Investing in companies that make products you're familiar with can be a way to put firsthand consumer research to use. However, that assumes you're actually aware you're using a company's products, and sometimes the origin of a product or service is less than obvious.
For this roundtable discussion, we asked three Motley Fool contributors to profile a company that's more ingrained in daily life than many people realize. Read on for a look at ubiquitous offerings from the soon-to-be-merged GlaxoSmithKline (NYSE: GSK) and Pfizer (NYSE: PFE), advertising specialist Trade Desk (NASDAQ: TTD), and internet giant Amazon.com (NASDAQ: AMZN) that are flying under the radar.
Image source: Getty Images.
A consumer healthcare giant
George Budwell (GlaxoSmithKline and Pfizer): When GlaxoSmithKline and Pfizer announced the merger of their consumer healthcare segments last month, it instantly created one of the world's largest portfolios of over-the-counter healthcare products in terms of market share. This massive portfolio, after all, sports an array of popular products such as Advil, ChapStick, Sensodyne toothpaste, and Tums antacids, among many others.
Should investors buy into this megamerger? The no-frills answer is yes. This deal is immensely beneficial for both companies. For Glaxo's part, this move should allow more leeway to focus on the development of new, high-value pharma products. The current plan is to carve out a stand-alone consumer healthcare business within the next three years, which should provide some much-needed cash for the pharma giant to boost its clinical pipeline through either organic development or additional acquisitions.
Pfizer, on the other hand, has been looking for a partner to take its consumer healthcare portfolio for awhile now, presumably as a prelude to a formal split of the company into an innovative-medicines segment and a legacy-products business. Such a move would immediately unlock the value of Pfizer's growing portfolio of new oncology medicines and allow it to finally move past the overhang created by the so-called patent cliff.
What's in it for investors? Glaxo has been slowing but surely improving its operational efficiency under new CEO Emma Walmsley, and this move should accelerate the process. As such, Glaxo now has a clear path toward sustainable growth -- even as its top medicine, Advair, begins to face generic competition. Pfizer, by contrast, should eventually transform into a top growth stock with its consumer healthcare business out of the way -- that is, assuming that the company does indeed intend to go forward with its long-awaited split.
The company behind all those online ads
Jeremy Bowman (Trade Desk): It may not be accurate to say that you use the Trade Desk every day, but there's a good chance you interact with it. Any internet user is subject to volumes of online ads. They're what keep the lights lit on the web's most popular sites like Google and Facebook and support nearly every online media portal. Helping companies advertise online has become its own niche industry, and Trade Desk has established itself as a leader.
The Trade Desk is a cloud-based technology platform that helps ad agencies optimize their customers' spending on ads across multiple digital platforms. That means it helps companies do things like not advertise a product you've already bought, as searching for a product only indicates potential interest if it hasn't been purchased yet, and the value in its tools is evident from the company's rapid growth. Revenue is up 54% to $316.8 million through the first three quarters, and it is substantially profitable, with a non-GAAP net income of $72.7 million, good for an adjusted profit margin of 23%.
The stock trades at a high multiple, at a P/E ratio of 54.6, but that's to be expected considering its rapid growth and wide profit margins. Shares jumped last year, more than doubling during 2018, but the stock is also down about a quarter from its all-time high, falling with the broader market pullback. That means now looks like an excellent opportunity for long-term investors to get in on the stock.
Considering its high valuation, it could fall some more if stocks slide into a bear market, but with the growth opportunity ahead in digital advertising, Trade Desk could become a big winner.
"The everything store" is everywhere
Keith Noonan (Amazon.com): You might order something off Amazon's e-commerce platform once a week or watch movies or television through its streaming platform on an almost daily basis, but most people aren't aware of the crucial role that the company plays behind the scenes in powering websites and internet services across the globe. The company founded Amazon Web Services in 2006, and the cloud-platform and infrastructure segment has become the backbone of the company's business -- and much of the internet.
Amazon commands roughly a third of the cloud infrastructure market, and while the ubiquity of its services is less noticeable when things are running smoothly, people tend to see the effects pretty quickly in the rare instances when its core cloud services are disrupted. Popular services including Slack, Netflix, and Snapchat represent just a small selection of the sites that depend on Amazon's cloud infrastructure.
Amazon also operates fast-growing online advertising and business-to-business e-commerce services and leads the smart-speaker market with its Alexa voice assistant and Echo hardware. If you shop at Whole Foods, check a movie's cast on IMDB, or have family members who stream video games on Twitch, that's Amazon as well. If you read The Washington Post, that's owned by Amazon's Jeff Bezos. The CEO has managed to build his business from an online book retailer to a global powerhouse with seemingly unprecedented reach and scale, and it looks like the company's expansion push is still just getting started.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. George Budwell owns shares of Pfizer. Jeremy Bowman owns shares of Amazon, Facebook, Netflix, and The Trade Desk. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems, Amazon, Facebook, GlaxoSmithKline, Netflix, and The Trade Desk. The Motley Fool has a disclosure policy.