There's little question that the best path to generating wealth over the long term is investing in quality companies and holding them for years, or even decades.
Even generating average returns can be enough to put you on easy street, but filling your portfolio with stocks that have certain advantages can help supercharge the results. Finding companies that offer a combination of solid execution, strong secular tailwinds, and large target markets can be the difference between good and great results.
If you have as little as $3,000 (or less) in disposable cash that you don't need for immediate expenses or to add to your emergency fund, buying shares in these companies could provide huge growth over the coming 10 years.
1. Shopify: Riding a massive e-commerce tailwind
The pandemic has resulted in numerous changes to the retail landscape, and one of the most obvious has been the accelerating adoption of online purchasing. With a large swath of consumers switching to digital shopping, many small merchants that hadn't yet embraced e-commerce were scrambling to get their online stores up and running. Shopify (SHOP -0.47%) was there to answer the call.
The company provides everything merchants need to set up and maintain an e-commerce operation. This starts with a wide range of easy-to-use templates to design a website, but Shopify also integrates payment processing, shipping and returns, and digital advertising. The company goes even further, incorporating social media and both online and physical retail locations into one simplified platform. It also offers working capital loans to established merchants, as well as cross-docking, courtesy of its growing warehouse and logistics operation.
Shopify was the go-to for many sellers making the jump to online sales, which was evident by the explosive growth the company has exhibited so far this year. For the third quarter, revenue grew 96% year over year, driven by gross merchandise volume that climbed 109%. At the same time, adjusted non-GAAP (adjusted) net income soared 319% year over year.
Even given its impressive success to date, Shopify has barely scratched the surface of its massive addressable market. The company generated revenue of $1.58 billion last year, but it estimates its market opportunity at $78 billion, which illustrates just how far Shopify has yet to grow.
2. Microsoft: The cloud, gaming, and more
Microsoft (MSFT 0.58%) has been around for decades, but under the leadership of CEO Satya Nadella, the company has gone from a slow-growth has-been to the second-most-valuable publicly traded company on U.S. markets. Yet this could be just the beginning.
The company's pivot to the cloud has been nothing short of stunning, and in less than a decade it has become one of the biggest operators in cloud computing. In an even more prescient move, Microsoft bet big on integrating its subscription-based software offerings to its Azure Cloud, a move that continues to pay dividends. The company provides a host of services via the cloud, including Microsoft 365, the Teams video-conferencing software, Windows Virtual Desktop, and Dynamics accounting software, to name just a few.
While it still trails Amazon Web Services (AWS), Microsoft continues to close the gap with a speedier growth rate. During the third calendar quarter of 2020, revenue from Azure grew 48% year over year, while AWS reported 29% growth during the same period.
One thing that's become obvious over the course of the pandemic is the strength that lies in the diversity of Microsoft's product and services offerings. Slowing growth earlier this year from the productivity and business processes segment was offset by increased strength in the more personal computing segment, led by Xbox content and services revenue, which increased by 65% year over year.
With its tentacles in so many businesses, it's hard to pin down Microsoft's market opportunity, but it's estimated that the digital transformation market could be worth $1.3 trillion in 2020, growing to $2.3 trillion by 2023. Microsoft only needs a sliver of that market to be worth much more over the coming decade.
3. PayPal: Digital payments growth is booming
The adoption of digital payments was ongoing before the onset of the pandemic, but growth in the space has since shifted into overdrive, the result of the growing adoption of e-commerce, peer-to-peer transfers, touchless payments, and more. PayPal (PYPL 0.31%) is arguably among the best-positioned to benefit from those trends.
Even in the wake of a record-setting performance in Q2 -- which PayPal CEO Dan Schulman called "our strongest quarter ever" -- the company notched new all-time highs across several metrics in the third quarter as well.
PayPal delivered record revenue that grew 25% year over year, on the back of total payment volume (TPV) that increased 38%, also setting a new benchmark. At the same time, net income more than doubled, up 121%.
The fintech specialist isn't stopping there. PayPal has expanded into both Latin America and Asia, via its partnerships with MercadoLibre and Gojek, and recently announced it will allow users to buy and sell cryptocurrency and use it as a payment option across its growing network of merchants.
Even in the wake of such stellar growth, the market opportunity remains vast. Schulman points to the explosion of digital payments and e-commerce in estimating that the digital payments industry could grow to a $100 trillion market in the coming years. PayPal generated revenue of roughly $18 billion last year, illustrating the enormity of the market opportunity that remains.
No, it isn't too late...
Each of these stocks has outperformed the market this year, and each did so by a wide margin. Looking back even further, each has crushed the broader market over the trailing one-, three-, and five-year periods. This may cause some to wonder if the train has already left the station.
Given the strong secular tailwinds generated by e-commerce, cloud computing, and digital payments -- and the massive addressable markets they serve -- I would argue that the best is yet to come for these best-in-breed companies.