They don’t call it the “Elite Eight” for no reason.
Over the past two days, we’ve whittled our field of 16 stocks down to eight. All of them have the potential to be elite. But our goal in this March Madness stock-picking bracket is to identify the one stock that has the best chance to be elite.
We’re searching for the next Netflix (Nasdaq: NFLX) – a growth stock with a chance to gain 432% in two years. And today we narrow the field down to a “Final Four.”
Let’s get started:
Spark Networks (NYSE: LOV) vs. The ExOne Company (Nasdaq: XONE)
These are two fast-growing companies that occupy niche markets.
Spark Networks owns and operates two religiously based online dating sites: JDate.com and ChristianMingle.com. ExOne is an up-and-coming player in the red-hot 3-D printing space.
Two things separate Spark Networks from ExOne.
While neither company is profitable just yet, Spark’s sales have been growing at a much steadier pace. Since 2010, Spark’s revenue is up 70%, including a 12% increase last year. ExOne’s sales are headed in the opposite direction. The company’s revenue actually declined 16% year-over-year in its most recent quarter.
Another difference is competition. There aren’t many online dating websites quite like JDate.com and ChristianMingle.com, which cater to Jewish and Christian singles, respectively. Spark Networks has essentially carved out its own niche within the online-dating sphere.
While 3-D printing is a relatively new industry, ExOne already has plenty of competition. 3D Systems (Nasdaq: DDD), Stratasys (Nasdaq: SSYS) and Voxeljet AG (Nasdaq: VJET) are among the publicly traded companies that compete directly with ExOne. Printing giant Hewlett-Packard (NYSE: HPQ) has even gotten in on the act.
3-D printing is one of the hottest industries in the world right now. But the competition is becoming increasingly fierce. With its niche dating sites, Spark Networks doesn’t have that same problem.
Winner: Spark Networks
First Solar (Nasdaq: FSLR) vs. Zynga (Nasdaq: ZNGA)
Alternative energy and online gaming are vastly different animals.
One industry is part of a global effort to reduce the world’s carbon footprint. The other caters mostly to teenagers playing Angry Birds on their iPhones.
Nevertheless, both industries are expanding rapidly. And First Solar and Zynga represent great ways to play the respective trends.
What makes Zynga a better growth play than First Solar is its partnership with Facebook. The 1 billion people around the world who have Facebook accounts are able to play Zynga games, including FarmVille and CityVille, the second they log in. As Facebook expands into more households (its user count is expected to swell to 1.8 billion by 2017), more people will be playing Zynga’s games than ever before.
The demand for solar power is also increasing, particularly as the U.S. strives for energy independence by 2020. And as one of the largest developers of grid-connected solar power plants in the world, First Solar will almost certainly benefit.
Scaling the business is more difficult in solar than social media however. In the near term, First Solar’s sales are projected to be up and down, with an estimated 15% growth this year but only 7% in 2015.
After some early growing pains after the company went public, Zynga’s sales are going nowhere but up as Facebook expands into emerging markets such as Brazil, Russia and India.
Datawatch (Nasdaq: DWCH) vs. Zulily (Nasdaq: ZU)
Most companies would kill to have the same growth as these two companies.
Zulily, an online women’s retailer that specifically targets moms, saw a 293% increase in earnings per share last quarter, while sales doubled from the previous year.
Datawatch, a data solutions company with more than 40,000 customers, isn’t yet profitable, but saw a 29% bump in sales last quarter.
Looking at those numbers, it’s tempting to go with Zulily. But Zulily is the much larger company. Its $6.7 billion market cap dwarfs Datawatch’s $250 million valuation. In theory, Datawatch has much more room to grow.
It’s also in an industry that’s growing at a much faster clip. The data solutions market is expected to balloon to $46.3 billion by 2018, a compound annual growth rate of 25.5%. With a customer base that includes 99 of the Fortune 100, Datawatch should be able to bite off a large slice of that expanding pie.
The retail sector is a bit more difficult to predict. This past season, holiday and Black Friday sales were down from the previous year. And while the U.S. economy continues its recovery, consumer spending isn’t accelerating at nearly the pace of the data solutions market. Therefore, Zulily’s long-term growth prospects are less certain than Datawatch’s.
InvenSense (Nasdaq: INVN) vs. The Fresh Market (Nasdaq: TFM)
The Fresh Market is an impressive company that’s taking advantage of America’s push toward organic foods and healthier eating options.
The 32-year-old, North Carolina-based chain has more than 100 locations across 20 states, and is still expanding its national footprint. Sales have increased 36% in the last two years. Profit margins are improving. There’s a lot to like. Essentially, The Fresh Market is a miniature version of Whole Foods.
That said, it doesn’t have the same upside potential of InvenSense, a company in an industry that’s ready to explode. With the introduction of Google Glass and rumors of an Apple iWatch swirling, the wearable technology market is magma hot. Google Glass alone is projected to become a $10.5 billion market by 2018.
Companies that design and supply the guts for wearable tech stand to profit most. And that’s what makes InvenSense so enticing. InvenSense’s motion-tracking sensors are used in wearable devices such as pedometers, golf and tennis swing analysis tools and remote patient monitoring systems.
Wearable technology is an industry that has barely been tapped. When the spigot is fully turned on, you’ll want to own shares of the companies supplying all the technology. Better get in early.
Spark Networks, Zynga, Datawatch, InvenSense. Those are our Final Four stocks on the Road to the Next Netflix.
Check back in Monday when Ian Wyatt goes more in depth about these four stocks … and picks a winner.
Editor’s Note: Next week, Ian Wyatt is investing $10,000 in the winning stock of our financial March Madness – the stock with 5-bagger potential he’s calling the “Next Netflix.” And you can join him! You see, he’s revealing all the details of this stock and providing a full analysis of its business in a brand new report that’s being released just after the market opens on Tuesday, April 1st. To make sure you get your hands on this report — for FREE! — the instant it’s published… click here for all the details.