For all the back and forth in the media about Tesla (TSLA 1.85%), no one can deny the stock's incredible performance since its IPO. Not a lot of companies have been able to produce the 1,140% return since 2010 that Tesla's stock has, and it's incredibly challenging to pick a stock with the potential to reproduce those kinds of returns.
But hey, we have to try, right?
So we asked three of our investing contributors to highlight a stock they think could outpace Tesla's stock. Here's why they picked Ford Motor Company (F 0.47%), Cintas (CTAS 0.20%), and iQiyi (IQ 6.26%).
Image source: Getty Images.
Forget Tesla and invest in a real car company instead
Rich Smith (Ford): Surging 16 times in price since its June 2010 IPO, Tesla has produced better returns than a lot of other stocks. Still, Tesla's recent past hasn't looked as encouraging as its distant past. So far this year, the stock has worse than flatlined. Its share price is now below where it was when Tesla entered the year -- even though Elon Musk delivered on his promise to get Tesla producing Model 3s at a rate of 5,000 a week.
If that news wasn't enough to get Tesla stock going, I have to wonder if the Tesla bull run might be played out -- and if other stocks start to might put Tesla's returns to shame. If you're getting ready to switch horses, therefore, you might want to look at Ford.
Yes, Ford -- the anti-Tesla. With a share price down 17% since the year began, Ford has fared even worse than Tesla this year. Perversely, though, that may set up Ford stock to outperform even more strongly in the months and years ahead.
Profitable and free cash flow-positive, Ford doesn't need headlines to get its stock going, because it's got real numbers to prove its worth. With a dividend yield of 6.9%, Ford's two-thirds of the way to delivering at least average, long-term stock market returns of 10% even with zero earnings growth. If Ford delivers on Wall Street's expected 15% earnings growth, on the other hand, the stock could outperform Tesla for years to come.
Getting a lot out of a boring business
Tyler Crowe (Cintas): For a company that's been in business since 1929 and has been public for 35 years, it's incredibly surprising to see that uniform rental company Cintas has come rather close to matching Tesla's returns since it went public. Since Tesla's IPO, this stock is up 868% on a total return basis. Even more surprising is that it's been able to do so in what is normally considered a boring, slow-growth business.
The boring simplicity of Cintas' business is part of the reason it's been such a great wealth-compounding stock over its lifetime. Uniform rentals and its other core services -- industrial cleaning, restroom supplies, safety and compliance equipment -- make for a recurring revenue business that doesn't require a whole lot of sustaining capital. That means the company churns out loads of free cash flow management returns to its shareholders through dividends and share repurchases that have reduced share count by 27% over the past decade.
Cintas' recent acquisition of competitor G&K Services will expand the company's market share to around 20% of the nation's uniform rental services, and management thinks it can squeeze out lots of operating efficiencies as it integrates G&K into its existing infrastructure. We already saw some of the effects from this acquisition, as earnings per share increased 118% compared with the same time last year.
Cintas has been doing the same thing for close to 100 years, but it does that job incredibly well and rewards its investors consistently by returning excess cash to shareholders. That formula certainly has the potential to beat Tesla over the long haul.
China's streaming video leader
Keith Noonan (iQiyi): Sometimes referred to as "the Netflix of China," iQiyi has already posted big gains since its initial public offering in March. The stock is up roughly 80% from its $18 IPO price, and while the rapid run-up might give some investors cause for concern, I think shares have lots of room to run over the long term.
iQiyi has managed to rapidly grow its paid-user count, with more than 61 million people paying for premium services as of May -- compared with just 5 million paying users in May three years prior. Paid-user growth is probably the most prized engagement metric for shareholders at the moment, but the company has more than 400 million users when its ad-supported viewers are taken into account. eMarketer estimates that ad spending on online video-content in China will have climbed from roughly $10.6 billion in 2018 to $17.7 billion in 2021. That gives the company two promising avenues for continuing to deliver robust sales growth -- especially as it bolsters the content offerings on its platforms.
In addition to securing third-party film and television content, iQiyi has been finding success with its original-content initiatives -- scoring hits with shows such as Hot Blood Dance Crew and Idol Producer. iQiyi's platform also offers graphic novels and video games, and it's aiming to build up a merchandise and licensing business. So there looks to be a multifaceted business evolving here -- and one that's primed to create valuable synergy and capitalize on some powerful tailwinds.
It's worth pointing out that the company faces credible competition from Tencent Holdings' video platform. However, iQiyi is currently the market leader, and there will be room for more than one winner in the space. Right now, iQiyi operates at a substantial loss because it's spending big on content and marketing initiatives. However, with the Chinese middle class seeing rapid gains in size and purchasing power, there's a promising path for the company to become consistently profitable and deliver big returns for shareholders.
