There's no question that the stock market is the best way to predictably generate wealth over the long term. But finding the best stocks the market has to offer is easier said than done.
To that end, we asked three top Motley Fool investors to each pick a stock that they believe could double your money. Read on to learn why they like Markel (MKL 0.03%), Baozun (BZUN +0.00%), and Constellation Brands (STZ 1.49%).
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A matter of when it doubles again, not if...
Steve Symington (Markel): Shares of financial holding company Markel have already doubled over the past five years, so it might be tempting to avoid the so-called "mini-Berkshire Hathaway" for fear you've missed out on its gains. But with Markel's relatively modest $15.7 billion market cap -- at least compared to Berkshire's at nearly $490 billion as of this writing -- and with the stock trading at a reasonable 1.7 times book value, I think patient investors can still comfortably participate in the lion's share of Markel's long-term growth.
To be sure, Markel has three primary segments with which it creates shareholder value: Insurance, Investments, and Markel Ventures, a diversified group of acquired non-insurance, non-investing businesses. Last quarter demonstrated the effectiveness of its approach perfectly, with Markel leaning on the strength of its profitable insurance operations to help offset recent volatility from its investment portfolio.
Even then, Markel co-CEO and Chief Investment Officer Tom Gayner shed light on the temporary nature of the pullback in stocks that has hurt its investment returns, pointing out that while Markel's equity portfolio was down 1.3% last quarter, it's still up 216% over the past 21 quarters.
"I would happily sign up for those results for the next five years," Gayner added. "And we continue to invest each day with the same discipline that has produced such outstanding long-term results."
A Chinese growth star
Jeremy Bowman (Baozun): One stock that's already doubled investors' money in the last year and could do it again is Baozun, a Chinese e-commerce specialist that's often compared to Shopify (SHOP +3.28%). However, while Shopify focuses primarily on software to managing online retail storefronts, Baozun handles everything for its clients big and small, from IT to marketing to fulfillment and customer service. It's a favorite partner in China for multinational companies like Philips, Nike, and Microsoft, which benefit from its expertise in Chinese regulations, customs, and practices.
Baozun is the market leader in China with about 25% share of the e-commerce solutions market, nearly three times greater than its nearest competitor, and it's growing market share and profitability. The company has been pivoting from a direct-sales model to a services one, which has boosted profit margins. Operating profits nearly tripled in the last year to $39.4 million on a 22.4% increase in revenue to $637.7 million. Services revenue, however, jumped 56% in the year, but still makes up less than half of total revenue so there should be plenty of room for profit margins to expand as services become a greater part of the business.
With a market cap of only $2.8 billion today, the company has a tremendous opportunity ahead of it as the Chinese middle class expands and online shopping becomes more popular. Unlike some other e-commerce peers, including Shopify, Baozun is already profitable, and earnings per share should continue to ramp up. In fact, the stock is trading at a P/E of just 26.4 based on next year's expected earnings per share of $1.82, up from $0.70. Considering the growth path ahead, that looks like a recipe for a stock that could easily double.
Investing in beer and cannabis
Demitri Kalogeropoulos (Constellation Brands): Investors who bought Constellation Brands' stock a decade ago have seen their holding return a blistering 1,000% in that short time frame. Shares soared as sales and profitability improved, thanks mainly to the runaway success of the alcoholic beverage giant's imported beer portfolio. I see even more room for growth from here, though.
The beer business isn't nearly done expanding, after all. Executives are targeting double-digit sales gains for the portfolio due to increased distribution points and innovative product releases like the new Corona Premier, which is the first national extension of the franchise in 25 years.
At the same time, Constellation Brands is laying the groundwork for long-term revenue growth and profitability improvements. It's nearly finished with a massive expansion project that will see its Mexican beer capacity become far larger and more efficient in the next few years. And early investments in the young cannabis niche have already paid financial dividends, but the real benefits should come further down the line as this market matures and Constellation Brands finds ways to market new beverages in Canada and other areas around the world.
Meanwhile, as they wait for those investments to boost the business, investors can collect hefty direct returns including stock repurchases and a dividend payout that recently increased by 42%.
The bottom line
Of course, we can't absolutely guarantee that these three stocks will go on to double in value. But between Markel's proven long-term track record, the enormous opportunity awaiting Baozun as e-commerce grows more popular in China, and Constellation Brands' enviable beer portfolio and early investments in the cannabis market, we think there's a great chance they'll do just that. And we think investors would be wise to put their money to work accordingly.
