Rather than looking for a get-rich-quick scheme, investors are better off using the time-honored tradition of buying quality companies and holding them for the long term. That doesn't mean that every company will produce noteworthy gains. However, experience has shown that having one or more companies that significantly outperform can propel an entire portfolio to market beating returns -- and all it takes is a little time.
With that in mind, we asked three Motley Fool investors to choose top companies that they believed had the potential to double investors' money over the next 10 years. They offered up compelling arguments for Cintas Corporation (CTAS -0.91%), Activision Blizzard, Inc. (ATVI), and Carvana Co. (CVNA 2.88%).
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No end in sight
John Bromels (Cintas): Sure, a stock that doubles over the course of a decade sounds great. How about one that's more than quintupled over the past decade, and looks poised for continued growth moving forward? That company is uniform renter Cintas, which is quietly benefiting from current economic trends and a fractured market.
A steadily improving economy and low unemployment rates are a boon for Cintas, which not only rents work uniforms -- the bulk of its business -- but also provides a motley collection of other business services including floor mat rental, fire and safety equipment, and restroom restocking.
Image source: Getty Images.
Cintas certainly capitalized on those trends in its most recent second-quarter of fiscal 2018. Revenue was up 26.4% year over year and net incomes were up 12.9% year over year. Some of that was due to the company's recent major acquisition of competitor G&K Services, which gave sales a boost and provided management the opportunity to find cost-saving synergies. And the good news is, it's still a fractured market which gives Cintas plenty of future opportunities to grow by acquisition.
Looking at all this, it's clear that Cintas's shares could easily double in price over the next decade... or maybe even much, much sooner.
Game on!
Danny Vena (Activision Blizzard): Like Cintas, Activision has more than quintupled in the last decade, but I believe the best is yet to come.
You might think that the developing and selling of video games is the profit engine that keeps the company running, and while they're still the heart and soul of the business, that's just the beginning. Overwatch, the company's multiplayer shooter game, had a stellar year in 2017 becoming the eighth billion-dollar franchise in the Activision Blizzard stable, as well as its fastest growing franchise.
However, game sales is only part of the equation. Increasingly, the company generates the majority of its revenue from activity that occurs after the game is sold, like subscriptions, licensing, downloadable content, and in-game sales. Last year, Activision produced revenue of $7.2 billion, and more than $4 billion of that total was from these recurring sources. This provides the company with ongoing, predictable revenue streams. It also fosters deep engagement with users, with time per day exceeding 50 minutes for the second successive quarter.
Image source: Getty Images.
The company has other significant opportunities that could help the stock double. The Overwatch game was so popular, it became the basis for the company's entry into the esports arena -- the Overwatch League. Last year, the company announced that it had sold the rights to 12 franchises, garnering the company $20 million each for the city-based teams. The franchises also attracted some of the biggest names in sports, including New England Patriots' owner Robert Kraft, New York Mets chief operating officer Jeff Wilpon, and Andy Miller, co-owner of the Sacramento Kings.
The League's inaugural season was such a success, it increased global demand for expansion teams, which the company will sell down the line in 2018. The company expects the Overwatch League to be profitable later this year, in its first full year of operations.
With a steadily growing video game business, and a foothold in the nascent area of esports, Activision Blizzard is a solid bet to double in the next decade.
Pedal to the metal
Daniel Miller (Carvana Co.): Finding a stock that's poised to double over the next decade is easier said than done. One strategy for investors is to find a young company and let its explosive top-line growth fuel its stock price. And explosive growth is exactly what Carvana Co. offers investors.
Carvana's retail units sold jumped a staggering 136% in fiscal 2017, compared to the prior year, which powered a similar 135% revenue increase. Total gross profit increased by 255% with total gross profit per unit (GPU) moving from $516 to $1,539 -- roughly halfway to its long-term $3,000 target. Management expects that explosive growth to remain: guidance calls for fiscal 2018 retail units and revenue to jump between 101% and 110%.
Image source: Carvana.
Management launched five new markets during the fourth-quarter alone, bringing its number of markets up to 44 at the end of 2017. Carvana expects to open between 30 and 40 new markets in fiscal 2018 which would bring its coverage of U.S. population to 55% -- a massive jump from 19.7% at the end of 2016. While Carvana works to expand its market coverage, management is also improving its customer acquisition cost. In fact, Carvana's 2017 cohort advertising expense per unit was $2,730, and that figure was a staggering $2,364 lower than the 2016 cohort expense.
Selling cars isn't easy and it's a notoriously cyclical industry. But if you're looking at a 10 year timeline, it's easy to imagine Carvana's stock doubling as it rapidly expands its market coverage, improves its GPU, and continues to lower customer acquisition costs.
