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Philip van Doorn

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Feb. 10, 2020, 5:38 p.m. EST

Looking for another Apple or Amazon? These stocks have one important thing in common with tech’s big winners

The companies, including AMD, NextEra Energy and Vertex Pharmaceuticals, improved their pricing power as sales grew rapidly

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By Philip van Doorn, MarketWatch


Bloomberg
Advanced Micro Devices CEO Lisa Su. The chip maker reported a 50% increase in quarterly sales from a year earlier, while its gross profit margin widened.

The biggest U.S. technology companies are so dominant, it’s likely you have a relatively large amount of money invested in them because they are heavily weighted in index funds and ETFs.

That’s why it’s important to regularly review them, even if you don’t own individual shares.

Halfway through earnings season, there are a number of other companies doing something that most of the tech giants have been doing: Maintaining pricing power for their goods and services, even as they increase sales rapidly.

The FAANGs and Microsoft

You’re probably familiar, or over -familiar, with the FAANG group of tech companies. These are Facebook /zigman2/quotes/205064656/composite FB +2.12% , Apple /zigman2/quotes/202934861/composite AAPL +3.75% , Amazon.com /zigman2/quotes/210331248/composite AMZN +2.49% , Netflix /zigman2/quotes/202353025/composite NFLX +2.07% and Alphabet /zigman2/quotes/205453964/composite GOOG +1.17%   /zigman2/quotes/202490156/composite GOOGL +1.14% , which is Google’s holding company. But that group doesn’t include Microsoft /zigman2/quotes/207732364/composite MSFT +2.28% , which certainly should be included in a list of rapidly growing tech giants.

So here’s a list of the largest four publicly traded U.S. companies by market capitalization, followed by Facebook and Netflix, with sales growth and gross-margin comparisons:

Company Ticker Market cap ($ billions) Sales growth - most recent quarter from year-earlier quarter Gross margin - most recent quarter Gross margin - year-earlier quarter
Apple Inc. /zigman2/quotes/202934861/composite AAPL $1,351 8.7% 38.10% 37.59%
Microsoft Corp. /zigman2/quotes/207732364/composite MSFT $1,326 14.0% 66.51% 61.64%
Alphabet Inc. Class A /zigman2/quotes/202490156/composite GOOGL $1,059 17.7% 54.38% 54.23%
Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN $998 20.8% 38.27% 38.13%
Facebook Inc. Class A /zigman2/quotes/205064656/composite FB $491 24.6% 83.44% 83.47%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX $157 30.6% 36.61% 34.71%
Source: FactSet

You can click on the tickers for more about each company.

These numbers are all for quarters ended Dec. 31. The combined market capitalization for the group is $5.38 trillion, or 20% of the valuation of the entire S&P 500 /zigman2/quotes/210599714/realtime SPX +1.60% .

A company’s gross margin is its sales, less the cost of goods sold, divided by sales. It’s a measure of pricing power.

If a company’s gross margins have been narrowing, it could indicate that discounting is necessary to defend market share. It may also be a temporary phenomenon, as a company tries to take share from rivals.

It’s always good to see the gross margin widening while sales are increasing, while a prolonged narrowing of the margin could indicate big trouble, especially if sales aren’t growing significantly. (Gross margin numbers aren’t available for most financial companies, including banks and insurers.)

All these tech giants except for Apple showed double-digit sales growth, although Apple’s sales increase was quite an improvement from previous quarters, as the iPhone maker worked through the difficulties caused by the trade rift between the U.S. and China. Meanwhile, Apple’s gross margin improved.

Netflix was the sales-growth winner, and it’s instructive to see how much higher Facebook’s gross margin is than the others.

Other companies follow suit

Through Feb. 3, 54% of S&P 500 /zigman2/quotes/210599714/realtime SPX +1.60%  companies had reported results for fiscal quarters ended Oct. 25 or later.

