I am a growth investor through and through. Value investing can make big fortunes, and a good portion of my portfolio is for stable, long-term wealth builders; After all, diversification is important. But it’s so much fun to start looking for tomorrow’s big winners today.
I have a few success stories under my belt, but they took years to develop. Mine Netflix (NASDAQ:NFLX) And Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) purchases are up over 1,000% each, but I started in 2011 and 2010 respectively.
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So I’m always looking for the next Netflix or Alphabet. What stocks can I buy today to earn huge returns over the next decade or two?
My best ideas at the moment are an expert in media streaming technology Roku (NASDAQ: ROKU) and restaurant management software maker Toast (NYSE: TOST). These growth stories are still in their infancy and I expect them to continue winning for a very long time.
This is why I see long-term market-boosting returns from Toast and Roku.
The business models are very different, but Toast and Roku have a lot in common.
Both companies are targeting huge markets in the long term. Toast’s radically simplified restaurant management system has been installed in 127,000 locations to date, which represents just 14.5% of the U.S. restaurant market.
Roku has reached 85.5 million media streaming households, with annualized platform revenues (service fees and ad sales) of $3.6 billion. The company Emarketer estimates that the domestic TV advertising market will be worth more than $90 billion this year.
And both companies have plenty of international growth to explore if and when greenfield growth opportunities in the US run out
So Toast and Roku are looking at huge long-term growth opportunities, and they’re off to an impressive start. Roku’s revenue has quadrupled in the past five years. Toast has quadrupled in three years. Both companies have posted solid cash profits in recent quarters, paying down their long-term debt to zero and building billions in cash reserves.
Investors have recently embraced Toast, sending the stock price up 120% so far this year. The stock isn’t cheap, trading at 50 times forward earnings estimates and 4.9 times trailing revenue – but I think it’s worth every penny of that premium price.
Roku, on the other hand, continues to do everything right while its stock price falls. After losing 21% of its value by 2024, Roku’s stock is valued at just 2.5 times sales. Looked at in another light, Roku’s stock price is 85% below its all-time high.
I get it if you think Toast looks expensive right now, and Roku would be my top choice too. But don’t stay on the sidelines of Toast for too long. You don’t want to look back on years of market gains starting in 2030 or 2035 and kick yourself for missing this opportunity.
You can always set up your Toast and Roku positions in different trades over time, perhaps by buying into third parties or automating a long-term dollar cost averaging plan. These approaches can smooth out market volatility and prevent you from getting stuck on a single purchase at an uncomfortable starting price.
Whichever purchasing method you prefer, Roku and Toast deserve a closer look from any growth investor. I can’t promise they’ll match my proven Netflix and Alphabet returns, but the opportunity is there. I think we’re looking at tomorrow’s corporate giants in their early years.
Roku is stealing market share from traditional TV networks and other online media channels. I find Toast logos everywhere on my takeout receipts. Both companies have clearly defined, effective growth plans, and I see great value in these stocks today over the long term.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet, Netflix, Roku and Toast. The Motley Fool holds positions in and recommends Alphabet, Netflix, Roku and Toast. The Motley Fool has a disclosure policy.
2 Hypergrowth Tech Stocks to Buy in 2024 and Beyond was originally published by The Motley Fool
