Some stocks can give you life-changing returns in the long term.
If you had invested €3,500 Apple(NASDAQ: AAPL) Twenty years ago you would now have a total return of €1.1 million. The rise of smartphones has done wonders for the empire Steve Jobs created.
The same investment of $3,500 in October 2004 would be worth $1.9 million today if you had raised some money Netflix(NASDAQ:NFLX) stock instead. The serial innovator dominated video rental stores like Blockbuster into bankruptcy, then pivoted to reap even richer profits from video streaming services.
And an investment of $3,500 in it Nvidia(NASDAQ: NVDA) would yield a return of $4.7 million over 20 years. The designer of graphics processing units (GPUs) and other arithmetic microchips caught fire in November 2022, posting a 1,050% return in the past two years alone. Wall Street is absolutely loving Nvidia’s leading role in the artificial intelligence (AI) processing hardware market.
However, those big wins have already happened. I can’t go back in time and catch them again. This trio of proven millionaires is still soaring to new highs, but likely won’t multiply many times over from this lofty plateau. It’s becoming increasingly difficult to make large percentage gains from a huge market cap.
So Netflix, Apple and Nvidia can be solid stocks if you’re looking for stable and robust returns over the long term, and I own two with that mindset. However, it seems unlikely that they will deliver breakthrough growth again.
Tomorrow’s potential millionaires may be small today, but they are staring at a long road of future growth and innovation. Many of today’s top growth stocks will fail and fail, but if you take advantage of just one of these opportunities early on, you can forget about the misses.
In that regard, I can’t stop buying shares Roku(NASDAQ: ROKU) And Duolingo(NASDAQ: DUOL). These modest mid-cap stocks have real growth potential for wealth-building. I can’t promise millionaire returns, but Roku and Duolingo are two of my best bets in this category.
Duolingo is already on a roll. The language learning expert has delivered a 242% stock return over the past two years. Revenue over the last twelve months increased by 87% over the same period, while free cash flow (FCF) increased by 553%. In other words, this small company is experiencing rapid growth today and market makers are paying attention.
So Duolingo shares are not cheap. These shares are valued at 55 times FCF and 203 times earnings – lofty multiples even for a great growth stock.
But the company is growing where it matters most. Second quarter revenue rose 41% year over year and the number of monthly active users rose 40%. Meanwhile, paid subscriptions saw a 52% jump and FCF rose 60%.
In other words, Duolingo is building a launch ramp toward its long-term business goals on a robust foundation of user interests and cash profits. The recent addition of math and music courses signals Duolingo’s long-term commitment to a broader e-learning portfolio. The global online learning market was worth more than $165 billion by 2023 and is expected to grow by more than 50% over the next five years. Duolingo’s slice of that massive revenue pie was about 0.3% of the total market last year. The room to grow is quite large, and this company is making the most of these opportunities.
So I don’t mind paying a premium for Duolingo stock today. This small company is moving quickly.
And then there’s Roku. The media streaming technology expert has been around since the beginning, essentially defining the digital set-top box market back when it was Netflix’s hardware division. As a standalone company, Roku already dominates the North American streaming platform industry and is now exploring international growth – just as its former parent company did a decade ago.
This company is targeting another epic target market. Media streaming services are stealing the lunch from cable, satellite and broadcast media around the world. Cinemas are losing their iron grip on digital alternatives, and FM radio seems outdated. Roku no longer does much hardware sales and has shifted its strategy to software sales and licensing. As long as the digital media market grows, so will Roku. Lessons learned domestically should pay off when applied to other media markets.
Roku’s Sales Soar and Free Cash Flows Return After Visiting the Negative Side of the Street:
ROKU Earnings Chart (TTM).
Market makers are ignoring Roku’s huge growth prospects and proven cash profits, focusing instead on negative after-tax profits and a struggling digital advertising market. As a result, the stock hangs in Wall Street’s bargain basement with a price-to-sales ratio of 3.0. Online advertising can’t stay weak forever, and Roku’s foreign adventure is just beginning.
This stock starts from a much more forgiving valuation. Making a modest Roku investment today should reward you with huge returns in the long term.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: If you had invested $1,000 when we doubled in 2010, then you have $20,803!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $43,654!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $404,086!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 21, 2024
Anders Bylund has positions in Duolingo, Netflix, Nvidia and Roku. The Motley Fool holds positions in and recommends Apple, Duolingo, Netflix, Nvidia, and Roku. The Motley Fool has a disclosure policy.
Should You Forget Nvidia and Buy These 2 Millionaire-Maker Stocks Instead? was originally published by The Motley Fool
