Most investors would agree that there's no better path to long-term wealth generation than investing in quality stocks and holding for years, if not decades. However, finding and investing in a rare breed of stock that has the potential to increase tenfold in value, known as a "10-bagger," can certainly accelerate the process. These stocks are elusive, but not impossible to find, if you know where to look.
On this clip from Motley Fool Live recorded on Feb. 12,"The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Jamal Carnette offered up three companies that could have what it takes to join this elite group of investments.
Jason Hall: What's a top stock that you think could be a 10-bagger from here? Jamal, I'm going to put you on the spot and let you go first here.
Jamal Carnette: You're going to kick it to me. One of the things that I've always done is trying to see what's "the next." I think what we've established particularly as the e-commerce arena, there has been a whole host of next Amazon (AMZN 3.66%), sort of on a geographical basis. You have your MercadoLibre in Latin America. You have Sea Limited in Southeast Asia, and one that I think you own is Jumia Technologies (JMIA 8.81%).
I know it's expensive. Any e-commerce in the developing world is going to be expensive. It trades at around 30, 31, sometimes up to 35 times price-to-sales ratio. It's roughly about a $5.5 billion market cap.
Jason Hall: That's the key. It's a $5 billion market cap. The countries that it operates in have like 800 million people population. It's the youngest economy. If you consider one economy, which is not fair, if you want economy, it's the youngest economy and it's growing like crazy, right?
Jamal Carnette: That's right. I think one of the bigger short-term catalysts or near-term catalysts, and what's always prevented it from being on that next echelon of growth or being considered, that is underdeveloped infrastructure. Both roads, factories, etc, but more often the digital infrastructure.
I think what we're starting to see a lot of investment, a lot of movement on that. I think [Alphabet's] Google is working to develop undersea cables to the continent. Facebook has a very ambitious goal to essentially circle the continent of Africa and to bring speed that are equivalent to, I think 180 terabytes per second, which is a lot stronger than what the average throughput is right now.
It's a smaller company in a high-growth area, and there's the catalyst of increased digital infrastructure. If you are asking, for me, what's the next 10-bagger? From an e-commerce play, I think that's probably going to be what I'm choosing right now.
Jason Hall: It's definitely higher up the risk-reward, right?
Jamal Carnette: Sure.
Jason Hall: Because they've got to figure out that last mile, which I think we found in the markets they operate, it's hard to do that in lots of different parts of Africa. But they've got the, like you said, the digital payment and all that other things that seem to be...
Jamal Carnette: Yeah. Actually, I'm glad that you brought that up. That is something as well. I think that's something that tends to get overlooked.
Jason Hall: It's called Jumia Pay, is what they call it, yeah.
Jamal Carnette: If you look at M-Pesa, in Kenya, and other places, adoption of that mobile and digital currency where it was even above and faster than what you saw in America. Some of that was because it was not only easier, it was required. I think what you're going to see is a skipping over of a generation of technology and a lot of people coming into that. That's going to be very similar to what you see with Mercado Pago, if I'm pronouncing it right.
Jason Hall: If you don't know how to pronounce it, Danny Vena can correct this.
Jamal Carnette: That's right.
Jason Hall: Lovely. Okay, Danny. What do you got for us, buddy?
Danny Vena: I'm going to buck the trend here because it's a lot easier to look at the market cap of the company and go for the smallest market cap company that you can get, which is what I did the other day when I called out Fiverr.
Jason Hall: Okay, I was going to say you're calling Jamal out. Is that what you're doing?
Danny Vena: Oh, no.
Jason Hall: You're calling yourself out on this one?
Danny Vena: That's right, now, I'm going to go with something that has a much larger market cap that I still think can be at 10-bagger from here. Jason will not be shocked when I say it is Roku (ROKU 8.96%). Roku right now has a market cap of about $59 billion.
Jason Hall: Just under $60 billion.
Danny Vena: Billion.
Jason Hall: Yes.
