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There are few stocks that have created fortunes as staggering as Microsoft (NASDAQ:MSFT). Had you bought just 50 shares of the computer software and console gaming giant shortly after its IPO in 1986 — let’s say at $28 per share (keep in mind the stock has split nine times since then) — you’d have over $1 million today, even without reinvesting dividends. If you had opted to use your dividends to buy more shares along the way, you’d have over $1.5 million sitting in the bank.
Of course, this raises the question — are there any stocks on the market today that feel like Microsoft in 1986?
We asked three top Motley Fool contributors to weigh in to that end. Read on to learn why they think Universal Display (NASDAQ:OLED), Activision Blizzard (NASDAQ:ATVI), and Intercept Pharmaceuticals (NASDAQ:ICPT) fit the bill.
A revolutionary display and lighting technology
Steve Symington (Universal Display): There’s little doubt that Universal Display’s flagship phosphorescent organic light emitting diode (OLED) technology is the next big thing in the display market. OLED displays not only boast incredible brightness and contrast, but also are impossibly thin, energy efficient, cool to the touch, and can even be made flexible and semi-transparent. By licensing its massive OLED-centric patent portfolio and selling its proprietary emitter materials to original electronics manufacturers, Universal Display is poised to benefit as OLED adoption grows.
At the same time, OLEDs are already being used in tens of millions of smartphones and tablets from many of the world’s leading electronics manufacturers. Most notably, Samsung Display has long stood alone as Universal Display’s single largest customer. If supply chain rumblings and industry watchers are any indication, however, Apple should be poised to introduce its first OLED iPhone later this year in celebration of the 10-year anniversary of its most popular product line. This would mark a coup, of sorts, as Apple moves away from LCDs and expands its use of OLED from “just” the tiny displays in its less impactful Apple Watch.
What’s more, LG Display, which is Universal Display’s second-largest customer, is in the process of ramping up manufacturing capacity for its high-end OLED televisions, announcing earlier this year that it will invest an additional $4.3 billion into both its OLED production facilities and OLED research and development.
Over the longer term, we should also see an increase in novel OLED lighting solutions from manufacturers that are currently in their early stages of development, including LG, Konica Minolta, Acuity, and Philips. Here again, OLED lights are cool to the touch and offer even, beautiful light, as opposed to the spot light sources provided with today’s typical LED lighting products.
Finally, keep in mind that Universal Display only recently initiated its first dividend at $0.03 per share. That won’t amount to much with Universal Display stock sitting above $117 per share, as of this writing. But management has made it clear they view this as “a good place to start,” and will increase their payout as the OLED industry continues to progress. For investors willing to buy now and watch that happen in the coming years, I think Universal Display could still be poised for incredible, “Microsoft-like” returns.
Video games are big business
Demitri Kalogeropoulos (Activision Blizzard): Leave aside the fact that it’s already a $43 billion company, and you’ll be free to notice a few tantalizing similarities between Activision Blizzard today and a young Microsoft. After all, the video game developer enjoys a leading position in a growth industry with massive profit potential over the long term. For an idea of that dominance, consider that its portfolio of franchises, including Call of Duty, Hearthstone, and Overwatch, helped the company attract record player engagement in the past year as gamers dedicated 40 billion hours to interacting with its products.
Even though it has been public for years, Activision Blizzard’s business in many ways is only getting started. Its acquisition of King Digital Entertainment just added over 300 million active users that the company is now learning how to market to through in-game advertising and micro transactions. Meanwhile, the stampede towards digital purchasing and downloading of big-budget games is raising profit margins, as in the fact that video games are becoming year-round properties rather than launch-driven, short-term events. In other words, Activision’s content is growing far more valuable thanks to fundamental shifts in its industry.
Like Microsoft in those early days, the developer is staring at a few large opportunities right now, all of which could significantly boost its addressable market. These include eSports, consumer products, and mobile advertising, in addition to whatever new video game franchises Activision has in its pipeline for the coming years.
This biotech stock has all the hallmarks of Microsoft’s dominance, within its niche indication
Sean Williams (Intercept Pharmaceuticals): Few people knew when Microsoft went public in 1986 that it would become a dominant force in computer operating systems, and finding the next Microsoft is no easy task. However, if you’ll humor me and allow me to cross sectors, I do see some similarities between Microsoft in 1986 and Intercept Pharmaceuticals today.
Microsoft’s operating system holds dominant market share, and there are very few alternative options for desktop and laptop users. The same may soon be said for Intercept’s drug Ocaliva, which is currently approved to treat primary biliary cholangitis, but is more importantly being studied as a treatment for non-alcoholic steatohepatitis (NASH). NASH, also known as fatty-liver disease, has no cure or Food and Drug Administration-approved therapies, yet it impacts between 2% and 5% of the adult U.S. population. By the next decade, it’ll be the leading cause of liver transplants. The first drug that can fight NASH, and potentially even reduce liver fibrosis, could become the go-to therapy, just as Windows is the go-to operating system.
The intriguing data on Ocaliva comes from the FLINT 2b study, which was reported all the way back in 2014. Data from FLINT showed a two-point-or-greater reduction in the NAFLD Activity score in 46% of patients taking Ocaliva, compared to just 21% of patients taking the placebo. What was exceptionally encouraging was the 35% mean score benefit in liver fibrosis, which was almost double that of the placebo at 19%. Currently, Ocaliva is moving onto its pivotal phase 3 REGENERATE trial.
Like Microsoft, Intercept isn’t the only fish in the pond. Genfit has a competing NASH drug known as elafibranor in the phase 3 RESOLVE-IT trial. There’s a clear advantage to being the first-in-class NASH drug on pharmacy shelves, so the race is clearly on.
What sort of sales are we talking about here? If Ocaliva demonstrates both NASH resolution and fibrosis improvement (the REGENERATE trial only requires one or the other be met for the primary endpoint to be a success) and is approved by the FDA ahead of Genfit’s drug, Ocaliva has peak annual sales potential that could approach $9 billion per year. Given that drugmakers are usually valued at many multiples of their lead drug, Intercept’s stock could soar, much like Microsoft did.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Demitrios Kalogeropoulos owns shares of Activision Blizzard. Sean Williams has no position in any stocks mentioned. Steve Symington owns shares of Universal Display. The Motley Fool owns shares of and recommends Activision Blizzard and Universal Display. The Motley Fool has a disclosure policy.