Turning a $100 investment into $1,000 in five years isn't easy. Doing so requires a substantial compound annual growth rate (CAGR) exceeding 58%. You're not likely to see such a rate among value stocks, which for all their consistency rarely grow at that pace.
Two companies where I see that kind of progress over the next five years are Vir Biotechnology (VIR 2.28%) and Albemarle(ALB 1.88%).
While risk goes hand-in-hand with growth stocks, both companies have strong tailwinds. In Vir's case, it's the potential of its hepatitis drugs. For Albemarle, the need for lithium in electric vehicles should supercharge its earnings.
ALB EPS Diluted (Quarterly) data by YCharts
Vir Biotechnology will cash in on its pipeline
Vir is a biotech company that specializes in immunology treatments. It uses antibody, T-cell, siRNA, and innate immunity platforms to treat and prevent infectious diseases. The company's shares are down more than 32% over the past year, but its strong pipeline holds the key to its future success.
In the third quarter, the company reported revenue of $374.6 million, up 262% year over year, and net income of $175.3 million, or $1.30 in earnings per share (EPS), up 58.7% and 52.9%, respectively, over the third quarter of 2021.
Much of the revenue ($291.2 million) in the quarter came from the company's sales of sotrovimab, a monoclonal antibody used to treat COVID-19. The drug hasn't had an Emergency Use Authorization in the U.S. since April, but the World Health Organization just conditionally recommended sotrovimab as a treatment for mild cases of COVID-19, meaning sales will likely continue overseas.
If that's all Vir had, it wouldn't be the type of stock that could have a CAGR of 59% or more over the next five years, but it also has a strong pipeline. VIR-228 and VIR-3434 are in multiple phase 2 trials as combination therapies to treat chronic hepatitis B (HBV) and chronic hepatitis D (HDV). Vir sees HBV treatment as a $10 billion annual market opportunity and HDV treatment as a potential $2 million market.
HBV is more than 100 times more contagious than the HIV/AIDS virus and affects 1-in-3 people in the world. It is the primary cause of liver disease and liver cancer, according to the Hepatitis B Foundation. According to the World Health Organization, HDV is even more likely to cause liver cancer and it affects 5% of people who have already had a chronic HBV infection.
The company also has VIR-2842 in phase 2 trials as a vaccine to prevent the flu. The drug is designed to neutralize all major strains of the flu for the last 100 years and Vir sees the market being worth $5 billion annually.
The company reported it had $2.7 billion in cash as of the third quarter, putting it in a strong position to see these treatments across the finish line of Food and Drug Administration (FDA) approval.
Albemarle rises with increased lithium demand
Albemarle's shares are up a little more than 4% over the past year. The company calls itself a specialty chemicals company and while it mines and manufactures bromine, widely used in flame retardants, and other chemical catalysts used by the petrochemical industry, its big revenue driver is its lithium mining business. The company said it expects 60% of its earnings in 2022 will come from its lithium segment.
The expected rise in electric vehicle sales over the next decade will continue to drive the need for lithium batteries to power those vehicles, so Albemarle is in the right place at the right time. Thanks to the Inflation Reduction Act, it also will receive incentives from the federal government to boost lithium production in Free Trade Agreement countries.
In the third quarter, it reported nine-month revenue of $4.7 billion, up 93% year over year, with EPS of $13.23, compared to $1.10 in EPS in the same period last year. Despite those numbers, the stock isn't overpriced, trading at around 18 times earnings, because investors are wary of the inherent volatility of mining stocks. However, Albemarle is a little more stable than some lithium companies because it concentrates on long-term contracts of two to five years.
The company said it grew lithium production by 20% to 30% in 2022, thanks to expansions it has made at its mines in Silver Peak in Nevada, La Negra in Chile, Kemerton in Australia, and Qinzhou in China.
The company also has a dividend, which it raised by 1% last year to $0.40 per share, the 28th consecutive year the company has increased its dividend. The yield is low at around 0.64%, but thanks to the company's expected growth, there's plenty of room for continued increases, especially with a dividend payout ratio of 11.8%.
Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
