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13 Stocks With Big Future Potential

It takes guts to invest in the future. Thirty years ago, an investment in Amazon.com might have been met with derision. That it was not yet profitable was just one knock against it. Would people really prefer to buy a book online and wait for it to be delivered to their door, rather than visit the neighborhood bookstore to buy it? We all know the answer to that now.

Indeed, investing in innovation takes not only courage, but also foresight and even a little faith. But it can pay off big time. The not-so-simple trick, says David Eiswert, who manages the T. Rowe Price Global Stock fund, "is to invest on the right side of change."

The 13 stocks highlighted here stand to benefit from one of five sweeping trends that will be catalysts for long-term growth: climate change, human longevity, cloud computing, artificial intelligence and 5G technology. Despite their promise, however, most of these stocks aren't for the faint of heart. Most aren't bargains, either. Consider them long-term holdings that you might have to turn a blind eye to once in a while before you eventually reap the rewards. Change, after all, takes time. "The world moves in little, incremental steps that lead to giant changes," says Shelly Palmer, chief executive of the Palmer Group, a tech-focused consulting firm.

If you've got plenty of patience and a yen to embrace the future, consider the trendsetters below.

In its fourth national climate assessment, a coalition of 13 U.S. government agencies, drawing on the research of more than 300 scientists and policy experts, concluded that climate change will cause extreme weather, such as droughts, floods and heat waves; increase the spread of infectious diseases; and negatively impact the quality and safety of air, food and water. Signs of environmental distress are everywhere. Over the past year, the country has suffered intense hurricanes and devastating wildfires.

Many cities and states have responded, believing that the storms are the result of excess carbon dioxide emissions and global warming. Nearly 100 U.S. cities have committed to switching from coal, oil and gas to the use of only renewable energy sources, such as solar and wind, to power their electricity. California, Hawaii and New York have said they'll ditch fossil fuels for renewable energy and have committed to doing so over the coming 20 to 25 years.

Companies have decided that being ecologically proactive is good for business. Starbucks is switching to paper from plastic straws, Nike incorporates recycled material in 75% of its shoes, and a legion of firms, including Adobe Systems and PNC Bank, are following green construction guidelines for some offices. "If a company doesn't have a good environmental track record, a number o f report s show that consumers will stop buying its products," says Lori Keith, comanager at Parnassus Mid Cap, a Kiplinger 25 fund .

Concern about climate change has heightened awareness of how we use our natural resources, with the supply and quality of water near the top of the list. Xylem ( XYL , $74), which takes its name from a Greek term for the tissue that transports water in plants, is a water equipment and technology company that enables public utilities and commercial and industrial customers to transport, treat, test and efficiently use water. Xylem's know-how makes water safer and more accessible.

It is a steady business that's growing. Xylem customers tend to stick with the company because costs to switch to another water services provider can be high, and that creates an "annuity-like" stream of revenue, says Keith. Revenues over the past three years have increased by 13% annualized. A string of recent acquisitions has added a number of smart meters, pressure sensors, and diagnostic and analytics tools to the company's lineup. One such tool is a sensor that can identify leaks in water pipes--a necessity these days, given the many municipalities with aging infrastructure.

Analysts expec t earnings at Xylem to increase by 18% a year, on average, over the next three years. Parnassus Mid Cap added more shares in Xylem when prices dropped in late 2018. At $74 a share recently, the stock trades at 22 times estimated earnings for 2019, just a tad higher than its 10-year median price-earnings ratio of 20.

Electric utilities aren't your typical climate-change bet. In fact, they're often cast as part of the problem. But some utilities, such as NextEra Energy ( NEE , $184), are also big players in renewable energy production and storage. NextEra, which owns the largest Florida electric utility, is one of the world's leading producers of clean energy, mostly through wind, solar and nuclear power, which it sells to other power companies for distribution.

NextEra's renewable energy division isn't a side hustle. In 2018, the unit accounted for 40% of the firm's net income, and the division is growing faster than the firm's electric utility business. The company has solar energy centers in states across the country, including Alabama, California, Florida and New Mexico. Next­Era also has more than 100 wind farms scattered across the western U.S., in California, Iowa, North Dakota and Texas, among other states. Demand for renewable energy is expected to increase as costs fall for renewable energy and energy storage. Credit Suisse analyst Michael Weinstein expects an "explosion" in wind and solar power usage over the next decade.

NextEra's earnings should increase between 7% and 9% annually over the next three years, according to analysts' estimates, driven mostly by the company's renewable energy business. That's better than the 6% annualized earnings growth expected for the electric utility sector overall.

