Artificial intelligence is a fourth industrial revolution, or a super bubble, depending on which Wall Street seer is talking. It will set off a hyper-productivity supercycle, or a crash-maybe both. It will conquer disease and poverty, unless it first lowers the barrier for mass destruction. It's...all just a little exhausting at times.
Below are eight promising stocks that have blessedly little to do with AI. Each company can double its earnings by the end of the decade; has a reasonable valuation, leaving share prices room to rise with earnings; and looks financially strong, so it can persevere even if the economy doesn't roar.
There will be no discussion here of neuromorphic computing or cybernetic convergence. No paradigms will shift-but some cruise ships will make good time. We'll ignore the singularity, but briefly touch on squish toys. Instead of event horizons, we have a pretty big videogame launch.
We don't promise a 100% AI-free list. A broker that we'll come to has surely benefited from speculators flipping Direxion Daily AI & Big Data Bull 2X shares and other securitized flotsam. A pair of drugmakers, like virtually all of their peers, use machine learning to look for new treatments to test. Even a corrugated box company has a spiel about AI-driven efficiency, and a chain of discount gyms will point you toward an AI coach if you really insist. But our list has only 7.7% exposure to AI as an investment theme. That's what one of the popular chatbots tells, and the figure does seem about right.
To find these stocks, we screened the U.S. market without much regard for company size, sector, or style-growth versus value, for example. We frankly have a hard time telling the difference between a cheap growth stock and a growthy cheap stock, and so do the style funds, judging by the holdings overlap.
Kindly don't read this AI reprieve as subtle doomsaying. We're optimistic. And don't look at these stocks as any kind of ideal portfolio. Instead, think of them as a list of individual candidates for consideration, should you feel as though your portfolio has wandered too far into the matrix.
Royal Caribbean Group
Ten-year investors in Royal Caribbean Group have made 352%, beating the S&P 500 index by 34 points. Think of that. When Covid-19 hit in March 2020, Royal shut down for 15 months worldwide. Bringing its full fleet back into action took another year. Overseas incorporation and a global workforce left the company ineligible for U.S. government aid, so it issued high-interest bonds and sold new shares to get by. And the result has been outperformance.
This year, industry worries abound. Will new ships in the Caribbean create oversupply? War in the Middle East has driven up marine fuel costs. Will it also dampen European wanderlust? And will red tape delay the opening of Royal's Perfect Day Mexico, the next pillar in the company's lucrative private-island model, from late next year into 2028? Our best guesses: Supply looks manageable, strength in North America and the Caribbean can offset any softness in Europe, and the Mexico island will get pushed back.
Royal shares have dipped 7% this year, but the earnings consensus is basically unchanged from where it started the year, implying 14% growth. Forecasts for the next two years call for similar increases, suggesting that Royal has a good shot to double last year's earnings by 2030.
BioMarin Pharmaceutical
Some drug stocks represent all-or-nothing bets on a single treatment in development. Others are attached to mature companies with plenty of cash flow but sleepy growth. BioMarin Pharmaceutical sits in the middle. Its Voxzogo for achondroplasia, the most common cause of dwarfism, is given as a daily injection to children while their growth plates are open. It can improve proportionality, reduce skeletal complications, and increase adult height from, say, just over four feet to just under five. Sales of Voxzogo will top $1 billion this year. They could ultimately hit $2 billion, if BioMarin can expand treatment to a related condition called hypochondroplasia, and to younger patients, while fending off new competition.
A competitor, Ascendis Pharma, has a new weekly injection for achondroplasia. BioMarin sued, claiming patent infringement, and the two recently settled, with terms that give BioMarin a relatively high royalty rate while it develops its own next-generation treatment. Meanwhile, BioMarin's acquisition this year of Amicus Therapeutics for $4.8 billion gives it two treatments for genetic disorders called Fabry and Pompe diseases, each of which has more than $1 billion in yearly sales potential. Cost-cutting from the deal should add to cash flow. If BioMarin is successful, by the end of the decade it will look less like a one-blockbuster drugmaker than a diversified, rare-disease specialist with much higher earnings.
