Most financial literature stresses the point that impressive past financial returns don't guarantee good results in the future. And while that's strictly true, market-thumping stock price growth often results from the type of fundamental improvements in a company's business that can drive many years of gains.
With that in mind, we asked Motley Fool investors to scour the pool of recent high-flying stocks for investments that might keep rising. Read on to find out why Boeing (NYSE: BA), Constellation Brands (NYSE: STZ), and Geron (NASDAQ: GERN) topped this list.
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This stock keeps flying higher
Dan Caplinger (Boeing): You don't often see stocks in the Dow Jones Industrial Average make aggressive upward moves over short periods of time, but Boeing gained a lot of altitude in 2017. The aerospace giant saw its shares soar almost 90% last year, riding the wave of aircraft orders from an airline industry that's healthier than it's been in decades. With plenty of available cash flow, buyers are investing in new aircraft to modernize their fleets and increase efficiency, and Boeing's new models are among the most popular in the world. Boeing's strength has continued into 2018, with the stock higher by more than 20% so far this year as well.
Fundamentally, Boeing is doing a lot of things right. Moves to emphasize its most popular lines of aircraft and to look at internal efficiency gains have had a big impact on margin for its key commercial business, and that's boosting profit substantially. In particular, the workhorse 737 series of planes has been more popular than ever, and new variants are getting a lot of attention from buyers. Add to that expected demand for wide-body models like the 757, 767, and 777, and Boeing seems to have its engines revved up for maximum growth. As long as airlines continue to thrive, Boeing and its shareholders should keep reaping the rewards.
An attractive risk-to-reward ratio
George Budwell (Geron Corporation): Geron Corporation has nearly doubled in value so far this year, but the best may be yet to come for this tiny drugmaker. If you're not familiar with this story, Geron is developing a first-in-class telomerase inhibitor called imetelstat with the biopharma giant Johnson & Johnson for two blood cancers known as myelofibrosis (MF) and myelodyspastic syndromes (MDS).
J&J currently owns an exclusive global license to the drug and the company is expected to decide whether to keep this license by the end of the third quarter of this year. In short, Geron is staring down a critical binary event that could make or break its stock later this year.
The good news, though, is that imetelstat seems to be bending the curve in terms of overall survival for its MF indication, and generating substantial improvements in patients with MDS as well. The downside is that J&J is keeping a tight lid on the results for both trials; so investors won't known anything concrete until the company unveils its Continuation Decision regarding the collaboration in Q3.
Now, if J&J walks, Geron will have to make some tough choices. After a recent capital raise, for instance, the biotech seems to have enough cash to at least get imetelstat's planned late-stage trial in MDS under way, but the drug's MF indication would almost certainly be tabled in the event J&J cuts bait. But the silver lining here is that Geron no longer appears to be in imminent danger of folding if J&J does end the collaboration.
So, with a viable path forward on the table in a worst-case scenario, and a monstrous short-squeeze possible if J&J decides to stay the course, Geron's stock appears to offer a rather enticing risk-to-reward ratio right now. That said, this penny biotech stock is arguably only suited for the most aggressive of investors due to the strong possibility that its shares will tank -- at least temporarily -- if J&J leaves the picture.
More gains ahead for this alcoholic beverage giant
Demitri Kalogeropoulos (Constellation Brands): The broader beer industry saw little growth last year, but Constellation Brands' impressive sales and profitability gains left peers like Anheuser-Busch InBev, Molson Coors, and even Boston Beer far behind. In fact, its imported beers like Corona and Modelo were responsible for most of the industry's growth in 2017, and Constellation Brands amplified that success by boosting selling prices and lifting its operating margin to a new high.
Image source: Getty Images.
After five consecutive years of 20% or better earnings growth, Constellation Brands is on track for a significant slowdown this year. Management is targeting a 10% profit increase in 2018 as they spend aggressively on marketing support for core beer and wine products and for promoting the launch of Corona Premier, the first national expansion of that brand in over 25 years.
Yet Constellation Brands still looks like a good buy today. Its beer business is expected to grow at a healthy 10% pace this year while the wine and spirits segment boosts sales and profitability. Looking further out, the company's massive capacity expansion project should soon start reducing costs, and investors can also look forward to increased direct cash returns in the coming years now that the capital spending has peaked. There's the potential that the company will profit from the sale of marijuana, too, as its legalization begins to open the door to edible cannabis products starting in 2019.
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Dan Caplinger owns shares of Boeing. Demitrios Kalogeropoulos owns shares of Boston Beer. George Budwell owns shares of Geron. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Boston Beer. The Motley Fool owns shares of Johnson & Johnson and Molson Coors Brewing. The Motley Fool has a disclosure policy.