Bull market drives S&P 500 Index It's up 22% over the past year, but historically the popular barometer has averaged around 10% annual returns. One strategy to beat the index is to invest in companies that are growing revenue or profits at a higher rate. The stock may rebound in the short term, but there is a strong correlation between the stock's long-term performance and the growth of the underlying business.
To help you in your search, three Motley Fool contributors think Uber Technologies (NYSE:UBER), free market (NASDAQ: MELI)and KaVo Group (NYSE:CAVA) Has the makings to be a long-term winner, capable of outperforming the market over the next five years. Here’s why.
John Ballard (Uber Technologies): Uber stock has gained 162% since bottoming in 2022, but the stock's lackluster performance over the past year has created an excellent buying opportunity. While the share price has stagnated, the business has enjoyed strong growth again and valuations have fallen to attractive levels, creating good return prospects.
Uber Technologies Inc. Card NYSE: UBER
Uber has been laying the foundation for long-term growth in the business, and that's reflected in 2024. Revenue growth accelerated, rising 20% year over year in the third quarter. Additionally, revenue growth is driving greater improvement in the bottom line, with operating income more than doubling from the year-earlier quarter to $1.1 billion.
This acceleration can be attributed to a variety of trends, including more people using Uber, strong growth in advertising, an increase in Uber One membership, and expansion into new markets.
Competition from Uber will intensify in the long term, but the ride-hailing market is expected to grow significantly in the coming years. As a leading brand, it will be a strong competitor and investors can buy shares at a very attractive valuation, leading to huge return potential.
The stock trades at just 20 times 2025 earnings estimates, with analysts predicting earnings will grow at an annualized rate of 41%. Uber stock could significantly outperform the S&P 500 as the company's profit margins improve.
Jennifer Sebire (MercadoLibre): MercadoLibre stock has outperformed the S&P 500 over the past five years, but is up just 8% through 2024. Wall Street is worried about the economy in Argentina, MercadoLibre's biggest market. But so far, the company continues to show incredible performance and has continued great opportunity.
Latin America, where MercadoLibre operates, still has lower e-commerce penetration than the rest of the world but is growing rapidly, which is the company's sweet spot. In the third quarter, gross merchandise volume (GMV) increased by 71% year-on-year (excluding currency factors), and net income increased by 103%.
The number of independent buyers increased by 21% compared with last year, reaching 61 million, and monthly active users increased by 35%. Profitability in the third quarter was affected by bad debts, but the company's net profit margin still reached 7.5%.
These results are not uncommon. MercadoLibre has consistently shown high growth, but operating in an underserved area, there is more potential to unlock. It serves more than 500 million people and its innovative products are disrupting traditional financial operations and attracting customers.
It also has a strong fintech and credit business that complements its commerce business with digital payments and financial solutions. Assets under management increased 93% year-on-year in the third quarter, and the credit portfolio grew 77%. The company now offers a full range of financial services via digital apps and is opening its first banking product in Mexico, where it aims to become the largest digital bank in the country.
Margins are likely to remain under short-term pressure, but its business is performing well, with more new customers in Argentina than at the height of the pandemic, when e-commerce started to accelerate. Over the next five years, MercadoLibre should be able to maintain its stellar performance, capture market share, expand its business and reward investors.
Jeremy Bowman (Kava Group): Cava is one of the biggest surprises of 2024. In a challenging year for consumer discretionary stocks, the restaurant chain's shares are up 162% on a blowout in revenue and profit growth.
The stock has retreated since its peak following the release of its third-quarter earnings report in November, and now offers a better entry point.
For a number of reasons, this Mediterranean fast-casual chain looks like an excellent choice to outperform the S&P 500 over the next five years. First, its products clearly resonate with consumers. Currently, average unit sales, or average sales per restaurant, is $2.8 million, on par with popular chains like Chipotle and sweet green. The company's same-store sales increased 18.1% in the third quarter, and customer traffic increased 12.9%.
This growth doesn’t just happen. Cava has clearly caused a stir among customers, who spread the word to their friends and return to the restaurant more often.
It also converts increased demand into profits. Restaurant-level profits jumped 41.9% to $61.8 million in the third quarter, with generally accepted accounting principles (GAAP) revenue soaring from $6.8 million to $18 million.
Cava still has plenty of room for growth, as the company had just 352 restaurants at the end of the third quarter and hopes to have more than 1,000 restaurants by the end of the decade. However, if the concept continues to resonate, the chain has the potential to grow to thousands of stores.
Chipotle currently has more than 3,000 stores and is targeting at least 7,000, while shake cabin Just raised the target from 450 to 1,500.
Cava has a high ceiling. If the company maintains its growth momentum, its stock price could easily double or triple by 2030.
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Jennifer Saibil works at MercadoLibre. Jeremy Bowman works at Chipotle Mexican Grill, MercadoLibre and Sweetgreen. John Ballard works at MercadoLibre. The Motley Fool owns and recommends Chipotle Mexican Grill, MercadoLibre and Uber Technologies. The Motley Fool recommends Cava Group and Sweetgreen and recommends the following options: Short the $54 December 2024 Chipotle Mexican Grill put. The Motley Fool has a disclosure policy.
3 Great Growth Stocks That Will Outperform the S&P 500 by 2030 Originally published by The Motley Fool