3 Stocks That Could Put Tesla's Returns to Shame

Despite the recent struggles Tesla (NASDAQ:TSLA)�has faced with the manufacturing of its Model 3, it's hard to ignore the�fact that this has been a fantastic stock to own this decade. Finding stocks that can produce a 1,000% return in less than 10 years is absolutely fantastic for one's portfolio.

It's not an easy task finding these kinds of stocks. For every Tesla, there are numerous stocks that have no shot at that kind of return. So we put the question to three of our Motley Fool investors: What stock do you see having a future that could meet or beat Tesla's performance? Here's why they picked SolarEdge Technologies (NASDAQ:SEDG), A.O. Smith (NYSE:AOS), and Take-Two Interactive (NASDAQ:TTWO).

Image source: Getty Images.

The behind-the-scenes investment in solar energy

Tyler Crowe (SolarEdge Technologies): Investing in solar power isn't the slam dunk investment that one might think. Even though the solar industry has been growing by leaps and bounds over the past several years, the economics of solar panel producers and residential installers haven't been great for investors. Pricing pressure and the constant need to reinvest in new technology means margins in these businesses have been razor thin. One part of the solar industry that has done spectacularly well, though, are component suppliers. That's why SolarEdge Technologies' stock is up 273% over the past year and there is a chance that there is still room to run.

SolarEdge doesn't make panels. Rather, it makes the electrical components that make solar power a viable power source such as inverters and power optimizers. The benefit of these kinds of products is that they are panel agnostic -- they can be installed on any manufacturers' panels -- and they improve the economics of an installation, which gives it some pricing power when selling products. This position in the solar value chain has allowed SolarEdge to grow revenue by more than 50% annually while maintaining a gross margin of 29% or higher over the past three years.�

Even though the stock has grown incredibly over the past year, there is still room for it to run. Revenue shows little sign of slowing down, margins are expanding, and the recent ruling that all new homes need to have a solar power installation on them�make a price to earnings ratio of 35 for a stock growing this fast seem more than reasonable. If you want a stock that has a chance to outpace Tesla for a while, take a look at SolarEdge Technologies.�

Building off of a solid foundation

Reuben Gregg Brewer (A.O. Smith Corporation): Tesla has helped to change the way we look at automobiles, with investors jumping aboard the exciting potential electric cars offer. The stock is up 240% over the past five years. Boring old water heater maker A.O. Smith, meanwhile, has seen its stock rise 220% over that span... and it's on much stronger financial ground to keep that run going.

Water heaters may not be as exciting as electric cars in mature markets, but in emerging markets hot water is in high demand and is a lot more affordable than a Tesla automobile. Over the past decade A.O. Smith has grown revenue in China by 21% a year! Now the company is focusing on the equally compelling long-term opportunity in India, where management expects its target customer population to expand by over 250% between 2020 and 2030.� �

Data source: AOS Total Long Term Debt (Quarterly) data by YCharts.

That's a great opportunity for A.O. Smith and it shouldn't have any problems supporting the spending to tap it; Long-term debt makes up just 15% of the company's capital structure, with the dollar amount of debt lower than it was a decade ago. Tesla has a huge opportunity in electric cars, but it may not live up to its potential because of its much discussed debt issues. It has four times more long-term debt than it did just three years ago, with long-term debt now accounting for two-thirds of its capital structure. Worse, there's legitimate concern that it won't be able to raise more cash if it needs it. In the end, A.O. Smith has both good growth prospects and a solid financial foundation, a combination that could easily allow it to beat Tesla's stock performance in the future.� � �

A video game stock with home run potential

Travis Hoium (Take-Two Interactive): Video games have become a massive business as games have spread from gaming consoles to computers and mobile devices. The industry is dominated by three companies, Activision Blizzard, Electronic Arts, and Take-Two Interactive. Of the three, Take-Two Interactive is by far the smallest and least developed game-maker, but that's why I think it could be set up for huge returns for investors.�

Until now, Take-Two Interactive has primarily been a console or PC gaming company with titles like Grand Theft Auto and NBA 2K�being its leading revenue drivers. That's limited growth markets like mobile and esports, which are now drawing millions of fans viewing league play.�

Take-Two Interactive acquired Social Point last year to expand its mobile presence and management said the company's games "contributed meaningfully" to net bookings with Dragon City and Monster Legends. Updates to both games are expected in the near future and management has high hopes for this segment. �

