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Ignore Dogecoin: These 3 Stocks Will Be Long-Term Winners

By Lou Whiteman, Rich Smith, and John Rosevear - Apr 17, 2021 at 7:00AM

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Three stocks that will deliver over time.

Dogecoin (DOGE -1.04%) has been on an incredible run, up more than 300% in the last 30 days. 

Every investor dreams of gains like that, which can have a profound impact on your portfolio. While perhaps not as quick of a jump, we've seen that sort of outperformance in stocks too. Tesla (TSLA 1.24%), for example, is up more than 1,000% over the past three years.

It's nearly impossible to predict those sorts of moves, but some stocks look more attractive than others in terms of their potential to perform well over time. Here's why three Fools believe NIO (NIO -1.66%), Ford Motor (F 1.71%), and Meritage Homes (MTH 6.47%) look like long-term winners from here.

A jar of coins with a seedling emerging.

Image source: Getty Images.

The next Tesla could be traveling on a very similar path

Lou Whiteman (NIO): NIO has long been referred to as "the Tesla of China," and the company shows great promise in following in the footsteps of the EV pioneer.

NIO is a relatively small automaker right now, delivering just 7,257 vehicles in March. But those numbers are growing: NIO delivered more than 20,000 vehicles for the quarter, up 16% from the last three months of 2020.

What makes NIO intriguing is its upscale position in what is quickly becoming the world's most important auto market. NIO makes stylish, luxury vehicles with a strong reputation for technology, and NIO in China enjoys the same sort of word-of-mouth marketing from satisfied customers that Tesla benefits from in the U.S.

NIO only recently reached 100,000 total vehicles sold since its founding, but if all goes to plan it could sell that many in 2021 alone.

NIO, like Tesla, is valued at a premium to the incumbents. Its market capitalization is nearly $10 billion higher than Ford's, despite Ford selling more than 4 million vehicles annually. But as we've seen with Tesla, the market is more than willing to continue to pay up for rapid growth if a company is making inroads with its target audience.

It's too soon to declare NIO a can't miss success, but you have to like the potential it offers and its initial progress in fulfilling that potential. The "Tesla of China" moniker is looking more prescient by the day.

Want a promising EV maker that isn't crazy-overvalued? Look here. 

John Rosevear (Ford Motor Company): We all know that investors have huge expectations for Tesla and some of the other upstart electric-vehicle makers. Setting aside for a moment the (important!) question of whether those expectations are realistic, I think we can all agree that the huge expectations have resulted in similarly huge and perhaps unrealistic valuations. 

The mature automakers aren't going to offer the same kind of growth potential, of course. But I think a few of them do have the potential for good returns at current valuations, without the worries that their stocks (or their businesses) could get crushed if and when the economy goes sour. 

A red Ford Mustang Mach-E, a sporty electric crossover, on a highway.

The Mustang Mach-E has proven that Ford can build great electric vehicles that compete well with Tesla and other upstarts. Image source: Ford Motor Company.

But which of the old-line auto companies will survive and thrive in the new era of connected, electric, autonomous vehicles? There are several promising choices, but I particularly like Ford right now for a few reasons.

First, it's at a sweet spot in its product-renewal cycle. Its most important profit driver, the F-150 pickup, is all-new for 2021, meaning that pricing and demand are both extra-high right now. Other new or recent products like the Bronco Sport, the Explorer, and the Mustang Mach-E are also selling very well at strong prices. And there are more on the way, including the much-anticipated Bronco off-road SUV, a new small pickup truck, and electric versions of the Transit commercial van and the F-150 itself. 

The takeaway: Those strong new products should drive margin growth over the next couple of years. 

Second, and related, the Mach-E isn't just selling well, it's a good product. Reviews, even by jaded Tesla fans, have been very positive. The takeaway for investors is that Detroit (or at least Ford) can build electric vehicles that impress reviewers and compare well with Teslas. That bodes very well for Ford's longer-term future, and for the prospects of the electric Transit due later this year and especially the electric F-150 coming in mid-2022.

Third, Ford's stock is still relatively cheap at about 11.4 times expected 2021 earnings. While it's a mature company and thus unlikely to generate exponential bottom-line growth, it will show some growth as these new products and technologies come to market. And unlike the high-flying EV stocks, it should prove quite resilient if and when the market (or the economy) hits the skids. 

This company could literally build wealth

Rich Smith (Meritage Homes): Don't get me wrong -- up until now, Tesla has been a fantastic stock for investors. From a share price barely over $5 (split-adjusted) 10 years ago, to Thursday's close above $737 a share, Tesla stock has compounded at 64% annually over the last decade. But here's the thing:  

If you believe Tesla will continue growing at this rate, then you have to also believe that in 10 more years, Tesla stock will be worth $99.5 trillion -- 13% more than the current GDP of Planet Earth.  

Suffice it to say I think that's unlikely to happen. Tesla's stock price growth will slow, and it will probably slow soon.

If you want to find a long-term winner, you need to forget about the past and think about the future. Lately, I've been thinking that the housing sector might be a good place to look for future winners, and my favorite stock in the sector is Meritage Homes Corporation.

Valued at just $3.6 billion, Meritage today is smaller than Tesla was a decade ago. Its tiny price-to-earnings ratio of less than nine is much smaller than Tesla's 1,155 P/E is today. And yet, Meritage is riding a wave of strong housing demand that analysts believe could grow its earnings 11% annually over the next five years, giving the stock a value-priced PEG ratio of 0.8 times.

In a note out last weekend, investing guru John Mauldin observed that housing stocks are benefiting from both a "shrinking inventory" of existing houses for sale (which drives prices up) and also low interest rates (which keeps houses affordable despite prices rising). Now into this seller's market comes Meritage to build new houses, and reap the high prices by creating new inventory for all those ready, willing, and able buyers.

Mauldin's sources see continued strong demand for housing for "another three or four years" at least, before tapering off. So long as interest rates cooperate and remain low in tandem, that should make Meritage Homes stock a winner for years to come.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$681.79 (1.24%) $8.37
Ford Motor Company Stock Quote
Ford Motor Company
F
$11.32 (1.71%) $0.19
Meritage Homes Corporation Stock Quote
Meritage Homes Corporation
MTH
$77.19 (6.47%) $4.69
Nio Inc. Stock Quote
Nio Inc.
NIO
$21.36 (-1.66%) $0.36
Dogecoin Stock Quote
Dogecoin
DOGE
$0.07 (-1.04%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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