lauder (NYSE:EL)
- Nvidia (NASDAQ:NVDA)
- Williams-Sonoma (NYSE:WSM)
- FactSet Research (NYSE:FDS)
- Toro (NYSE:TTC)
- EPR Properties (NYSE:EPR)
- J&J Snack Foods (NASDAQ:JJSF)
- QCR Holdings (NASDAQ:QCRH)
In the end, I believe I’ve put together a formidable group of up-and-coming stocks that can do well in good times and bad.
Up-and-Coming Stocks: Berkshire Hathaway (BRK.A, BRK.B)
Market Cap: $666.2 billion
Sector: Financial Services
Berkshire Hathaway is the first of the large-cap stocks I’ve selected from the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEARCA:GSLC). Warren Buffett’s holding company is the ETF’s ninth-largest position.
The ETF is a collection of large-cap stocks whose characteristics lend themselves to outperforming the markets as a whole. Factors include, but are not limited to, book value, free cash flow, profitability, low volatility and momentum.
Berkshire Hathaway is having a fine year in the markets. At the company’s annual meeting in early May, Buffett said that the company has $80 billion in excess cash that it has ready to invest.
Unfortunately, Buffett feels the excessive prices people are paying for companies at the moment due to special purpose acquisition companies (SPACs) and private equity will likely keep that cash on the sidelines for the time being.
At the end of the day, it’s an excellent problem to have. In 2019, I suggested seven ways to make Berkshire Hathaway more attractive. One way was to create a spinoff company that would take $30 billion of its excess cash and invests in smaller companies.
Maybe it will happen when Greg Abel takes over. In the meantime, it’s still an excellent investment to own.
Market Cap: $2.1 trillion
On the one hand, it’s tough to consider a $2.1 trillion market cap among up-and-coming stocks. On the other, Apple is always coming up with new ideas to drive revenue.
Recently, Apple put out a job listing for someone responsible for setting up partnerships with alternative payment partners to build a more robust Apple Wallet.
“Apple has a digital wallet app built into the iPhone, called Wallet. When it started in 2012, it could hold digital boarding passes,” stated CNBC contributor Kif Leswing on May 26. “Over the years, it has grown to include a number of financial services, such as contactless Apple Pay, peer-to-peer payments, the Goldman Sachs-powered Apple Card and loyalty rewards programs.”
Apple’s ecosystem lends itself to offering more products and services to its users to keep them engaged and generating recurring revenue. Who knows. Some day, it might even come up with an Apple electric SUV.
All I know is that whenever Wall Street doubts the company’s ability to deliver, it does just that.
Up-and-Coming Stocks: Estee Lauder (EL)
Market Cap: $111.4 billion
Sector: Consumer Defensive
Estee Lauder is one of those large-cap stocks that I would say flies under the radar. It’s not that people don’t know it; it’s got some of the best-known and best-selling brands in the beauty business.
No, I meant in the sense that a lot of investors likely don’t realize how consistent its stock has been since the end of the financial crisis in 2009. It’s had three corrections over 12 years, the worst being in March 2020, when it had a 37% drawdown — from a Feb. 13, 2020 high of $216.18 to a March 18, 2020 low of $137.01 — but other than that, it’s been smooth sailing.
An investment in Estee Lauder made at the beginning of 2011 would have gained 650% by now. By comparison, the same investment in the entire U.S. market would have gained 224% over the same period.
In 2021, the company expects its sales to grow by at least 9% over 2020, excluding currency, with online sales continuing to deliver strong double-digit growth. Over the past two years, Estee Lauder has nearly doubled its online sales. It plans to continue investing in its digital platform.
EL is a stock you can throw in a drawer for a decade and expect consistent growth.
Market Cap: $402.6 billion
Over the past 52 weeks, Nvidia has outperformed rival Advanced Micro Devices (NASDAQ:AMD), growing 83% in that span compared to AMD’s 56%. While I believe AMD is a quality company with a top-notch CEO, Nvidia is the better of the two chip businesses.