On the esports side, Take-Two Interactive launched the NBA 2K league earlier this year to mixed reviews, but it's a toe in the esports water for the company. Activision Blizzard has shown that esports league franchise values can be worth tens of millions of dollars and advertising deals can reach over $100 million in aggregate, so there's a lot of potential. One positive point for NBA 2K league is the 37 million registered users in China, which could make this a league that can go worldwide very quickly.�

Take-Two Interactive isn't as valuable or mature in building out mobile and esports as Activision Blizzard or Electronic Arts, but that's why it could be a home run stock. The company needs a hit like Grand Theft Auto or Red Dead Redemption to take the gaming industry by storm while pushing its business model further into mobile and esports. If it can do that long-term it'll be a big winner for investors.�

Target: A Financially Absent Board

Target Corporation (TGT) recently reported decent revenues coupled with earnings that fell short of market expectations as the company continues to face a challenging retail environment and fierce competition. The debate about the company's place in the marketplace rages on as the road ahead remains difficult (and potentially painful) despite ongoing efforts to differentiate the brand.

However, rather than focusing on the company's financials and operations, which have been well documented by other contributors, we turn our focus for a moment to the rather more obscure proxy statement and the share ownership of the company's board of directors. In particular, the lack of direct and indirect ownership of the company's shares even by longstanding directors.

Target is not alone in having directors with limited personal investment in the company. However, Target's board members take this lack of personal investment to an unusual level in that seven of the eleven nominees for the company's board of directors have no personal ownership of the company's shares on either a direct or indirect basis. In essence, even the smallest Target shareholder has invested more personal funds into the company's shares than the majority of the company's board of directors.

Source: Target Proxy Statement (2018)

The lack of direct or indirect ownership of company shares purchased with personal funds, as noted earlier, is not an issue limited to the company. A lack of direct investment by board members can be identified at many other companies. In many cases, the shareholding disclosure in the proxy statement is structured in such a way that direct and indirect individual ownership is not specifically separated from ownership through stock grants and restricted stock units (as is the case with Target's disclosure), thus obscuring the nature of ownership and requiring investors to go to the fine print notes associated with the tables to understand the true nature of share ownership.

However, the extent of the lack of direct investment at Target by its board members is striking, and it's not simply an issue of directors new to the board. In fact, the majority of the seven directors with no personal investment in the company have been board members since 2013 and one - Calvin Darden - has sat on the board for nearly 15 years.

Target does currently have stock ownership guidelines for directors (and executive officers), but in our experience, these are only marginally meaningful. The current stock ownership requirement for directors is a fixed value of $500,000, but this level of ownership may be achieved over a period of five years after election to the board and, based on the compensation paid to directors, is conveniently significantly less than what a director will earn in fees over the same five-year period. The company therefore establishes a requirement - and then effectively fulfills that requirement over time out of company funds.

We find the structure of this arrangement, though not unusual in the corporate world, nonetheless concerning and especially so in light of the lack of direct ownership. A significant body of evidence - as well as common sense - supports the view that individuals (and board members) tend to react differently when making decisions when there is a personal investment (made with personal funds) versus an indirect investment developed through the granting of stock grants or stock options. The difference is similar to the psychological difference between risking personal funds or "house" funds. A lack of direct personal investment has the potential to result in decisions which don't reflect the best interests of shareholders as the psychological alignment does not reflect the apparent financial alignment with common shareholders.

In addition, it begs the question exactly what message is sent to the public markets on the margin when the members of a company's board of directors don't see sufficient reason to invest directly in the shares of the company of which they are a director.

It's difficult, of course, to assign a particular decision or fault to the lack of direct ownership of stock on the part of the board of directors. We're also not suggesting that the board of directors has implicitly failed in its duties with respect to shareholders. Individual shareholders may have their own perspective on these issues.

Nonetheless, shareholders may be better served by including a minimum direct investment requirement before an individual may be nominated to the board of directors, such as a fixed threshold of $100,000 in company stock in addition to the $500,000 five-year requirement, to ensure that individuals being nominated to the board have an actual, personal, tangible investment in the company however small relative to the scale of the company. A minimum investment threshold before an individual is eligible for nomination is not an unusual requirement. We've previously communicated these concerns to the company without receiving a satisfactory response.

Conclusion

We believe there is a compelling investment argument for Target despite the ongoing competitive challenges. We believe the company is making the right moves in several areas, especially with respect to its exclusive brands, to remain relevant and differentiated in the new retail landscape. We're also not a subscriber to the conventional wisdom that physical retail is dead in the face of online competition. Indeed, we've argued that the growth of Amazon (AMZN) over the last several years isn't unprecedented and, at least so far, actually rather closely tracks (and possibly underperforms) the retail market share capture achieved by Walmart (WMT) more than two decades earlier. Regardless, our view is that the company will remain profitable and, at the right price, represents a decent long-term investment.