Leaving aside the tech giants listed above, here are 23 companies among the S&P 500 that have reported sales increases of at least 10% this earnings season, while also expanding their gross margins. The list is sorted by sales growth:

Company Ticker Market cap ($ billions) Sales growth - most recent quarter from year-earlier quarter Gross margin - most recent quarter Gross margin - year-earlier quarter
Vertex Pharmaceuticals Inc. /zigman2/quotes/202259802/composite VRTX $60 63.6% 86.91% 85.84%
Alexandria Real Estate Equities Inc. /zigman2/quotes/206543290/composite ARE $20 62.7% 53.21% 36.96%
Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD $53 49.9% 44.62% 37.84%
Invesco Ltd. /zigman2/quotes/200294387/composite IVZ $8 48.8% 69.70% 65.12%
ServiceNow Inc. /zigman2/quotes/202729495/composite NOW $65 33.0% 77.78% 76.50%
Autodesk Inc. /zigman2/quotes/209828392/composite ADSK $44 26.3% 89.40% 88.47%
Electronic Arts Inc. /zigman2/quotes/206954087/composite EA $31 24.8% 67.80% 67.16%
Hess Corp. /zigman2/quotes/203832174/composite HES $17 24.6% 8.67% -5.26%
Alexion Pharmaceuticals Inc. /zigman2/quotes/206262068/composite ALXN $22 23.7% 91.74% 84.20%
Intuitive Surgical Inc. /zigman2/quotes/204935713/composite ISRG $65 22.1% 70.13% 70.06%
Align Technology Inc. /zigman2/quotes/200300692/composite ALGN $20 21.7% 72.63% 72.52%
BlackRock Inc. /zigman2/quotes/207946232/composite BLK $82 21.6% 83.32% 79.21%
Copart Inc. /zigman2/quotes/200378896/composite CPRT $23 20.2% 44.85% 41.45%
Conagra Brands Inc. /zigman2/quotes/200394144/composite CAG $16 18.3% 28.54% 28.31%
NextEra Energy Inc. /zigman2/quotes/200558509/composite NEE $130 17.8% 33.30% 25.37%
Biogen Inc. /zigman2/quotes/201531540/composite BIIB $49 16.6% 87.82% 82.03%
PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL $137 16.4% 44.93% 40.20%
D.R. Horton Inc. /zigman2/quotes/202032328/composite DHI $22 14.3% 23.29% 21.82%
ResMed Inc. /zigman2/quotes/204675483/composite RMD $24 13.1% 56.86% 56.50%
T. Rowe Price Group /zigman2/quotes/203200152/composite TROW $32 12.5% 86.10% 82.40%
MSCI Inc. Class A /zigman2/quotes/202905332/composite MSCI $25 12.4% 77.64% 74.09%
Lamb Weston Holdings Inc. /zigman2/quotes/205501174/composite LW $13 11.8% 27.97% 27.32%
Idexx Laboratories Inc. /zigman2/quotes/205324043/composite IDXX $24 10.2% 54.70% 54.41%

No small set of figures can tell you the real story about any company’s recent success. So if there are any that interest you as individual investments, you had better do plenty of homework to understand why sales increased so significantly.

Then you need to form your own opinion as to whether the company’s business strategy will allow it to remain very competitive for at least the next decade.

Don’t miss: These companies have the most at stake when the world clamps down on plastic pollution

