After generating market-trouncing returns in 2017, you might be wondering if Micron(NASDAQ: MU), Align Technology(NASDAQ: ALGN), and Salesforce.com Inc.(NYSE: CRM) can continue to reward you with gains. We asked three Motley Fool investors to consider the catalysts ahead for these companies to see what could be in store for investors, and they think there's still plenty of reason to own them in portfolios. Read on to find out why these three stocks may still be smart buys.
Forget about last year's run-up in this memory-maker stock
Rich Smith (Micron): Up 50% in 2017? Why think so small?
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Micron stock is up nearly double -- 92% -- over the past year. Of course, while that's great news for investors who bought Micron a year ago, it may worry new investors thinking about buying Micron today.
But I wouldn't focus on that.
You see, even after shooting up 50% and more in 2017, Micron stock still sports an attractive valuation today. With $7.6 billion in trailing net income and a market capitalization of just $51.9 billion, Micron stock costs just 6.8 times earnings -- which seems pretty darn cheap given that analysts who follow the stock are projecting 10% annualized long-term earnings growth over the next five years.
Even valued more conservatively on its free cash flow, Micron generated $5.2 billion in cash profit in 2017. Relative to the stock's market cap, that still works out to a P/FCF ratio of less than 10, and it's still an attractive number relative to 10% growth expectations.
These growth expectations aren't very aggressive, by the way -- and they should be achievable if memory prices just hold steady. In that regard, fellow Fool and tech enthusiast Anders Bylund explained last year how production cuts and limited capacity expansion among the three big memory chip makers (of which Micron is one) mean there's little likelihood of overcapacity of bruising price wars anytime soon.
Long story short, even after it's shot up 50% and more, Micron stock still looks cheap to me.
Reasons for upside are clear
Todd Campbell(Align Technology): OK, Rich. I'll see you, and I'll raise you. How about Align Technology's more than doubling last year? Can the maker of Invisalign clear teeth aligners add to that gain again this year?
In the past, demand for clear aligners was weighed down by their inability to be used in complex cases and teens. However, the technology has improved considerably over the past few years, and that's opened up the market for clear teeth aligners to millions of new patients.
Align Technology is already capitalizing on its expanding market (thus the big run-up in shares last year), but there's reason to think there's still room to climb higher. Despite the company's annual revenue already more than doubling since 2012 to $1.5 billion in 2017, management thinks sales can reach $2 billion in 2020.
The company appears to be well on its way to delivering on that target. Clear aligner sales increased 37%, and sales of scanners used by orthodontists to create plans for patients increased 35% last year. The growth was driven in part by a 40% year-over-year increase in teens starting treatment and a 45% increase in international sales to $245 million.
Given metal braces still dominate treatment -- Invisalign's market share is south of 10% -- and momentum in teens and overseas is likely to continue, I think this stock can still deliver better-than-market returns from here.
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This CRM leader is just getting started
Steve Symington (Salesforce): Shares of Salesforce climbed an impressive 49.3% last year with good reason. The cloud-based customer relationship management (CRM) platform specialist consistently exceeded management's expectations with each of its quarterly reports. And its most recent (fiscal Q4 2018) report earlier this week was no different; Salesforce ultimately grew revenue 25% last fiscal year to $7.6 billion, and it exceeded an annual run rate of $10 billion in the process.
For that success, Salesforce management credits what they describe as their "relentless focus on customer success" -- something those customers have happily embraced as Salesforce's cutting-edge products utilize AI and machine-learning algorithms to make better-informed decisions on everything from sales leads to customer service, marketing strategy, and inventory management.
But Salesforce isn't done yet. The company is now focused on doubling its size yet again by reaching annual sales of between $20 billion and $22 billion by fiscal 2022. That sounds like a lofty goal, but keep in mind it's only a small chunk of Salesforce's roughly $72 billion total addressable market -- a number the company expects will expand to as much as $120 billion over the next four years.
For investors willing to buy now and bet that Salesforce will deliver on that target, last year's gains could be just the beginning.
Rich Smith has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. Todd Campbell owns shares of Align Technology and Salesforce.com. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Align Technology. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.