However, from a governance perspective, we do believe that Target shareholders should be concerned about the lack of personal investment by those who purport to represent the interests of the company's shareholders.

Disclosure: I am/we are long TGT.

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.

Victoria's Secret might be 'broken' as L Brands slashes its outlook

Victoria's Secret is looking broken, according to one analyst, following the earnings report by lingerie retailer's parent company L Brands.

Shares of L Brands, which also owns Bath & Body Works, initially sold off Thursday after the company slashed its full-year profit outlook. However, as the company discussed its plans to improve performance on the earnings call, the stock recouped its losses, and was trading up nearly 2 percent.

"The release ... sheds light on just how promotional the biz was, with merchandise margin down significantly," Jefferies analyst Randal Konik said in a note to clients. He added that L Brands' "rock" in Bath & Body Works "over the past few years is starting to destabilize."

For fiscal 2018, L Brands now expects earnings per share to fall within a range of $2.70 and $3, down from a prior estimate of $2.95 to $3.25.

Industry experts increasingly fear the company is highly exposed in U.S. malls suffering from weaker foot traffic and has no plans for major cuts in square footage. L Brands, in fact, is adding even more stores under the Bath & Body Works chain, including its offshoot for candles, White Barn.

L Brands, through Victoria's Secret, Pink, Bath & Body Works, La Senza and Henri Bendel, has a little more than 3,000 company-owned stores spread across the U.S., Canada, the United Kingdom and Greater China.

"The dark store environment, the conspicuous sexuality of the offer, and the brash marketing are increasingly out of step with what modern consumers want," GlobalData Retail managing director Neil Saunders said about Victoria's Secret.

The age-old lingerie player is facing increased competition from more millennial-focused brands like American Eagle's Aerie division, Adore Me and ThirdLove. Those brands offer trendy lace bralettes and comfortable pieces more aggressively than push-up bras. Amazon has been making a bigger bet on the business, too, in partnering with Calvin Klein. Victoria's Secret's racy ad campaigns also don't sit well with some women in light of the #MeToo movement.

"Niche players may only have a small share compared to Victoria's Secret, but their innovative approaches mean they are nibbling away at its market share," Saunders said.

L Brands shares have fallen more than 40 percent. The retailer has a market capitalization of roughly $9.5 billion.

WATCH: L Brands beats on earnings but lowers outlook

show chapters L Brands beats on top and bottom, but lowers Q2 guidance    16 Hours Ago | 00:44

Walmart: Furious Battle Pending In Grocery

One thing that investors can't say about Walmart (NYSE:WMT) is that there has been a clear lack of effort to transform the company. Amazon (NASDAQ:AMZN) came on the scene many years ago and disrupted the whole sector. Walmart, for a few quarters some years back, found itself standing still as Amazon raced ahead with its market share gains.

I distinctively remember the bearish coverage back then which insinuated that Walmart's dominance in retail was over. While this may be true to a small degree, I think few expected how the company has tried to reinvent itself, especially in the digital channels. In fact, many would agree that Walmart's response to Amazon's threat has been far bolder than that of many of its retail counterparts such as Target (NYSE:TGT) and Kroger (NYSE:KR), and I think the company should be applauded for this.

Fast forward a few years later, which have included a host of acquisitions (the $16 billion Flipkart deal being the latest), and the Walmart of today doesn't look anything like the company we saw a mere 5 years ago. We have been long this stock since mid-2017. Although we have seen quite a large piece of paper profit this year, the company's recent first-quarter results did nothing to change our long-term view. Here is our reasoning behind this.

First, sentiment in this stock has been pretty depressed since the turn of the year. Why? Both the fourth quarter of last year and Q1 of this year didn't go down well with investors despite the growth we witnessed in e-commerce, for example. Online sales grew by 23% on a rolling quarter basis in Q4 and 33% in Q1. This growth, though, is adversely affecting margins. Operating margins over a trailing 12-month average is now at 4.1%, which is a full 2% down from its peak in 2011.

