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Motley Fool Issues Rare “All In” Buy Alert
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Every investor would like to double their money. Industrial software company PTC (PTC -0.06%), machine vision company Cognex (CGNX -1.38%), and aerospace and defense giant Raytheon Technologies (RTX -1.50%) all have the potential to bring investors that juicy return by 2030.
If you’ve got $3,000 to invest, i.e., you don’t need that money for anything in the near term, you’ve got your emergency fund set up, and all your high-interest debt is paid off, I’d recommend you consider putting $1,000 in each stock, which, at today’s price, would get you roughly eight shares of PTC, 22 shares of Cognex, and 10 shares of Raytheon.
There are no guarantees in investing, but these three companies have the potential to grow earnings significantly, which could push up their stock price.
This industrial software company defines its products as either “core” or “growth.” Core products include computer-aided design (CAD) and product lifecycle management (PLM), and its growth products are in the internet of things (IoT) and augmented reality (AR). PTC’s management outlined each product’s market and growth prospects during its investor day presentation in December 2021. The table below gives current figures and market growth projections. ARR is the annual run rate representing the “annualized value of … active subscription software, cloud, SaaS, and support contracts.”
Product
Market Size, 2021
PTC Share of Market, 2021
Share of PTC ARR, 2021
Market Growth Projection
Computer-aided design
$5.4 billion
11%
42%
7.2%
Product lifecycle management
$2.3 billion
20%
32%
8.8%
Internet of Things
$1.2 billion
14%
11%
28.8%
Augmented reality
$0.5 billion
6%
2%
44.8%
Data source: PTC.
While the core products are set for good growth, the high projected growth in IoT and AR implies that the former will make up 34.6% of ARR in 2030, with AR making up 18% — provided PTC’s expansion tracks the market.
The megatrend supporting PTC’s growth is the fourth industrial revolution, meaning the increasing use of digitally connected devices, creating a mass of data that will be analyzed to improve physical asset performance. By digitally monitoring and modeling equipment, say a bottling line or a power turbine, asset owners can generate actionable insights and optimize the use and servicing of equipment. As such, PTC’s IoT and AR solutions have a long runway of growth ahead of them.
Similarly, Cognex’s machine vision solutions have exciting technological megatrends behind them. The technology automates inspections and measurements in a highly precise way. Examples include Apple (a major Cognex customer) using machine vision to monitor the layering of screens on smartphones. Another example includes its use in e-commerce warehousing or logistics, where items are scanned and tracked using machine vision. The automotive industry has long been an early adopter of robotics and automation and is a key end market for Cognex — something likely to continue with the growth of electric vehicles. Cognex is already making inroads in the EV market.
It’s been a challenging year for the company, with automotive production disappointing, slowing e-commerce warehouse spending growth, and consumer electronics investment slowing due to a drop in consumer spending, not to mention a fire at Cognex’s primary contractor site.
That said, Cognex is establishing good relationships with prominent players (Apple and an undisclosed major e-commerce player, possibly Amazon), and its long-term growth potential looks assured as its technology could gain adoption in new industries, just as it did in logistics when it grew revenue at a 50% annual rate over the last five years.
Cognex’s management sees its overall end market growing at a 12% compound annual growth rate over the long term. If Cognex’s revenue growth merely matches that growth rate, then its revenue will be 2.5 times higher than it is now by 2030. If its earnings follow suit and the earnings-based valuation stays the same, then Cognex’s share price will also be 2.5 times higher. Of course, it could be higher still if Cognex wins more market share, and given its developing relationships with industry leaders, that’s a distinct possibility.
It might seem strange to include an industrial giant with a $138 billion market cap on this list of stocks that could double in the next eight years, but hear me out. Raytheon’s management thinks it can hit $10 billion in free cash flow (FCF) by 2025. Pricing this mature industrial stock at 20 times FCF would lead to a market cap of $200 billion in 2025, provided Raytheon meets management’s FCF expectation. After that, Raytheon would need to generate FCF growth of just 6.6% a year over the next five years to get to a value that, based on 20 times FCF, would lead to a market cap equivalent to double the current $138 billion in 2030.
Investors can have confidence in Raytheon hitting these targets due to the ongoing recovery in commercial aerospace. In addition, its balanced mix of defense and aerospace businesses gives it earnings and cash flow resilience across various end-market conditions. Finally, Raytheon’s Pratt & Whitney has a multidecade opportunity to grow as it generates ongoing higher-margin aftermarket revenue from its geared turbofan (GTF) engines on the Airbus A320 neo family of aircraft. Aircraft engines are typically sold at a loss but generate aftermarket revenue over the next two decades, and the GTF first entered service in 2016. It all adds up to a company with a long pathway of growth ahead, provided the aviation industry grows as expected.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Cognex. The Motley Fool recommends PTC and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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