You need three things to buy and hold a stock for a decade: conviction, trust, and patience. You must be strongly convinced that the underlying company has solid growth catalysts for several years to come, trust that management will capitalize on those opportunities and unlock greater shareholder value, and be patient enough to hold onto the stock through volatility to reap rich returns years down the line.
If you think you can do it, here are three top growth stocks riding on three separate megatrends that could make you crazy rich only if you buy and hold them for a decade -- preferably even beyond.
Ride this energy shift
Renewable energy is changing the dynamics of the global energy sector. Among all the energy sources in the U.S., renewable energy grew the fastest, at a nearly 100% clip between 2000 and 2018, according to the Center for Climate and Energy Solutions. Further, renewables are projected to make up 45% of global electricity generation by 2040, up from only about 26% in 2018.
You probably already know how the world's biggest companies are already making the shift. Amazon, for example, strives to power its operations with 100% renewable energy as early as 2025.
Given the backdrop, renewable energy stocks are compelling buys for at least the coming decade. Consider Brookfield Renewable Partners (BEPC 0.99%) (BEP 0.36%), one of the world's largest owners and operators of renewable energy assets, worth $50 billion.
Image source: Getty Images.
Brookfield typically buys value assets, develops and turns them around, where necessary, to make them profitable, and eventually monetizes mature assets to reinvest the proceeds opportunistically. Through recent acquisitions, the company has expanded significantly into solar and wind, although hydropower generates 66% of its cash flows. Brookfield has an incredible track record of cash flow generation, as evidenced in its dividend growth: The stock's dividends have grown at a compound annual rate of 6% in the past 20 years.
In the coming decade, Brookfield shares could easily generate annualized double-digit returns for three major reasons:
- Brookfield has 18,000 megawatts (MW) of renewable capacity under development.
- Management is targeting 6%-11% growth in funds from operations.
- It aims to grow its annual dividend by 5%-9%.
Brookfield's development pipeline is not only among the largest in the world, but also nearly as large as its current capacity of 19,300 MW. If that should take care of growth, the fact that 95% of its cash flows are contracted should ensure cash flow resiliency, even through tough times. Whichever way you slice it, Brookfield Renewable looks like an easy multibagger stock in the making.
A megatrend poised to mint you money
The war on cash is raging, and it's only a matter of time before nations across the globe become cashless societies, as people ditch paper money for cards and other forms of digital payments. E-commerce, in particular, is a massive tailwind that should bolster the transition, opening up a world of opportunities for Mastercard (MA -0.21%).
Mastercard doesn't issue cards but facilitates transactions made through them on its payments-processing network. It's an incredibly asset-light, high-margin business model, as Mastercard earns a fee on every transaction made using its cards anytime, anywhere in the world. The advantage of network effects here is unmistakable -- the more cards issued by banks and financial institutions, the more value it adds to Mastercard.
MA Revenue (TTM) data by YCharts.
Mastercard has 2.6 billion co-branded cards in global circulation and reported $7.3 billion in sales and an operating margin of 51% in the first half of 2020. Although the coronavirus outbreak hit its earnings, Mastercard's long-term story is getting even stronger as digital payments pick up, especially during the COVID-19 pandemic.
Meanwhile, management is savings costs, where possible, while pumping money into high-growth areas like business-to-business solutions and data and analytics. Mastercard's revenue from value-added services like data analytics, consulting fees, cyber and intelligence fees, and loyalty reward fees jumped 23% in 2019.
The global fintech industry is projected to grow exponentially in the coming years. With its solid global presence, partnerships with some of the world's biggest companies, suite of lucrative value-add services, and thirst to grow via acquisitions, Mastercard could earn multibagger returns for investors in the coming decade and beyond.
This e-commerce growth player won't fail you
E-commerce was already booming when the COVID-19 pandemic and ensuing lockdown and homebound lives added fuel to the fire. It was a huge blow for brick-and-mortar stores, as many were forced to shut shop. That's when Shopify (SHOP -0.13%) stepped in, helping merchants of all sizes set up online stores quickly with easy access to everything from inventory management to payments processing.
The results were visible in Shopify's numbers: In its second quarter, new stores created on its platform jumped 71% sequentially and its gross merchandise volume (GMV) soared 112% and revenue 97%, both year over year. GMV, which reflects the total dollar value of orders processed on Shopify's platform in a given period, hit $30.1 billion in the quarter, registering record growth since the company went public in 2015.
Meanwhile, Shopify continues to innovate. In Q2 alone, it launched channels enabling merchants to customize their storefronts within Facebook and Instagram and sell their products online on Walmart. It also expanded its contactless payments in Canada and saw 65% year-over-year growth in merchant cash advances and loans through Shopify Capital. The company also automated some areas of Shopify Fulfillment Network, its new logistics arm that's gotten off to a successful start.
With more than 1 million merchants across 175 countries already on board, Shopify has grown by leaps and bounds in recent years and will likely continue to do so as adoption of e-commerce further gathers steam. For patient investors in the stock, that could mean some solid returns in the coming years.