What I would say to investors here is that it is going to take Walmart time to right the ship with respect to operations. The company has so many moving parts in that it is trying to tailor its offerings to different clientele all at one time. Just a short 3-5 years ago, WMT was solely known as the bargain-based value brand. However, now the retailer wants wealthier people buying its stuff, even if they don't want to set foot in its stores. When one includes the host of recent acquisitions, along with the running of the offline stores, it is easy to see why streamlining everything together is going to take time. I firmly believe that out of the present chaos, order will eventually come. Furthermore, operating margins, which definitely have been adversely affected by high shipping costs, will rise once Walmart becomes more efficient. I'm estimating around the 4.4-4.5% level next year.

Whereas Amazon may have the technical expertise where it can control inventory levels much better because of accurate reporting, Walmart's advantage is its scale and balance sheet, which it has leveraged over a while. Just look at what the company is doing in online grocery. The retailer soon will be in a position for an initiative that will be able to serve half the country's population with grocery delivery. Walmart really had no choice here but to go on the offensive as a result of Amazon's entry into this market through its Whole Foods purchase. Although groceries is still in its infancy in e-commerce, I can see this trend changing. Why? Well, with people working longer than ever, time is money. It's like anything else - once customers see that there is no problem with buying food online, we will see a big increase in volume here.

Grocery is where the ultimate battle will be won, and here is where Walmart can really leverage its scale. Logistics and inventories should be far less of a problem here, given the massive size grocery already makes up of the company's business. I just feel the cost advantage of Walmart in this division will eventually be seen by customers. The company has made it clear that operational income will be sacrificed temporarily to build the business. I expect Walmart to defend (which will mean aggressively promoting) its grocery division very strongly. Let the battle begin! Remaining long WMT.

Disclosure: I am/we are long WMT.

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.

Facebook wants to make changing your privacy settings less work

Facebook is supposed to be a fun way to waste some time, but taking a break from "liking" status updates to customize your privacy settings is a chore.

The company knows its controls need work, and it's trying to fix them with site design changes and a staff re-organization.

"[One of] the positive side effects of the past few months, and all the news around Cambridge Analytica, has been that people are actually interested in and want to go learn about the controls," said Facebook's David Baser.

The company aims to raise awareness of its controls �� many of which users don't know exist. During CEO Mark Zuckerberg's testimony in front of Congress last month, some US senators, including Senator John Kennedy, seemed surprised to learn what settings were available to users.

Baser is in charge of the company's new centralized privacy team that will oversee and standardize privacy and data use across the social network. The department is hiring hundreds of engineers.

Its debut project is Clear History, a tool to delete information Facebook (FB) has collected from outside sites and apps. Zuckerberg announced Clear History at the company's developer conference in early May, and it will be released in the next few months.

The current main settings screen, which sorts controls by topic, can be intimidating to average users. It's a hodgepodge of old and new interfaces, and the dry language can be time consuming to get through.

"Some of the feedback we've gotten is 'Wow, this is amazing you're offering this level of transparency, but this feels like a lot of work,'" said Sarah Epps, Facebook's director of marketing for ad products.

The company has tried various techniques to lure users to take control of their settings. The company promoted its settings options more following the recent Cambridge Analytica scandal, which revealed the political data firm collected information on 50 million Americans through a third-party app on Facebook.

Facebook pushed a way to check ad controls at the top of the News Feed. It also consolidated the most popular privacy and security settings, which were scattered around in multiple locations, in a single "Privacy Shortcuts" menu.

But even with promotions and prominent real estate on the app and site, Facebook has found many people scroll right past the links.

Julie Zhuo, Facebook's vice president of design, said she's constantly looking at ways to get controls out of the settings screen and in front of people when they need them.

"If people don't know that they exist or don't know how to use them or where to find them, then you're solving that problem for a minority of people who are very motivated," Zhuo said.

She said Facebook has found it's more helpful to surface settings options at the right moment.

The design team has had success with a technique that suggests related options after a user tweaks a setting. For example, if a person hides a post in their feed, a prompt may pop up with options to mute whoever posted it.

Meanwhile, the company has been adding more information and settings directly to each advertisement via a dropdown menu. It includes a "why am I seeing this?" option, which leads to more detailed controls.

The demand for more nuanced controls after Cambridge Analytica has been loud, but that doesn't mean average users around the world are clamoring for a way to manage each detail about their data.

"The tension that always arises is everyone wants simpler controls and more powerful controls. Those two things are almost automatically at tension with each other," said Baser. "The challenge we need to figure out is, how do we build something that everyone will understand, and at the same time, not make it so complex that it basically becomes unintelligible and people don't want to interact with it?"

According to Baser, telling people about the controls doesn't build trust. Instead, Facebook needs to ensure people are using them, too.

"I don't think most people are concerned about the very technical conversation," Baser said. "They just want to know that their data is safe."