Summary
I've created Project $1M to try and attain a $1M capital base from growth stocks in 11 years.
I'm focused on including stocks that have a moat and some strong growth drivers.
I will introduce the final set of stocks in this update.
I previously introduced the concept of my growth oriented model portfolio in a previous article. The focus of that portfolio was directed toward achieving a $1M capital base in approximately 11 years, starting from a base of $217,500. I previously introduced the first 6 stocks in the portfolio here, and the next 6 stocks in the portfolio here. I'd like to introduce the final set of stocks in the Project $1M portfolio here and show how the portfolio stands.
My Criterion
In addition to companies with moats and strong barriers to entry, I set a specific focus on companies with high returns on invested capital and that were generally achieving double-digit growth with respect to net income and earnings per share. My thinking here was that these types of companies would be likely be able to continue earning above double digit earnings while maintaining their market multiples, and thus generate strong rates of capital growth.
The Remaining Companies
Westinghouse Air & Brake (NYSE:WAB) is a technology supplier to the freight rail and the passenger transit industries. The company provides engine cooling, braking and other design and engineering services. Wabtec holds a dominant market share position in North America for the supply of technology to the rail industry. In some specific component segments, such as pneumatic braking systems, Wabtec is part of a strong duopoly along with Knorr Bremse. This dominance is reflected in the significant positive trend in gross margin and operating margin for Wabtec over the last decade. Positive Train Control represents the next revenue driver for the company. Positive Train Control refers to the requirement that certain operational functions of a train be capable of being monitored and controlled electronically. Wabtec has almost tripled revenues from $1.03B in 2005 to over $3.04B in 2014, representing an annualized growth of close to 14%. The company derives returns on equity and returns on invested capital that are consistently over 15%.
Celgene (NASDAQ:CELG) is a strong player in the biotechnology space, with a portfolio of drugs targeted toward cancer and inflammatory conditions. The company's Revlimid franchise is a blockbuster and delivered over $5B in revenue in 2014. Revlimid has received approvals for the treatment of a variety of conditions including lymphoma and myeloma. With patent protection on the franchise likely to last well beyond the end of the decade, Celgene is poised for long term growth. Celgene's return on equity have been hovering around 30% for the last few years, which indicates that it is a good steward of shareholder capital. Celgene has managed strong double digit revenue growth for the last decade. I don't see too many reasons why this won't be the case for the coming decade as well.
Medidata (NASDAQ:MDSO) solutions provides cloud based simulations and prototyping for life sciences. Medidata provides a valuable service for company's engaged in drug discovery by helping them to simulate and prototype the effect of a given molecular combination quickly and more cost effectively than with traditional methods. The company has been growing revenues at almost 20% annually, with gross margins seeing a positive upward trend, and hovering at around 75%. With the continued push for faster drug development and continued pressure on traditional pharmaceutical companies, the need for Medidata's product offerings will only continue to grow.
Vipshop (NYSE:VIPS) is discount e-commerce retailer in China that has pioneered the concept of flash sales. The company aggressively marks down oversupplied or out of season stock, which it makes available on its platform. Vipshop has a particular focus on pushing product to consumers in Tier 3 or Tier 4 cities in China, where there are typically no malls selling brand name product. The company's rate of growth has been nothing short of extraordinary, with revenue growth in excess of 100% annually for the last few years. While that will undoubtedly moderate overtime, Vipshop occupies a unique niche in the Chinese e-commerce market, With returns on equity in excess of 40%, and a long runway of growth ahead, I think Vipshop could be poised for good long term returns.
Zhaopin(NYSE:ZPIN) provides an online recruitment platform in China. Zhaopin offers online recruitment services, including executive search and campus recruitment. Zhaopin has maintained a strategy of moving into lower tier cities in the quest to drive further revenues. While LinkedIn's (NYSE:LNKD) entry into China remains a long term threat for this company, Zhaopin's early entry and focus on smaller tier cities should provide a competitive edge that allows the company to continue to grow profitably for a number of years. The company has returns on invested capital of over 25%, with revenue growth also in excess of 20%.
