The high-flying Nasdaq Composite Index is home to some of the most exciting technology stocks. The index that gave you Apple and Microsoft includes several lesser-known listings in the mid-cap category that can be leveraged for growth. Below we take a look at three such prospects.
Note: All data via Morningstar.
- Exelixis Inc. (EXEL)
- MKS Instruments Inc. (MKSI)
- Iridium Communications (IRDM)
Exelixis Inc. (EXEL)
- Market Cap: $7.4 billion
- Annual Revenue Growth: +88.9% (December 2018)
- Free Cash Flow: $382 million (December 2018)
- Forward P/E: 23.8
The beauty of the Nasdaq is that it offers more than just pure-play technology-sector stocks. One segment of the market that is well represented is biotechnology. Within that category there is Exelixis, a genomics-based drug researcher located in Alameda, California.
To put it simply, Exelixis is a revenue beast, having nearly doubled its sales in 2018. Revenues reached $854 million last year, based on December data, and have grown a whopping 3,316% since 2014. The company’s free cash flow was a $382 million as of December, which gives management more options in increasing shareholder value.
Exelixis has brought three cancer therapies to the market and has partnered with some of the nation’s largest pharmaceutical companies to ensure those products are properly marketed.
EXEL’s share price has fully recovered from the fourth-quarter selloff but remains considerably below record highs. Overall, the stock price mirrors the company’s impressive growth over the years, which should make EXCEL an attractive option for biotech enthusiasts.
MKS Instruments Inc. (MKSI)
- Market Cap: $5.1 billion
- Annual Revenue Growth: +8.3% (December 2018)
- Free Cash Flow: $351 million (December 2018)
- Forward P/E: 16.5
MKS Instruments has largely traded in the shadows of the Nasdaq’s bigger players, but the company is actually one of a select few that has earned the strongest possible rating among analysts. MKSI was even named Citigroup’s top mid-cap/small-cap stock in the technology equipment space.
The Andover, Massachusetts-based company is a global provider of instruments and process control solutions for the semiconductor, industrial, life science, and defence industries. Despite recording enormous revenue growth over the past ten years, MKSI stock is still relatively cheap from a price-to-earnings ratio.
In terms of profitability and revenue, 2018 was another record year for MKS Instruments. Non-GAAP earnings rose 31% on revenues of $2.075 billion. Sales to the semiconductor industry rose 4% to $1.14 billion, while revenues from advanced markets climbed 14% to $931.
MKSI shares are currently trading at their highest levels since last summer, having fully recovered from the fourth-quarter slump.
Iridium Communications (IRDM)
- Market Cap: $3 billion
- Annual Revenue Growth: +16.7% (December 2018)
- Free Cash Flow: -$140 million (December 2018)
- Forward P/E: N/A
Investors looking to future-proof their portfolio with game-changing technology should be interested in Iridium Communications, a Virginia-based mid-cap company that operates a system of 141 active satellites for worldwide voice and data communications. The company recently launched a batch of new satellites into orbit, culminating a $3 billion project that it says will result in a “capital expenditure holiday” lasting a decade or more.
Iridium’s new satellites are considered to be some of the world’s most advanced, which bodes well for the new era of hyper-connectivity. As the Internet of Things paradigm takes off, Iridium will capitalize on the growing connectivity of autonomous vehicles, business assets, and airplanes.
The company has rung up huge capital expenses in recent years, as evidenced by the negative free cash flow, but revenues have been extremely solid. Full-year sales reached $523 million in 2018 and have been above the $400 million mark in each of the past five years. It has also reported significant growth in its IOT and commercial connections businesses.
IRDM shares are currently trading near record highs. The easing of capital expenditures and history of strong revenue growth suggest that the stock is poised for continued growth.
Despite valuation concerns on Wall Street, Nasdaq listings continue to provide avenues for growth. Exelixis, MKS Instruments and Iridium have large addressable markets and a strong track record of revenue growth. As such, they should be on the watchlist of every tech investor.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.