One business I continue to like as a growth stock is the a2 Milk Company Ltd (ASX: A2m), although I must admit as a $10 billion baby formula and milk company it is high up the risk curve.
As such I wouldn't suggest committing more than 2%-3% of your available investment capital into the business.
Another stock I tipped as my 'top stock pick' for April is CSL Limited (ASX: CSL), it's a blue-chip healthcare business I think should be a core part of investors' portfolios. In other words you could have up to 10% of your Australian investment portfolio in CSL, depending on how bullish you feel.
Still, a2 Milk's overseas growth, especially in China and the U.S., could see the company's value double again given its products of a2-only-milk baby formula and supermarket milk appear to have some good pricing power as consumers believe they're superior to alternatives.
For the six months ending December 31 2018 the group grew net profit 55% to $152.7 million and revenue 41% to NZ$613.1 million, with Chinese infant formula label sales up 82.6%, while its supermarket milk business more than doubled revenue (+114%) in what is also a large market.
Around 80% of revenue still comes from premium infant formula sales, although I think its liquid milk business has as at least as much growth potential.
The balance sheet is also strong with $287.9 million cash on hand as at 31 December 2018 and NZ$0.209 cents per share in earnings over the period. This places it on around 35x FX-adjusted annualised earnings, which is expensive, but I expect the sales and profit growth could justify today's price.
It's also worth noting that much of my investing thesis is based on my belief that the company has some pricing power, which seems a reasonable assumption given its track record.
Legendary investors like Charlie Munger have nominated 'pricing power' as the most important quality in a company to generate strong long-term returns, but if you don't think a2 Milk has pricing power then obviously this stock is not for you!
Foolish takeaway
A common investing mistake is to believe you've missed the boat on great growth businesses and while a $20 billion milk company might sound preposterous, I wouldn't be surprised to see the share price double again over the next 3 years or so.
I'd definitely prefer the outstanding track record of a2 Milk to the mixed track record and regulatory problems of Bellamy's Australia Ltd (ASX: BAL), although that's not to say Bellamy's may not perform well from here as well.