Polaris (NYSE:PII) designs and manufactures off road vehicles and other sport utility vehicles including snow mobiles, ATVs and motorcycles. Polaris has a well deserved reputation for design excellence and innovation, which has helped the company stand out in an increasingly crowded market. Polaris has demonstrated a track record of financial discipline over the last decade. Gross margins have shown sustained increase, rising 600 bp over the last decade. This is coupled with returns on invested capital that have exceeded 40% over the last few years. When combined with strong double digit revenue growth over the last decade, Polaris looks quite attractive for future returns.
United Therapeutics (NASDAQ:UTHR) produces drug therapies for patients with chronic conditions and is focused on the unmet needs space. The company currently produces drugs for pulmonary hypertension, congenital heart problems and neuroblastoma. While the company remains exposed to the risk of generics eventually making their way into some of the key niches that the company currently occupies, UHTR is looking to expand the markets it currently serves, and is even looking at the manufacture of artificial organs as a new line of business. The company has grown revenues in the high double digits for the last decade, with returns on invested capital over 40%.
This write up concludes the initial set of positions for Project $1M, which is currently fully invested. Below is what the portfolio currently looks like. I will provide periodic updates on portfolio performance and any new positions that are initiated, or existing positions that are existed.
| Name | Shares
Held |
$ Cost
Per Share |
$
Total Cost |
$ Market
Value |
$ Unrealized
Gain/Loss Since Purch |
% Unrealized
Gain/Loss Since Purch |
| Baidu Inc ADR | 54 | 187.47 | 10,123.38 | 11,161.26 | 1,037.88 | 10.25 |
| Celgene Corp | 122 | 122.71 | 14,970.62 | 13,848.22 | -1,122.40 | -7.5 |
| Core Laboratories NV | 64 | 116.33 | 7,445.12 | 7,190.40 | -254.72 | -3.42 |
| Facebook Inc Class A | 99 | 101.97 | 10,095.03 | 10,624.68 | 529.65 | 5.25 |
| LinkedIn Corp Class A | 42 | 240.87 | 10,116.54 | 10,620.54 | 504 | 4.98 |
| MasterCard Inc Class A | 305 | 98.99 | 30,191.95 | 30,347.50 | 155.55 | 0.52 |
| Medidata Solutions Inc | 174 | 43 | 7,482.00 | 7,830.00 | 348 | 4.65 |
| Mercadolibre Inc | 102 | 98.37 | 10,033.74 | 12,377.70 | 2,343.96 | 23.36 |
| Moody's Corporation | 156 | 96.16 | 15,000.96 | 16,277.04 | 1,276.08 | 8.51 |
| Novo Nordisk A/S ADR | 235 | 53.18 | 12,497.30 | 12,861.55 | 364.25 | 2.91 |
| Polaris Industries Inc | 89 | 112.34 | 9,998.26 | 9,386.83 | -611.43 | -6.12 |
| Priceline Group Inc | 7 | 1,454.00 | 10,178.00 | 8,970.71 | -1,207.29 | -11.86 |
| ResMed Inc | 174 | 57.61 | 10,024.14 | 10,286.88 | 262.74 | 2.62 |
| Starbucks Corp | 201 | 62.57 | 12,576.57 | 12,459.99 | -116.58 | -0.93 |
| United Therapeutics Corp | 51 | 146.63 | 7,478.13 | 7,709.67 | 231.54 | 3.1 |
| Vipshop Holdings Ltd ADR A | 243 | 20.52 | 4,986.36 | 3,973.05 | -1,013.31 | -20.32 |
| Visa Inc Class A | 256 | 77.58 | 19,860.48 | 20,528.64 | 668.16 | 3.36 |
| Westinghouse Air Brake Technologies Corp | 121 | 82.87 | 10,027.27 | 9,285.54 | -741.73 | -7.4 |
| Zhaopin Ltd ADR | 314 | 15.19 | 4,769.66 | 4,788.50 | 18.84 | 0.39 |
| Project $1M | 217,855.51 | 220,528.70 | 2,673.19 | 1.23 |
Disclosure: I am/we are long CELG, UTHR,VIPS, WAB, MDSO, PII, LNKD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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