Waste management may not relate directly to climate change, but it's a pressing world problem that affects the health of the planet. According to the World Bank, the world's cities generated 2.2 billion tons of solid waste in 2016. By 2050, that figure is expected to increase 70%, to 3.7 billion tons. Americans are among the biggest generators of trash. We create 4.5 pounds of trash per person a day, and the amount creeps up every year. The rest of the world clocks in closer to 3.1 pounds per person--or less.

That makes managing waste a high-growth business. How our trash is picked up, sorted and recycled, and where it ends up, is what Waste Management ( WM , $99) is all about. It is the country's biggest provider of waste-management services, a recession-proof, necessary job that throws off "compelling" amounts of free cash flow (cash left over after necessary expenses to run the business), says Stifel analyst Michael Hoffman. Analysts expect annualized earnings growth of 12% over the next three years.

The company has also invested in projects with an eye to the future. Many of Waste Management's landfills, for instance, capture methane gas, which is produced naturally as waste decomposes, for use as a clean, renewable energy alternative to fossil fuels. In some cases, the gas is used to fuel the company's fleet of trucks. It also fuels electricity generators, which produce energy that is then sold to public and municipal utilities and power cooperatives. "It's a closed-loop waste management strategy," says Keith, a win-win for the environment.

People everywhere are living longer. A baby born in the U.S. today has a life expectancy of 78 years. In 1900, it was just 50 years. Meanwhile, the number of people worldwide age 60 and older is expected to double, to 2.1 billion, by the middle of this century.

But even though we are living longer, we're not living healthier, more active lives, according to the World Health Organization, a United Nations agency concerned with public health. To better manage health problems in old age, says WHO, early detection is key. That's where genomic science comes in.

Illumina ( ILMN , $300), the leading maker of DNA sequencing tools and instruments, is at the center of the genomics revolution. So far, 2.4 million human genomes have been sequenced, says Cathie Wood, CEO of ARK Invest, a money management firm that focuses on innovative companies. By the end of 2023, the number of sequenced genomes will hit 70 million. Last year, Illumina reported that more than 90% of all gene sequencing performed so far has used the company's technology.

DNA sequencing may become more routine as the cost to sequence falls further--from $1,000 today to as little as $100 in two to three years. Someday, says Wood, doctors may have patients get their DNA sequenced every three years to identify which genes, if any, have mutated in that time. Gene mutations are precursors of diseases, not a sign that a person has the actual disease itself. But sequencing may be a way to catch cancer in an early or even precancerous stage.

Illumina booked a record $3 billion in revenues in 2018. Over the next three years, analysts expect annual revenue growth in the double-digit percentages and earnings growth of 22% or better. That's close to 1.5 times better than analysts' earnings growth expectations for the biomedical-genetics subindustry as a whole, which includes 105 companies.

The more genes and gene mutations we identify, the more companies spring up to address specific maladies.

Exact Sciences ( EXAS , $89), a company with $266 million in annual revenues, is known for Cologuard, its at-home, noninvasive colon-cancer screening test. Cologuard identifies DNA mutations in your stool sample (sorry, there's no delicate way to say it) that can be associated with the presence of colon cancer or precancerous lesions. "Exact Sciences is a stellar example of how unlocking genetic markers can be life-changing," says Eiswert, of T. Rowe Price Global Stock. More advertising, a beefier in-house sales staff and a new deal with Pfizer to promote the prescription-ordered, mail-delivered Colo­guard kit could boost sales by 58% in 2019 and 48% in 2020.

Exact Sciences isn't profitable yet, but losses are shrinking. Analysts expect a loss of $1.18 per share in 2019 and a loss of $0.25 per share in 2020. UBS analyst Dan Brennan rates the stock a "buy" and recently raised his 12-month target price from $100 to $109.

Even more cutting edge--and thus riskier for investors--is the field of gene-editing therapy. In this experimental technique, mutated genes are tackled in one of three ways: They are knocked out entirely; they're replaced with a copy of a healthy gene; or a new gene is introduced into the body to help fight a disease.

Three companies have patents on the knock-out type of gene therapy, using a technique known by the acronym CRISPR, which is arguably the most revolutionary technology of the three gene therapies. The companies tackle monogenic diseases, or illnesses caused by one mutated gene, says Wood. Monogenic disease therapies, she adds, are a $75 billion market for drug firms, and the three patent-holding companies stand to capture roughly 10% of that.

But only one company, CRISPR Therapeutics ( CRSP , $32), has a therapy in clinical trials--for blood disorders. CRISPR, founded in 2013, has little in revenue and no profits. That makes it a risky bet--good for your mad money, not your college or retirement fund.

The cloud has been forming for years, but there's a lot of growth left. Companies that migrate to the cloud use a network of remote services hosted on the internet to store, manage and process data, instead of doing so on their own servers located on site. It turns out that many enterprises haven't yet fully shifted to the cloud. The consulting firm McKinsey estimates that only 20% of companies have done so.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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