At the start of this decade, Netflix (NASDAQ: NFLX) was a small media company trading under $8 per share.
Fast forward to now, and the stock has gained more than 4,200% and Netflix has transformed into a technology giant often discussed alongside Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), and Google-parent Alphabet (NASDAQ: GOOGL, GOOG), otherwise known as the FAANG stocks.
Even after Netflix’s 4,200% rise, analysts still rate the stock a Buy and their average price targets for the stock indicate more than 12% upside for the year ahead.
But at the start of the new decade, there are a handful of other stocks investors may want to keep an eye on.
It can be difficult and risky to bet on growth stocks on the hope of their potential to disrupt an industry, but looking at megatrends can help investors spot companies whose fortunes are directly tied to major advancements we’ll see in the next decade.
UBS cautioned investors that it’s “important to differentiate between trends and fads.” “From an investment perspective, we are focused on the problem-solving companies that are meeting the need of a changing world” the firm said.
One company that fits the bill is NextEra Energy (NYSE: NEE).
‘We expect the drive towards cleaner energy to continue, as cleaner power generation is increasingly competitive versus traditional fossil-fuel-based technologies,” Credit Suisse said.
Credit Suisse recently said NextEra was its top pick in the energy sector and highlighted the company’s “world-leading large-scale renewable development business.”
“Nearly half the company’s assets and earnings originate from its market leading dominance in North American utility scale renewable power. We expect this segment to grow at least 15% for the next decade or longer,” Credit Suisse added.
Another megatrend investors should be aware of is the explosion of big data.
“US and China [are] competing in nextgen technologies like quantum computing, semiconductors, AI, 5G communication networks, cybersecurity, and space that go well beyond manufacturing and trade issues,” Bank of America wrote in a note from November.
While there are many companies that could benefit from these trends, Credit Suisse highlighted Broadcom (NASDAQ: AVGO) as a high-quality company serving the demands of the rise of the internet of things (IoT), as well as 5G devices.
“Over the next few years, the number of global connected devices is expected to grow exponentially, according to our technology analysts,” the firm said.
The next stock is out of this world – literally. Virgin Galactic (NYSE: SPCE) is working on both space tourism and hypersonic travel closer to earth.
Morgan Stanley recently gave Virgin Galactic shares an Outperform rating and a price target 102% higher than the current price.
“A viable space tourism business is what you pay for today… but a chance to disrupt the multi-trillion dollar airline [total addressable market] is what is really likely to drive the upside” for Virgin Galactic shares, wrote Morgan Stanley analyst Adam Jonas.
Jonas added that “today’s space tourism business serves as a funding strategy and innovation catalyst to incubate enabling tech for the hypersonic P2P (point-to-point) air travel opportunity.”
“While some investors have described high-speed hypersonic P2P air travel opportunity as ‘the icing on the cake,’ we see Hypersonic as both the cake and the icing, with Space Tourism as the oven,” Jonas wrote.
Jonas did recognize the risks facing Virgin Galactic, “including the possibility of fatal accidents, regulatory obstacles, limited market acceptance, competition, insufficient economics, and liquidity constraints.” However, “taken together, we think the risks are offset by the potential scale of the reward,” Jonas said.
Another global megatrend is an aging population and the quest to extend human life – an industry that Bank of America estimates is worth $110 billion today, and could be worth nearly six times that within five years.
“Generic therapies represent a paradigm shift in medicine, with the potential to revolutionize healthcare deliver and disrupt the biopharma industry,” UBS wrote in a note from this month.
Among a number of biotechs, Illumina (NASDAQ: ILMN) stands out for its focus on genetic sequencing, a field Bank of America said is a “moonshot.”
“Illumina has near 100% of revenues from analyzing genetic data and would therefore be a High in our universe,” Bank of America wrote.
Illumina has a range of products that are already being used by researchers, which helps the company “in a brand spectrum of scientific activities to gain a greater understanding of genetic variation and biological function.”
“As such, Illumina’s tools play an important role in helping advance disease research, drug development, and the creation of molecular tests,” Bank of America concluded.
And finally, one last megatrend is the the explosion of video games in the global entertainment industry.
“The industry is currently more than a $150 billion market – larger than digital music and box office combined,” Jefferies wrote in a note.
The firm specifically likes Activision Blizzard (NASDAQ: ATVI) for its positioning in the mobile gaming space.
Jefferies found that nearly 90% of smartphone owners play mobile games, and they “believe ATVI’s aggressive approach will continue to play off, representing a $1 billion opportunity and $0.25 in incremental EPS by 2023.”
But mobile gaming isn’t the only space Activision is dominating.
The videogame publisher has been a big player in the rise of e-sports with its Overwatch League, which has quickly become one of the company’s $1 billion-plus franchises. For its 2019 Grand Finals in October, Activision reported that the Overwatch League finals drew 1.12 million average viewers, up 16% year-over-year.
And according to Piper Jaffray, the company’s brands will soon be featured in TV series and films on “various streaming services in [the] coming years,” helping Activision transform from a video game publisher into a digital content giant.