Danny Vena: But yet if you look at what the company's doing and looking at the growth that it's generating right now, this is a company that just recently passed Amazon's Fire TV for the number of active users. The company said in its most recent quarterly report, it had 46 million monthly active users, and then when it pre-announced preliminary results, it said that number had jumped to 51 million. That's 5 million new, monthly, active users just in the most recent quarter.
The number of streaming hours is up. The number of average revenue per user (ARPU) is up. What's most important though is that the aspect of the company's revenue-generation that comes from digital advertising. Its platform revenue, which includes digital advertising, The Roku Channel, and the company's operating system (OS) that it licenses out to television manufacturers, that revenue is up 78% year-over-year.
I think the biggest drivers going forward is the fact that it's only just begun to expand into international markets. There is a little bit of a presence in the UK, a little bit of a presence in Latin America. But the fact that it makes all these deals with television manufacturers, puts the operating system in there, and then Roku's available as long as you have one of these TVs, you don't have to go out and buy a dongle, and the average digital advertising revenue is growing like a weed for this company.
So I think that the international opportunity is tremendous. I think that within the next decade, Roku will be a $600 billion company. I think it will be at 10-bagger from here.
Jason Hall: Bold statement, but the company's growth and the change to the way that people consume entertainment is [laughs] I don't think it's as wild of a bet as it might seem on the outset.
Actually, I got inspired. We had Deidre Woollard on yesterday. She inspired me to think a little more broadly about this question because we've asked it.
This is the third time, and the first two times, I went with Kinsale Capital, the specialty insurer. That's a small-cap company that's very well-run, and I love. But I decided I wanted to talk about something different. That's a company, it's in real estate. It's in an area of real estate that just had a really tough year, but it's in an area of real estate that has enormous tailwinds for growth, and that's senior's housing and senior's care.
The company I'm talking about is CareTrust REIT (CTRE 0.55%), ticker CTRE. I'm going to underpin this a little bit. I'm going to share a table here and start with a couple of things.
If you go back to when the company went public, it was spun out of the Ensign Group. Late 2014, it was a one-time dividend that was part of the spin-out, but adjusting from right after that one-time dividend was paid till you get to the point where their recurring, quarterly, regular dividend was implemented, they've doubled the dividend and increased it every single year since becoming a public company.
So I think that's an important starting point to think about being a 10-bagger is that this isn't a company that the stock is necessarily going to 10-bag in a 10-year period. But I think when you start thinking about total returns, I think CareTrust is in a very, very good position to do that because over the next decade, because the baby boomer generation is going to, essentially, completely retire. By 2030, every baby boomer will have retired.
This is the 4.3% dividend yield you get today, but when the last baby boomer retires at the end of 2029, there are going to be 80 million Americans who are 65 or older. There's going to be 40 million Americans who are 80 or older. This is a generation that's going to outlive any prior-generation.
We're going to need to make sure we have proper healthcare, housing. So you think about rehab facilities. You think about skilled nursing facilities. You think about active seniors' communities. There's going to need to be a tremendous increase in the number of those facilities over what there are today. Because even once we get to that peak, you're going to start seeing the Gen Xers, my generation, we're going to start retiring as well. So you are still going to see some continued, steady populations in that older group for a very, very long period of time.
Now, what, to me, underpins CareTrust's ability to get to that 10-bagger status? I'm going to go backwards on what I said here about it necessarily getting to 10-bagger from a market capitalization from a stock-level price because it could in the next 10-15 years, because you already have Welltower, that's a $28 billion company. You have Ventas, which is a $19 billion company. Those are two of the largest companies in that space.
But again, this is a company that's going to issue some stock at times to raise capital, so you could see some dilution. But again, when you start underpinning it with the growth of the cash flows and the dividend that it can pay out, if you look 10 years from now, 15 years from now, I think CareTrust REIT is going to be one of the biggest seniors housing REITs in the world. I think there is a huge trend that's driving it. These guys have the leadership in place with a very good track record of delivering strong returns, really smart acquisitions to build a really, really much larger, profitable business. You don't have to buy tech stocks to get potential 10-baggers. Mark down CareTrust REIT, guys. I think it's worth a look.