Nvidia reported blockbuster Q1 2022 earnings on May 26 that included record revenue of $5.66 billion (up 84% year-over-year), record gaming revenue of $2.76 billion (up 106%), and record data center revenue of $2.05 billion (up 79%). On the bottom line, it had net income of $2.31 billion, 107% higher than last year and 18% better than Q4 2020.
Free cash flow (FCF) generation, which I consider one of its greatest strengths, was on display in the latest quarter, up 106% from last year at $1.56 billion. Over the past 12 months, it’s generated $5.52 billion in FCF.
Investors can expect that number to rise in subsequent quarters. The company expects its Q2 2022 revenue to be $500 million more than analysts’ expectations.
Up-and-Coming Stocks: Williams-Sonoma (WSM)
Market Cap: $12.8 billion
Sector: Consumer Cyclical
Williams-Sonoma is the first of three mid-cap stocks I’ve selected from the SPDR S&P 400 Mid Cap Growth ETF (NYSEARCA:MDYG). I’ve been a fan of the company for many years. I included Williams-Sonoma in my January article “10 Smart Stocks to Buy With $5,000”. It’s up 70% since the beginning of the year.
As I said in January, Williams-Sonoma continues to benefit from the move by retail to a more e-commerce-focused business environment. It’s something that started before the pandemic and has only accelerated during Covid-19 and will continue to grow when we’re all back at the malls.
To balance its e-commerce business with brick-and-mortar, it plans to close 25% of its stores over the next five years. I can remember when the company closed its store on Bloor Street in 2017 — the main high-end shopping district in Toronto — people thought it was a sign the company was having financial troubles.
That couldn’t be further from the truth. However, the company is a lot more discriminating about where its stores are located and how much rent it’s willing to pay.
After all, when you have such an effective e-commerce business, it is much easier to pass on bad locations.
If you want to know more about what makes WSM tick, I suggest you read Warren Shoulberg’s May 27 column in Business of Home. It’s excellent.
FactSet Research (FDS)
Market Cap: $12.5 billion
Sector: Financial Services
I recently wrote about getting MSCI (NYSE:MSCI) and S&P Global (NYSE:SPGI) mixed up in an article about winning and losing stocks. At least in these two financial services stocks, they both publish stock indexes to generate some of their sales.
However, it’s harder for me to explain why I also get them mixed up with FactSet. The company’s meat and potatoes are providing clients with financial data and portfolio analytics. The FactSet Marketplace provides investment professionals with the information they need to make better decisions for clients.
Of its 42 years in business, it’s grown sales in 40 of them. That’s quite the consistency. It’s also increased adjusted earnings for 24 consecutive years and its annual dividend for 15 straight years.
It’s not a high-flyer. You won’t see it growing annual subscription revenues by 50% per quarter — its annual subscription value plus its professional services revenue increase by 5.3% in 2020 — but you will see it delivering for shareholders over the long haul. Equally important, you can buy it for less than both MSCI and SPGI based on price-to-sales.
Investors definitely underappreciate it.
Up-and-Coming Stocks: Toro (TTC)
Market Cap: $11.9 billion
Toro is a company that you really notice come summertime. Its Toro brand is used by golf greens keepers around the world. On the home front, many a kid has gotten paid to mow lawns using the company’s trusty Lawn-Boy brand.
In recent years, it’s broadened its horizons by getting into snow and ice management. For this job, it turns to its Boss snowplow business to provide commercial contractors with the tools to keep parking lots, driveways and other outdoor surfaces clear of snow and ice. For residential homeowners, it has Toro snow blowers at the ready.
Business is excellent.
In Q1 2021, Toro reported a 13.7% increase in sales to $873.0 million. The gain was driven by a 31.3% increase in residential revenues. They account for 25% of the company’s overall sales. Its adjusted income per share jumped 32.8% to 85 cents.