Eli Lilly
If you want to cut healthcare costs for overweight Americans age 55 and older, spring for Zepbound, the best-selling obesity shot. This was the finding of a recent study published in the journal Diabetes, Obesity and Metabolism, and funded by, as you might imagine, Eli Lilly, the company that sells Zepbound. It is no doubt aimed at the U.S. Congress. Medicare is prohibited by law from covering drugs designed solely for weight loss. But GLP-1s like Zepbound are proven to help with diabetes, sleep apnea, and heart and kidney disease, and are being studied for drug and alcohol addiction, rheumatoid arthritis, and much else.
The Centers for Medicare and Medicaid Services has created a temporary program to help seniors afford these drugs. Now, Congress must decide whether to create a permanent plan.
The Lilly-funded study found that patients who took Zepbound for 12 months had fewer hospital admissions and emergency-department visits than patients who hadn't, generating an average of $607 less per month in healthcare costs. This doesn't count the cost of the Zepbound itself, which is $195 a month under the bridge plan. Whatever the study's conflicts, it's a compelling argument, and both private insurance coverage and patient uptake for GLP-1s are rapidly rising. Lilly is developing next-generation GLP-1s, including a newly launched pill and shots in trials that can spur even more fat loss, and perhaps preserve muscle. It's investing some of its winnings to diversify beyond GLP-1s into oncology, neuroscience, and immunology. All of it comes together to explain why free cash flow, which came in just below $10 billion last year, could top $50 billion by 2030.
Wall Street has struggled to separate the substance from the squish when it comes to Five Below. The chain sells low-cost impulse items to the parents of pleading kids. This fiscal year through January, earnings are expected to jump 53% on same-store sales growth of nearly 12%. Estimates have been rising all year. Yet as recently as July, the stock was trailing the U.S. market, and analysts with Buy recommendations were in the minority. Blame Squishy Dumplings, pliable fidget toys made to look like Chinese bao buns in traditional steamer baskets, which became a viral hit, and set off a squeezevalanche of iterations, from Plop Pets to Chubby Buddies. Surely this will pass and growth will collapse, the thinking went.
Not so fast. On Sept. 2, Five Below reported same-store sales growth of over 14%, and management said that squishy dumplings were only a low single-digit contributor. It acknowledged a halo effect, whereby squish visitors were buying other things, and making repeat visits. Call it a fad, or just a rapid reaction to capitalize on a social trend-the sort of thing befitting a company that says it aspires to be "America's greatest little toy store." Investors are coming around to the view that Five Below, unlike dumplings with facial features, has legs. The consensus calls for a slowdown to 8% earnings-per-share growth next year against difficult comparisons, rebounding to 14% the following year, and estimates have been rising. The stock is now beating the market, and two-thirds of analysts say Buy.
Smurfit Westrock
Corrugated packaging, or cardboard boxes, to those who take liberties with their paper terminology, don't bring to mind easy profits. But Smurfit Westrock is in a position to double earnings in four years, or perhaps even three, with a bit of cooperation from the economy, and a lot of postmerger efficiency wringing.
The company dates to 1938, when English industrialist Jefferson Smurfit bought a Dublin box maker. In recent decades, dealmaking has brought changing add-ons to the name. There was Smurfit-Stone, following a merger with a Chicago concern, and Smurfit Kappa, after private equity led a tie-up with a Netherlands operator. Two years ago, the company combined with WestRock, which itself was a marriage of RockTenn and MeadWestvaco, and here we are. Whereas Smurfit has a reputation as a lean operator, WestRock didn't, so the opportunities to cut waste, close underperforming factories, and cancel or replace bad contracts are substantial.
Industry margins, meanwhile, are sitting near typical trough levels, in part because costs have shot up faster than contracts can be renegotiated. That helps explain why Smurfit is expected to increase earnings per share by more than 50% next year, and a still-healthy 14% the following year.
Charles Schwab
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