Seismic changes in global economies and the stock market are forcing investors to look at new ways to find companies that can add value long term, over multiple years, by adapting to these economic and market upheavals. To this end, The Boston Consulting Group (BCG) and Fortune magazine have created the Fortune Future 50, "the global companies with the best prospects for future growth." As Martin Reeves, a senior partner at BCG, writes in Fortune: "Our index is forward-looking, in the sense that it aims to measure vitality--a company's capacity to reinvent its business and sustain revenue growth. Over long periods, the majority of shareholder returns of high performers are driven by such growth."
Among the stocks on this list are these 9: Vertex Pharmaceuticals Inc. (VRTX), NetEase Inc. (NTES), Salesforce.com Inc. (CRM), Weibo Corp. (WB), Geely Automobile Holdings Ltd. (GELYF), Amazon.com Inc. (AMZN), Microchip Technology Inc. (MCHP), Nvidia Corp. (NVDA), and JD.com Inc. (JD). We will look at another nine stocks from the Fortune Future 50 in a subsequent article. While some of these stocks have posted declines in 2018, amid the market downdraft, the critical point is that BCG and Fortune see all 50 as well-positioned to outperform long term. The table below offers some basic information about the first set of nine stocks.
9 Fast-Growth Blue Chips
|Stock||Market Cap||Main Businesses|
|Amazon.com||$781 billion||Online retail, cloud computing|
|Geely Automobile||$17 billion||Auto maker in China|
|Microchip Technology||$15 billion||Semiconductors|
|NetEase||$27 billion||Online gaming, e-commerce|
|Salesforce.com||$104 billion||Cloud-based enterprise software|
|Vertex Pharmaceuticals||$43 billion||Biotech, drugs for serious diseases|
|$13 billion||Chinese language internet content|
Sources: Fortune, BCG; Yahoo Finance for current market cap.
Significance for Investors
Noting that rapid technological change is producing an accelerated rate of competition, BCG finds that "for large companies, there is now less correlation than there used to be between past and future financial and competitive performance over multiple years." The table below shows how the 2017 edition of the Future 50 performed since their selection last October.
The Fortune Future 50
|12-month average revenue growth of 18%|
|12-month average total return for shareholders of 35%|
|Outperformed both the overall market and growth-focused indexes|
Source: Fortune, BCG
The Future 50 list is dominated by companies headquartered in the U.S. and Greater China (including Hong Kong), with each country contributing 21 companies (42%). Among the nine companies listed above, Geely, NetEase, Vertex, and Weibo offer interesting illustrative cases.
Weibo. Ranked number 2 on the list, this Chinese company is a "microblog platform" that has grown into "a powerful outlet, not just for short posts, but also for long-form content such as news reports, film reviews, and videos." It has 431 million active monthly users, up 19% year-over-year (YOY), and the company is excelling at monetizing that user base, with 2Q 2018 revenue up 68% YOY.
Vertex. Ranked number 7, this biotech company started with drugs for hepatitis C, and now focuses on cystic fibrosis (CF), a debilitating genetic disease with 75,000 sufferers worldwide. Vertex has more than doubled its revenue in 3 years, and a new CF drug, Symdeko, earned $186 million in its first quarter on the market, more than double what analysts had projected. A key risk, however, is that its two bestselling drugs contribute 87% of total revenue.
NetEase. This Chinese company takes the number 12 slot. Formed in 1997 as an internet service provider (ISP), NetEase now draws almost 66% of its revenue from online gaming. The Chinese government has cracked down on the gaming industry, punishing the shares of NetEase and its principal competitors. Even so, its revenue grew by 22% YOY in 2Q 2018, and BCG says "it has a slew of top-end games ready for release when approvals resume." BCG notes that "many see government opposition as a recalibration of standards, and they expect the industry to recover."
Geely Automobile. Number 30 on the list, Geely is now the third-largest seller of autos in China, behind only VW and GM. Geely owns the Volvo brand, and its sales rose by 30% in the first half of 2018. BCG finds it "well positioned to take advantage of the sector's shift to low-emission 'new energy' vehicles." It also reportedly is in negotiations to license Toyota's hybrid engine technology.
"The very attributes that make high growth possible often also increase risk," Reeves of BCG warns, noting that 3 companies on last year's list have lost half their market value since then. Many fast-growing companies are still led by their founders, who may or may not be appropriate for the role as their companies mature and grow. Tech companies are facing increasing "trust issues," as Reeves puts it. Lastly, there are macro forces that can exert negative impacts on a company's prospects, among them trade disputes, economic slowdowns, and increased regulation. He notes that these concerns have affected the share prices of many companies on the 2018 list, especially those based in China.