THE Nasdaq Composite has generated an average annual return of 11% over the past 30 years. That’s a cumulative return of 2,440%. That’s an enviable return on investment over the long term. If you want to beat that return, you need to invest in stocks that offer above-average growth prospects.
Stock prices can fluctuate for all kinds of short-term reasons, so trying to beat the market day to day is a fool’s errand. However, for many years there has been a strong correlation between a company’s performance earnings the performance and return of the share. If you focus on companies that can at least double their profits in five years, which equates to a 15% annualized profit increase, you significantly increase your chances of beating the market.
To give you some ideas, here are two top stocks that have the potential to double in value in five years and outperform the Nasdaq.
1. Carnival
Carnival (NYSE:CCL) Carnival is the world’s largest cruise line and continues to enjoy strong demand. The stock is up 18% over the past year, and while that’s below the Nasdaq’s 33% return, Carnival’s prospects for improved earnings growth in the coming years could potentially double the stock price over the next five years.
With healthy revenue growth driven by strong demand for cruise vacations, management is focusing more on cost management to drive profitable growth. In the quarter ended in May, Carnival posted a 17% year-over-year increase in revenue and turned a loss from last year into a net profit of $92 million.
Carnival is expected to boost its margins and profits through two opportunities. The first is the planned opening next year of Celebration Key, an exclusive destination near Carnival’s ports, which is expected to reduce fuel costs and boost profits. Strong demand for travel to this new destination will allow the company to gradually increase ticket prices over time and realize high returns on investment.
Another profitable growth opportunity is the transfer of Carnival’s ships from its P&O Cruises Australia brand to Carnival Cruise Line, which will increase capacity for the more successful Carnival brand.
Wall Street analysts expect Carnival to grow earnings at an annualized rate of 12% over the long term. If the stock is forward price/earnings ratio If Carnival stock rises from its current multiple of 16.3 to 20, which is more in line with its pre-pandemic valuation range, it could double in value over the next five years.
2. Uber Technologies
Uber Technologies (NYSE: UBER) continues to grow its revenue thanks to a large base of 7 million people who earn money with its service every month. The stock has soared 66% over the past year, doubling the Nasdaq’s 33% return, but the stock still has plenty of room to rise in the years to come.
Uber’s first-quarter results show that the business is growing at the pace investors need to double their money. In the first quarter, gross bookings, revenue and trips each increased 15% or more year over year.
A major catalyst that could drive strong earnings growth over the next five years is Uber using its valuable data to serve ads that connect merchants with consumers. The company launched Uber Journey Ads in 2022, which helps brands get in front of consumers using Uber, and it’s becoming a multi-billion dollar opportunity.
Uber made $900 million in annualized advertising revenue in the fourth quarter of 2023. It’s a small part of a business generating more than $10 billion in quarterly revenue, but advertising generates high margins that can benefit to its low-margin delivery business.
Piper Sandler Analysts recently called Uber a “sleeping giant” in the advertising space because of its large customer base. Consensus estimates call for Uber’s earnings to reach $4.31 by 2026 and grow 45% on an annualized basis over the next few years. That puts Uber stock on track to double in value over the next five years.
Should you invest $1000 in Carnival Corp. right now ?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Uber Technologies. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
2 Stocks That Could Crush the Nasdaq in the Next Five Years was originally published by The Motley Fool