It’s off to a strong start in 2021. Toro management expects full-year sales and earnings to increase 6% to 8% and up to $3.45 per share based on its midpoint guidance, respectively.
Toro sells equipment to customers — both commercial and residential — whose needs will likely never diminish. That’s an excellent business to be in.
EPR Properties (EPR)
Market Cap: $3.9 billion
Sector: Real Estate
Morningstar.com describes EPR’s stock type as distressed. That’s because its main source of revenue is leases for the experiential real estate properties it owns across the U.S.
Its three major tenants — AMC Entertainment (NYSE:AMC), Callaway Golf’s (NYSE:ELY) Topgolf, and Cineworld’s (OTCMKTS:CNNWF) Regal — accounted for 40.2% of its overall revenue in Q1 2021 and 40.7% in Q1 2020. Covid-19 has severely affected these businesses.
However, as reported in its May 2021 presentation, 98% of its theaters were expected to be open by May 21. In April, the box office grew by 66% over March, to $189 million.
While theaters account for a big chunk of its revenue (46%), it has nine revenue streams in its 354 properties to help reduce its reliance on cinemas. Topgolf is one tenant that’s rapidly growing. Post-pandemic, its business will really take off.
In addition to its 280 experiential properties, it also owns 74 properties whose tenants provide private school and early childhood education. In regular times, this business provides a secure revenue stream.
As recently as November 2020, you could have bought its shares for close to $20. I suspect within 24 months, EPR stock will be back trading near its all-time high of $84.67 in July 2016.
It’s definitely an up-and-coming stock.
Up-and-Coming Stocks: J&J Snack Foods (JJSF)
Market Cap: $3.4 billion
Sector: Consumer Defensive
J&J Snack Foods is the second of two small-cap stocks from the Ballast Small/Mid Cap ETF (NYSEARCA:MGMT), an actively managed ETF with approximately $20 million in assets that got its start in December 2020. The fund seeks to invest in small-cap and mid-cap stocks run by excellent management teams.
I have followed JJSF for years. CEO Gerald Shreiber bought the J&J Pretzel Company at a bankruptcy auction in 1971 for $72,100. At the time, it had sales of $400,000 and eight employees.
Through acquisitions and organic growth, Shreiber and his management team built the company into a business with more than $1 billion in annual revenues and total assets.
Today, Shreiber owns 19% of the company. His 3.7 million shares are currently worth $650 million. That’s a compound annual growth rate of over 20% over 49 years. That’s Warren Buffet-type returns.
Brands it owns include Icee, SuperPretzel, Tio Pepe’s, Luigi’s, and many more. It remains a delicious investment.
QCR Holdings (QCRH)
Market Cap: $770.5 million
Sector: Financial Services
It probably seems like I’ve gone quite heavy on financial services stocks, but the reality is that I’m selecting what I think are some of the best stocks from each of the ETFs I’ve used to come up with ideas.
When it comes to the First Trust Dow Jones Select MicroCap Index Fund (NYSEARCA:FDM), I believe that QCR Holdings, the holding company parent of Quad City Bank & Trust, serves the Quad Cities and several other communities in Illinois and Iowa. It also owns m2 Lease Funds LLC, a commercial leasing company based in Milwaukee.
Some of the company’s numbers include $5.6 billion in assets, $4.4 billion in loans outstanding, $4.6 billion in deposits, and $4.8 billion in wealth management assets.
QCR Holdings went public in 1993, adding several community banks along the way. Quad City Bank and Trust are the largest by deposits. The holding company is the third-largest bank in the areas where it operates behind only Wells Fargo (NYSE:WFC) and US Bancorp (NYSE:USB).
Between 2016 and 2020, QCR has grown revenues by 11.3% compounded annually. Its long-term goal is to grow loans by 9% a year, fee income by at least 6% annually, and keep expense growth to a maximum of 5%.
QCR is a company that’s worth getting to know better.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.