Tectonic shifts in the economic landscape, propelled in part by rapid technological change, are making it increasingly less useful to utilize past corporate performance as a predictor of future results. To that end, The Boston Consulting Group (BCG) has created a forward-looking list of “established public companies with the best long-term growth outlook” in conjunction with Fortune magazine, which they call the Fortune Future 50. A prior Investopedia article looked at 9 companies on the list, and discussed BCG’s analytic methodology.
This is the second of two Investopedia articles on the Fortune Future 50. We discuss BCG’s analytic approach in more detail and focus on 9 more companies: XPO Logistics Inc. (XPO), Intuit Inc. (INTU), Illumina Inc. (ILMN), Tesla Inc. (TSLA), Monster Beverage Corp. (MNST), Live Nation Entertainment Inc. (LYV), Workday Inc. (WDAY), Fortive Corp. (FTV), and Booking Holdings Inc. (BKNG). Basic information on them is in the table below.
9 Innovation-Led Blue Chips
|Stock||Market Cap||Main Businesses|
|Booking Holdings||$91 billion||Online lodging reservations|
|Fortive||$27 billion||Industrial instruments & software|
|Illumina||$49 billion||Systems for genetic analysis|
|Intuit||$56 billion||Financial management software|
|Live Nation||$12 billion||Live concerts|
|Monster Beverage||$31 billion||Energy drinks|
|Tesla||$62 billion||Electric cars|
|Workday||$29 billion||Enterprise applications|
|XPO Logistics||$12 billion||Shipping and logistics|
Sources: Fortune, BCG; Investopedia for current market cap data.
Significance for Investors
BCG started with 1,100 publicly-traded companies that had, as of the end of 2017, a market value of at least $20 billion or revenues of at least $10 billion for the preceding 12 months. “Our index is based on two pillars: a ‘top-down‘ market view of growth potential, and a ‘bottom-up’ assessment of a firm’s capacity to deliver growth,” as Martin Reeves, a senior partner at BCG, states in Fortune. A company’s score is based equally on market potential and its capacity to deliver on that potential.
Market potential is the estimated “proportion of its market value that is not attributable to the earnings stream from its existing business model,” per Reeves. “To assess capacity, we focused on four dimensions: strategy, technology and investments, people, and structure,” Reeves elaborates, “leveraging a wide range of financial and non-financial data.” A company’s final score is designed to capture its outperformance versus similarly-sized peers across these measures.
“The very attributes that make high growth possible often also increase risk.” —Martin Reeves, senior partner, BCG
Workday, Monster and Illumina offer illustrative examples. Summaries of BCG’s analysis are presented below.
Workday. This cloud-based business software company holds the top spot on the Future 50 list. This company invests heavily for the future, with research & development (R&D) spending equal to 31% of revenue. “An unusually rapid cycle of product updates and improvements…has built a loyal customer base that includes more than 35% of the Fortune 500,” per BCG, which adds that shareholders have enjoyed average annual returns of 35% during the last 3 years.
Illumina. This genetic testing company ranks number 36. Illumina is helping to make genome sequencing cheaper and more widely-used, and is utilized by leading drug companies to assist in the development of new medications. Over the past 5 years, it has delivered a 306% return to shareholders, including 60% in the last 12 months, per BCG.
Monster. Ranked number 40, Monster has become a “lifestyle brand among many young shoppers,” has been “aggressive about innovating with new products,” and is enjoying brisk international growth as the result of a distribution deal with the Coca-Cola Co. (KO). Sales are up by 13% over the past 6 months, and non-U.S. sales have grown by more than 18% year-over-year (YOY).
“Evolving markets, new competitors, and external forces always have the potential to disrupt trajectories,” Martin Reeves warns. Among the 50 stocks in the Future 50, Tesla is one of 4 that have been placed in a higher “uncertainty zone” than the rest. While they score well on what BCG calls “vitality,” or the ability to sustain growth by reinventing themselves, these companies also are judged to be especially sensitive to “reported events that commentators believe could materially affect their long-term outlook.”