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US : U.S.: Nasdaq
$ 254.82
+5.29 +2.12%
Volume: 18.35M
Sept. 25, 2020 4:00p
P/E Ratio
31.13
Dividend Yield
N/A
Market Cap
$725.94 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 112.28
+4.06 +3.75%
Volume: 149.98M
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34.13
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0.73%
Market Cap
$1946.64 billion
Rev. per Employee
$1.98M
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$ 3,095.13
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118.97
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N/A
Market Cap
$1550.32 billion
Rev. per Employee
$359,671
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$ 482.88
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81.47
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N/A
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$2.22M
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$ 1,444.96
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N/A
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$980.76 billion
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$1.39M
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/zigman2/quotes/202490156/composite
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$ 1,439.06
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32.10
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N/A
Market Cap
$980.76 billion
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$1.39M
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/zigman2/quotes/207732364/composite
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$ 207.82
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36.08
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1.08%
Market Cap
$1572.71 billion
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$902,473
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 112.28
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P/E Ratio
34.13
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0.73%
Market Cap
$1946.64 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 207.82
+4.63 +2.28%
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P/E Ratio
36.08
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1.08%
Market Cap
$1572.71 billion
Rev. per Employee
$902,473
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,439.06
+16.20 +1.14%
Volume: 1.52M
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P/E Ratio
32.10
Dividend Yield
N/A
Market Cap
$980.76 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,095.13
+75.34 +2.49%
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Sept. 25, 2020 4:00p
P/E Ratio
118.97
Dividend Yield
N/A
Market Cap
$1550.32 billion
Rev. per Employee
$359,671
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 254.82
+5.29 +2.12%
Volume: 18.35M
Sept. 25, 2020 4:00p
P/E Ratio
31.13
Dividend Yield
N/A
Market Cap
$725.94 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 482.88
+9.80 +2.07%
Volume: 3.77M
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P/E Ratio
81.47
Dividend Yield
N/A
Market Cap
$212.96 billion
Rev. per Employee
$2.22M
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/zigman2/quotes/210599714/realtime
US : S&P US
3,298.46
+51.87 +1.60%
Volume: 0.00
Sept. 25, 2020 5:06p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,298.46
+51.87 +1.60%
Volume: 0.00
Sept. 25, 2020 5:06p
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/zigman2/quotes/202259802/composite
US : U.S.: Nasdaq
$ 268.18
+5.05 +1.92%
Volume: 1.35M
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P/E Ratio
33.90
Dividend Yield
N/A
Market Cap
$69.85 billion
Rev. per Employee
$1.22M
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/zigman2/quotes/206543290/composite
US : U.S.: NYSE
$ 158.50
+1.92 +1.23%
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P/E Ratio
48.75
Dividend Yield
2.68%
Market Cap
$19.99 billion
Rev. per Employee
$3.72M
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/zigman2/quotes/208144392/composite
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$ 78.06
+2.24 +2.95%
Volume: 48.21M
Sept. 25, 2020 4:00p
P/E Ratio
152.81
Dividend Yield
N/A
Market Cap
$91.64 billion
Rev. per Employee
$641,089
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/zigman2/quotes/200294387/composite
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$ 10.81
+0.01 +0.09%
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P/E Ratio
10.64
Dividend Yield
5.74%
Market Cap
$4.96 billion
Rev. per Employee
$702,333
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$ 479.97
+19.85 +4.31%
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P/E Ratio
130.60
Dividend Yield
