2 Stocks That Could Crush the Nasdaq Over the Next Five Years
2 Stocks That Could Crush the Nasdaq Over the Next Five Years
The Nasdaq Composite has returned an average annual return of 11% over the last 30 years. That comes 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 for all kinds of reasons in the near term, 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 the stock's return. If you focus on companies that can at least double their earnings in five years, which comes to an annualized earnings increase of 15%, you significantly stack the odds in your favor 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% over the past year, and while that is less than the Nasdaq's return of 33%, Carnival's prospects for improving earnings growth in the coming years could potentially double the share price over the next five years.
With revenue growing at a healthy rate due to strong demand for cruise vacations, management is focusing more on managing costs to deliver profitable growth. In the May-ended quarter, Carnival posted a 17% year-over-year increase in revenue and turned a year-ago loss into a net profit of $92 million.
Looking ahead, Carnival should drive higher margins and profits from two opportunities. The first is next year's planned opening of Celebration Key, an exclusive destination that is close to Carnival's ports and should lower fuel costs to boost profits. Strong demand for travel to this new destination will allow the company to gradually raise ticket prices over time and realize high returns on the company's investment.
Another opportunity for profitable growth is the transfer of Carnival's vessels from its P&O Cruises Australia brand into 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-to-earnings ratio moves up from its current 16.3 multiple to 20, which is more in line with its pre-pandemic valuation range, Carnival stock could double in value in the next five years.
2. Uber Technologies
Uber Technologies (NYSE: UBER) continues to grow revenue thanks to a large base of 7 million people earning money with its service every month. The stock has climbed 66% over the past year, effectively doubling the Nasdaq's return of 33%, but the stock has plenty of room to run in the coming years.
Uber's first-quarter results show the business growing at the rates investors need to double their money. In the first quarter, gross bookings, revenue, and the number of trips each grew 15% or higher year over year.
One important catalyst could drive strong earnings growth over the next five years. Uber is using its valuable data to offer advertising to connect merchants with consumers. The company launched Uber Journey Ads in 2022, which helps brands gain exposure to consumers using Uber, and it's growing into a multibillion-dollar opportunity.
Uber achieved $900 million of annualized advertising revenue in the fourth quarter of 2023. It's a small piece of a business generating over $10 billion of quarterly revenue, but advertising generates high margins that can benefit its low-margin delivery business.
Piper Sandler analysts called Uber a "sleeping giant" in advertising recently due to its large customer base. The consensus estimate has Uber's earnings reaching $4.31 by 2026 and growing 45% on an annualized basis over the next several years. This puts Uber stock on track to double in value within the next five years.
Should you invest $1,000 in Carnival Corp. right now?
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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.