Beat the heat with these cool stocks

 

Some companies are cooler than others. For example, Tesla is cooler than General Motors, NVIDIA is cooler than AMD, and Google is cooler than Microsoft. Come to think of it, nearly every tech company is cooler than Microsoft, except Cisco, which is dorky. As you can see, there is an element of subjectivity in this determination, but that doesn’t mean there isn’t also something real there, some true cool. What is cool? It has something to do with buzz, of course. New technologies are almost always cool. Also, when it comes to stocks, going up is very cool, while going down is totally uncool. Anyway, the stocks on today’s list haven’t become too cool for school yet, but they are already building strong fans on the playground. I think each one of these stocks has the potential to be the Fonzie of your portfolio.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Arrowhead Pharmaceuticals (ARWR)

There are always cool biotech stocks with impressive sounding drugs in their pipelines, but Arrowhead Pharmaceuticals stands out among these, as it seems to offer not just treatments for specific diseases, but an entirely new approach to fighting disease. Arrowhead’s drugs (there are eight in the pipeline) rely on RNA Interference, which means they seek out and deactivate specific genes in order to prevent them from producing the proteins that cause disease. The company has had extremely positive early clinical trial results for its alpha-1 antitrypsin deficiency drug and its Hepatitis B drug, and that’s particularly good news, because both those drugs rely on Arrowhead’s core targeted RNAi molecule platform, called TRiM. If TRiM works well, and it seems to, Arrowhead can use it to go after any problematic gene it can identify. How big a deal is that? Well, the drugs that target cardiovascular disease, cystic fibrosis, and one form of cancer are already in the pipeline. A medical revolution in the making? Will our lives be longer and happier thanks to Arrowhead Pharmaceuticals? Right now, anything is possible, and that’s pretty cool.

Chart courtesy of www.stockcharts.com

Alteryx (AYX)

Alteryx, which IPOd in March of 2017, is a member of the coolest stock market clique, the software as a service (or SaaS) companies. It operates an analytics platform, analytics being a process whereby analysts use math to make forecasts that are more accurate than those they would otherwise have, after careful study and deliberation, pulled from their a**es. That may not sound remarkable to you, but try following the stock market for a living, and you’ll discover that while math is necessary for everything you do, it is nearly useless when it comes to predicting the future. Why is that? It’s because numbers never speak for themselves. They can’t put themselves in context, and they certainly can’t tell you how they work together with other numbers to peer into the future. You need to be imaginative to design useful analytical tools, and you need mad math skills. The company, currently worth $2.38 billion, estimates that its addressable market will eventually be $28 billion. Why so low when nearly every imaginable form of business can benefit from analytics? Alteryx is just being realistic—it knows that is growth will be limited not by the demand for analytics, but by the number of people with the math doo-doo to design and implement them.

Chart courtesy of www.stockcharts.com

ServiceNow (NOW)

When Alteryx uses its analytics to peer into its own future, it hopes to see a company very much like ServiceNow, which is to say that ServiceNow is a considerably more mature SaaS company with a market cap more than ten times as high. The company is particularly cool, even for a SaaS company, simply because it has been phenomenally successful. Take revenue: $1 billion in 2015, $1.9 billion in 2017, $3.3 billion forecast for 2019. Take EPS: $0.40 in 2015, $1.19 in 2017, $3.15 forecast for 2019. As for the share price, well, you can see the chart yourself. What does ServiceNow do? Here’s what the company says: “ServiceNow provides enterprise cloud computing solutions that define, structure, manage, and automate services for enterprises worldwide. The company offers service management solutions for customer service, human resources, security operations, and other enterprise departments.” Well, it sounds like business management software. The cool thing is that people seem to like it, and they are happy to pay for it.

Chart courtesy of www.stockcharts.com

AeroVironment (AVAV)

How is this company cool? Let me count the ways. First, it makes drones that fire missiles and drones that improve battlefield situational awareness for the military, so if anyone is currently watching you (or anybody) through a high-powered telescope with the cross-hairs between your eyes, just waiting for the kill signal, chances are good that they are watching you using an AeroVironment drone. Second, the company is also the leader in agricultural drones. It turns out that a drone can do the work of many people by spreading seeds, fertilizer, pesticides, etc. Furthermore, drones will do this on an exact schedule or, when the situation dictates, based on the data they gather, telling the farmers how well the crops are doing in each location. I have to say, I like seeing drone technology being hammered from swords into plowshares. This is a tiny company—its market cap is just $1.66 billion, so there is really no limit to how high AVAV shares could rise. Oh, third, AeroVironment is currently working with NASA to create a drone that will fly around taking pictures, and (who knows?) perhaps wasting a bad guy or two, on Mars. If it works, it will be the first machine ever to fly in an alien atmosphere.

Chart courtesy of www.stockcharts.com

Veeva (VEEV)

Another SaaS company? What am I, obsessed? Indeed. I am obsessed with winning stocks, exponential growth, and triple-digit, even quadruple-digit returns. Veeva makes software for the life sciences industry, which, of course, manages clinical trials so that biotech companies can focus on making drugs. The company makes customer management, sales, and business operations software, but the content of the work necessarily touches on scientific processes, so the software must meet FDA specifications, and that includes (yes, I worked in this industry) the incessant generation of records, all of which can be (and are) frequently audited. Veeva’s profits have tripled over the past three years and are expected to rise 47% in the company’s fiscal 2019. This really is a great company with spectacular potential, but here’s the downside. The forward P/E of 56.1 is mighty high, so Veeva will have to keep up the hand-over-fist success for a couple more years to justify its price. My best guess is that Veeva will do just that. You remember where market forecasters get our best guesses from, right?

Chart courtesy of www.stockcharts.com

Symbols: ARWR AVAV AYX NOW VEEV
Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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