The Nasdaq Composite has delivered an average annual return of 11% over the past 30 years. That works out to 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 with above-average growth prospects.
Stock prices can fluctuate in the short term for all kinds of reasons, so trying to beat the market day to day is a fool’s errand. However, over many years there is a high correlation between a company’s earnings performance and its stock return. If you focus on companies that can at least double their profits in five years, which equates to a 15% annual 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) is the largest cruise line in the world and continues to benefit from strong demand. The stock is up 18% in the past year, and while that’s less than the Nasdaq’s 33% return, Carnival’s prospects for improved earnings growth in the coming years could potentially double its share price over the next five years.
With revenues growing at a healthy pace on the back of strong demand for cruise vacations, management is increasingly focused on managing costs to achieve profitable growth. In the quarter ended May, Carnival posted 17% year-over-year revenue growth, turning a year-ago loss into net income of $92 million.
Looking ahead, Carnival should generate higher margins and profits from two opportunities. The first is the planned opening of Celebration Key next year, an exclusive destination close to Carnival’s ports that should reduce fuel costs to increase profits. The strong demand for travel to this new destination will allow the company to gradually increase ticket prices and realize high returns on the company’s investment.
Another opportunity for profitable growth is the transfer of Carnival’s ships from the P&O Cruises Australia brand to Carnival Cruise Line, which will expand capacity for the better-performing Carnival brand.
Wall Street analysts expect Carnival to grow earnings at an annualized rate of 12% over the long term. If the stock’s forward price-earnings ratio rises from the current 16.3 to 20, which is more in line with its pre-pandemic valuation range, Carnival stock could double in value over the next five years.
2. Uber Technologies
Uber Technologies (NYSE:UBER) Revenue continues to grow thanks to a large base of 7 million people who make money with the service every month. The stock is up 66% over the past year, effectively doubling the Nasdaq’s 33% return, but the stock still has plenty of room to perform in the coming years.
Uber’s first-quarter results show the business is growing at the rate investors need to double their money. In the first quarter, gross bookings, revenue and rides each grew 15% or more year-over-year.
One major catalyst could drive strong earnings growth over the next five years. Uber is using its valuable data to serve ads that connect merchants with consumers. The company launched Uber Journey Ads in 2022, which helps brands gain more exposure to consumers using Uber, and it’s growing into a multibillion-dollar opportunity.
Uber posted $900 million in annual ad revenue in the fourth quarter of 2023. It’s a small part of a business that generates more than $10 billion in quarterly revenue, but advertising generates high margins that could benefit its low-margin delivery business.
Piper Sandler Analysts recently called Uber a “sleeping giant” in advertising because of its large customer base. The consensus estimate is that Uber’s revenues will reach $4.31 in 2026 and grow 45% annually over the next few years. This puts Uber shares on track to double in value within the next five years.
Should You Invest $1,000 in Carnival Corp. Right Now?
Before you buy shares in Carnival Corp. purchase, you should consider the following:
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has 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 Over The Next 5 Years was originally published by The Motley Fool
