Think of the biggest, richest corporations on the planet. They all started out much smaller but grew enormously over time. Investors who spotted their potential early on made fortunes.
We asked three Motley Fool contributors to pick monster stocks in the making that just might make investors a lot of money over the next decade and beyond. Here's why they chose Axsome Therapeutics (AXSM -2.18%), Exelixis (EXEL 0.72%), and Twist Bioscience (TWST 0.10%).
Patience pays off
Prosper Junior Bakiny (Axsome Therapeutics): Many qualities are necessary to be a successful investor. Patience is among the most important. The case of Axsome Therapeutics somewhat illustrates that. Axsome is a biotech company that's had a volatile past 12 months. The company has encountered several regulatory setbacks and delays.
For example, the U.S. Food and Drug Administration (FDA) was supposed to complete the review of Auvelity in treating major depressive disorder (MDD) by Aug. 22, 2021. However, due to deficiencies in Axsome's application, the process was delayed. The biotech stock plunged on the news.
But investors who got in at that time and held on are happy they did so. Auvelity eventually won FDA approval last month, helping Axsome Therapeutics turn things around. The biotech's shares have now more than doubled since August 2021.
More importantly for long-term investors, Axsome is tackling illnesses for which patients don't have many good choices available for treatment, and the company's platform shows real promise. Auvelity's approval in the treatment of MDD is just the beginning. Axsome Therapeutics will likely seek a label expansion for the medicine in treating Alzheimer's disease (AD) agitation.The AD market has attracted plenty of attention lately because there are few therapy options despite the prevalence of the illness.
Axsome Therapeutics also has several other candidates, including AXS-07, a potential therapy for migraines. Despite the over-the-counter availability of pain medication, a substantial percentage of those suffering from migraines are unsatisfied with current treatments.
Will all of Axsome's programs be successful without encountering more clinical and regulatory headwinds? That's unlikely. But the biotech has already demonstrated its ability to develop successful therapies for seriously debilitating conditions. Axsome Therapeutics' market cap is only a little over $2 billion. Investors with a long-term mindset -- and some patience -- could be richly rewarded down the road.
Not your typical biotech stock
David Jagielski (Exelixis): With a market cap of around $5 billion, Exelixis is a growth stock that has lots of room to get bigger. This cancer-fighting company is growing today and has a bright future down the road thanks to a top drug and strong financials.
Exelixis generated $657.3 million in product revenue during the first half of 2022, a year-over-year increase of 29%. The vast majority of that comes from cancer medicine Cabometyx, which brought in $642 million in revenue. Cabometyx treats multiple types of cancers, including kidney and liver cancer.
The company is evaluating Cabometyx in additional clinical trials to see if the drug can obtain approval for other indications as well. Another product that could soon contribute to Exelixis' top line is XL092, which is in phase 3 trials, testing its effectiveness in treating metastatic colorectal cancer.
What makes Exelixis unique when compared to other biotech stocks is that in addition to growth, it offers investors a solid business that's also profitable and generating free cash flow. The company has reported a net profit of $139.2 million year to date, which is an impressive 18% of revenue. Free cash flow during that time has totaled $161 million. Those strong numbers can go a long way in helping the business expand in the future without having to issue shares and excessively dilute existing shareholders. Exelixis has done a good job on this front in the past: Its share count has increased by only 9% over the last five years.
Exelixis isn't a huge company today, with sales relying heavily on Cabometyx. But sometimes all it takes is one successful drug to get the ball rolling. With solid fundamentals, plenty of cash flow, and a growing business, the company has all the tools it needs to become much bigger in the future.
Living up to its name
Keith Speights (Twist Bioscience): When you think of healthcare stocks, you probably think of, well, healthcare. But Twist Bioscience lives up to its name by providing a twist: The company focuses much of its efforts on data storage.
Twist makes synthetic DNA. Believe it or not, DNA could provide a fantastic way to store data. It has a high density, which means it can store a lot of information. The company estimates that one shoebox full of DNA could store all of the data in the internet. DNA also has incredible longevity, lasting for hundreds and even thousands of years. As an added bonus, it doesn't require much energy for data storage.
The company projects a $35 billion annual market opportunity with DNA data storage. Twist is still only in the early stages of development, but this could be a game-changer over the longer term.
In the meantime, Twist is generating revenue from sales of its synthetic DNA to healthcare companies. The company's sales jumped 60% year over year in its latest quarter to $56.1 million. Twist expects full-year revenue of $203 million.
Customers currently use Twist's products for next-generation sequencing and biopharmaceutical research. The company believes these areas represent a $3 billion addressable market today. It projects rapid growth in these markets of more than 20% annually over the next five years.
With a market cap of below $2 billion, Twist Bioscience truly could be a monster stock in the making. But, as is the case with most monsters, owning it could be a risky proposition.
