Lately, on Industry Focus: Tech, we’ve focused on the megacap businesses that have been dominating the news — at the cost of shedding some light on smaller companies with massive growth potential. In this week’s episode, host Dylan Lewis talks with Fool.com contributor Brian Feroldi about following ultra-compelling small-cap tech companies.
Tune in to find out how each business works, how companies like AppFolio thrive in markets that are too small for the big guys, the biggest risks investors should know before taking a closer look at these companies, which particular one is the most exciting story today, and more.
Top 5 Oil Stocks To Invest In 2019: HSBC Holdings plc(HSBC)
HSBC Holdings plc (ADR) (NYSE:HSBC) is a British banking and financial services holding company. Founded in Hong Kong (then a British colony) in 1865 as a bank to finance trade between Europe and Asia, the bank now bases itself in London. Today, it provides banking and wealth management services to clients in 67 countries and territories across the world.
Although revenue has seen years of decline, it has begun to rebound. Moreover, its price-to-earnings (PE) ratio for HSBC stock, currently at 20, is around 12 on a forward basis.
This level of profit growth should bode well for its dividend. Its current dividend stands at $2.55 per share. Since it pays a larger dividend for its first payment of the year, new investors will likely not see the 5.5% yield unless they hold the stock until next spring.
However, with profits expected to rise, investors no longer need to worry about declining profits jeopardizing its dividend.
Top 5 Oil Stocks To Invest In 2019: Micron Technology, Inc.(MU)
I’ve admittedly been pushing Micron (NASDAQ:MU) pretty hard lately, but there really isn’t a better cloud play right now than MU stock. And in my defense, I’m not alone in saying that.
Luke Lango pointed to cloud computing last week in arguing that MU should trade above $70. Stifel analyst Kevin Cassidy made a similar point after earnings this month, and gave Micron stock a $108 price target. JP Morgan (NYSE:JPM) has cited the cloud tailwind, and so hasMorgan Stanley (NYSE:MS).
The core argument is rather simple. Micron trades at a seemingly ridiculous valuation (barely 5x forward EPS) because investors are worried that always-cyclical memory pricing eventually will decline. But the memory — particularly on the DRAM side — required for cloud computing should provide years of demand that can help offset any supply expansion. If cloud computing continues to grow, Micron’s pricing should hold — and so should its earnings. And at some point in that scenario, Micron will be trading for a lot more than 5x EPS and its current price of $53.
Top 5 Oil Stocks To Invest In 2019: Foundation Medicine, Inc.(FMI)
Our understanding of the human genome and the role genes play in cancer is increasingly shaping patient treatment and one company that’s at the forefront of this movement is Foundation Medicine.
IMAGE SOURCE: GETTY IMAGES.
Using next-generation screening technology, Foundation Medicine helps drugmakers identify for clinical drug trials patients who have genetic mutations that make them most amenable. Also, following the Food and Drug Administration approval of FoundationOne CDx late last year, Foundation Medicine became the first company to offer a comprehensive gene testing solution that matches solid-tumor cancer patients up with cancer drugs that are most likely to help them.
Thanks to a flurry of biopharma cancer gene therapy research and rising demand for clinical testing, Foundation Medicine’s first-quarter 2018 sales skyrocketed 101% year over year to $52.8 million. Contributing to the growth was a 57% year-over-year increase in completed tests to 21,861.
I expect testing volume to climb much higher, though. In Q1, Medicare granted FoundationOne CDx broad coverage through a final national coverage determination that makes it available for eligible stage 3 and stage 4 solid-tumor cancer patients. Private insurers usually follow Medicare’s lead, so I suspect FoundationOne CDx will win widespread reimbursement soon. If so, then FoundationOne CDx could become widely used to create cancer treatment plans for advanced cancer patients, an addressable market that Foundation Medicine estimates at over 1 million people in the U.S. alone.
Foundation Medicine isn’t turning a profit yet, but I expect that will happen soon enough. The sheer size of the addressable market and the importance of advancing cancer treatment could easily make genetic testing a necessity. According to the National Cancer Institute, about 1.7 million people will be newly diagnosed with cancer this year and over 600,000 Americans will pass away this year because of cancer.
Foundation Medicine estimates it will do between 90,000 to 100,000 clinical tests and sales will clock in at up to $220 million this year. That won’t fully offset the $250 million to $260 million it expects to spend, but it could put Foundation Medicine in a position to turn a profit as soon 2019.
Top 5 Oil Stocks To Invest In 2019: Arotech Corporation(ARTX)
Arotech Corporation (NASDAQ:ARTX) functions as a defense and security services company. Despite its market cap of only $88 million, it operates in multiple countries and competes with the likes of General Electric Company (NYSE:GE) and Honeywell International Inc. (NYSE:HON) through its Power Systems division.
ARTX also serves as a defense contractor and makes products designed for military, homeland security and law enforcement purposes. Given the Donald Trump administration’s commitment to increase defense spending, Arotech could find itself well-positioned to benefit.
However, like all hot penny stocks, this play remains speculative. Its revenues for 2017 stood at $98.72 million. Its 2014 revenues were $103.57 million, so this company has struggled with growth. Arotech was founded in 1990, and one of its divisions came into existence in 1971. Hence, the build to these revenues has been slow.
The company earned a profit of 17 cents per share in 2017. Still, profits are expected to grow to 18 cents per share in 2018 and 26 cents per share in 2019. This could indicate this company may enjoy some growth. If the company can sustain that growth and speed up its slow growth trajectory, its forward price-to-earnings ratio of 13 starts to appear very low.