N/A
Market Cap
$92.06 billion
Rev. per Employee
$319,943
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/zigman2/quotes/209828392/composite
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$ 227.80
+6.84 +3.10%
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P/E Ratio
139.29
Dividend Yield
N/A
Market Cap
$49.95 billion
Rev. per Employee
$292,023
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/zigman2/quotes/206954087/composite
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$ 131.19
+1.87 +1.45%
Volume: 1.92M
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P/E Ratio
19.45
Dividend Yield
N/A
Market Cap
$37.89 billion
Rev. per Employee
$571,613
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/zigman2/quotes/203832174/composite
US : U.S.: NYSE
$ 40.48
+1.03 +2.61%
Volume: 2.79M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
2.47%
Market Cap
$12.43 billion
Rev. per Employee
$3.59M
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/zigman2/quotes/206262068/composite
US : U.S.: Nasdaq
$ 114.43
+2.41 +2.15%
Volume: 1.85M
Sept. 25, 2020 4:00p
P/E Ratio
30.58
Dividend Yield
N/A
Market Cap
$25.08 billion
Rev. per Employee
$1.56M
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/zigman2/quotes/204935713/composite
US : U.S.: Nasdaq
$ 673.73
+16.20 +2.46%
Volume: 522,276
Sept. 25, 2020 4:00p
P/E Ratio
70.92
Dividend Yield
N/A
Market Cap
$78.84 billion
Rev. per Employee
$673,819
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/zigman2/quotes/200300692/composite
US : U.S.: Nasdaq
$ 317.93
+6.05 +1.94%
Volume: 479,837
Sept. 25, 2020 4:00p
P/E Ratio
14.78
Dividend Yield
N/A
Market Cap
$25.05 billion
Rev. per Employee
$168,653
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/zigman2/quotes/207946232/composite
US : U.S.: NYSE
$ 547.81
+12.76 +2.38%
Volume: 486,378
Sept. 25, 2020 4:00p
P/E Ratio
19.26
Dividend Yield
2.65%
Market Cap
$83.53 billion
Rev. per Employee
$952,953
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/zigman2/quotes/200378896/composite
US : U.S.: Nasdaq
$ 104.26
+2.25 +2.21%
Volume: 1.01M
Sept. 25, 2020 4:00p
P/E Ratio
35.59
Dividend Yield
N/A
Market Cap
$24.48 billion
Rev. per Employee
$310,934
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/zigman2/quotes/200394144/composite
US : U.S.: NYSE
$ 35.12
+0.49 +1.41%
Volume: 2.25M
Sept. 25, 2020 4:02p
P/E Ratio
20.42
Dividend Yield
2.42%
Market Cap
$17.16 billion
Rev. per Employee
$717,048
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/zigman2/quotes/200558509/composite
US : U.S.: NYSE
$ 281.82
+4.28 +1.54%
Volume: 1.36M
Sept. 25, 2020 4:00p
P/E Ratio
38.93
Dividend Yield
1.99%
Market Cap
$137.99 billion
Rev. per Employee
$1.15M
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/zigman2/quotes/201531540/composite
US : U.S.: Nasdaq
$ 273.28
+3.24 +1.20%
Volume: 737,523
Sept. 25, 2020 4:00p
P/E Ratio
8.01
Dividend Yield
N/A
Market Cap
$43.26 billion
Rev. per Employee
$1.55M
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/zigman2/quotes/208054269/composite
US : U.S.: Nasdaq
$ 187.25
+5.06 +2.78%
Volume: 7.61M
Sept. 25, 2020 4:00p
P/E Ratio
85.93
Dividend Yield
N/A
Market Cap
$219.70 billion
Rev. per Employee
$710,138
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/zigman2/quotes/202032328/composite
US : U.S.: NYSE
$ 71.83
-0.17 -0.24%
Volume: 3.34M
Sept. 25, 2020 4:00p
P/E Ratio
13.01
Dividend Yield
0.97%
Market Cap
$26.12 billion
Rev. per Employee
$1.93M
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/zigman2/quotes/204675483/composite
US : U.S.: NYSE
$ 169.04
+0.90 +0.54%
Volume: 893,280
Sept. 25, 2020 4:00p
P/E Ratio
39.59
Dividend Yield
0.92%
Market Cap
$24.49 billion
Rev. per Employee
$413,240
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/zigman2/quotes/203200152/composite
US : U.S.: Nasdaq
$ 125.22
+1.79 +1.45%
Volume: 768,703
Sept. 25, 2020 4:00p
P/E Ratio
14.85
Dividend Yield
2.87%
Market Cap
$28.42 billion
Rev. per Employee
$765,110
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/zigman2/quotes/202905332/composite
US : U.S.: NYSE
$ 352.96
+6.84 +1.98%
Volume: 429,770
Sept. 25, 2020 4:03p
P/E Ratio
57.55
Dividend Yield
0.88%
Market Cap
$29.52 billion
Rev. per Employee
$460,792
loading...
/zigman2/quotes/205501174/composite
US : U.S.: NYSE
$ 64.89
+2.22 +3.54%
Volume: 872,074
Sept. 25, 2020 4:03p
P/E Ratio
26.09
Dividend Yield
1.42%
Market Cap
$9.43 billion
Rev. per Employee
$501,097
loading...
/zigman2/quotes/205324043/composite
US : U.S.: Nasdaq
$ 377.83
+12.36 +3.38%
Volume: 380,960
Sept. 25, 2020 4:00p
P/E Ratio
71.39
Dividend Yield
N/A
Market Cap
$32.14 billion
Rev. per Employee
$264,205
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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