Time and again, Wall Street has demonstrated that it handsomely rewards patient investors. Despite the benchmark S&P 500 losing 34% of its value in a mere 33 calendar days during the first quarter of 2020, the index took less than 17 months to double in value following its bear-market bottom. In other words, buying great companies and allowing your investment thesis to play out over time continues to be a successful wealth-building strategy.
Even with the market a stone's throw from an all-time high, the following five top stocks can all be purchased right now and offer the potential to turn $200,000 into $1 million (or more) by 2035.
The first top stock that could make patient investors a lot richer by 2035 is Singapore-based Sea Limited (NYSE:SE). Despite having a $162 billion market cap (as of Aug. 17), it could well be on its way to a $1 trillion valuation.
Sea's secret to success (say that three times fast) is the company's three rapidly growing operating segments. The gaming division is currently its most successful, in terms of generating positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Sea ended June with roughly 725 million active gamers, 92.2 million of whom were paying to play. Having 12.7% of its active gamers paying is a substantially higher conversion rate than the industry average.
But as I've previously noted, it's the company's e-commerce platform Shopee that is the real long-term growth driver. Shopee has consistently been the most-downloaded shopping app in Southeast Asia, and it's gaining ground in Brazil. With a focus on emerging markets, Shopee handled 1.4 billion gross orders in the second quarter and saw $15 billion in gross merchandise value (GMV) traverse its platform. That's nearly 50% more GMV than it generated in all of 2018.
Lastly, Sea's relatively new mobile wallet services handled more than $4.1 billion in payments in the second quarter, representing an almost 150% year-over-year increase. Since Sea's are targeting emerging markets that are, in many instances, underbanked, mobile wallets can be a powerful solution for the middle class.
Keep in mind that top stocks don't have to sport megacap valuations. Cloud-based advertising technology company PubMatic (NASDAQ:PUBM) is the perfect example of a fast-growing small-cap company taking advantage of increasingly digitized content.
PubMatic is a sell-side platform in the programmatic ad industry, which means it works with publishers to help them sell their display space to advertisers. The beauty of this cloud-based ad-tech infrastructure is that it completely handles the buying, selling, and optimization of ads, while also allowing its clients to set parameters, such as the lowest price they'd accept for selling their display space. This ensures that publishers stay happy, while maximizing the experience for users.
If PubMatic's latest quarterly report is any indication of how things are going, it has a bright future. Based on its net-dollar-based retention rate of 150%, existing publishers spent 50% more on the platform than they did in the second quarter of last year. While some of this increase likely had to do with the uncertainties tied to the pandemic in 2020, PubMatic has been consistently growing its top line by 30% annually.
There aren't too many profitable small-cap stocks with sustainable double-digit growth potential, but PubMatic fits the bill.
You might be scratching your head at the idea of Warren Buffett's company turning its $655 billion market cap into $3.3 trillion by 2035, but it's a lot saner than you probably realize. You see, Berkshire Hathaway has averaged...averaged...an annual return of 20% between 1965 and 2020. For Berkshire to reach a $3.3 trillion valuation, it would simply need to average a return of a little over 12% a year. That's quite doable given Berkshire's cyclical portfolio and its mammoth dividend income.
While there are a number of reasons Warren Buffett is a great investor, his love for cyclical companies stands out. Buffett is well aware that, while recessions are inevitable, periods of economic expansion last significantly longer than recessions. He's playing a simple numbers game that favors the patient.
The Oracle of Omaha's company is also set to receive more than $5 billion in dividend income this year, which works out to a nearly 5% yield on cost. Since dividend stocks are typically profitable and time-tested, they're ideal for an investor like Buffett, who takes a long-term view.
Planet 13 Holdings
Just in case I wasn't clear with PubMatic, small-cap stocks can be top stocks, too. Within the U.S. cannabis space, Planet 13 Holdings (OTC:PLNH.F) has a good shot at delivering a 400% return or greater for growth investors.
While you might be of the opinion that marijuana stocks are a dime a dozen, Planet 13 is a completely different beast. It only has two operating dispensaries, but they're nothing like any other marijuana retail store in the United States. The company's Las Vegas SuperStore spans 112,000 square feet and features a restaurant, events center, and consumer-facing processing center, to name a few features. Meanwhile, the Orange County SuperStore in Santa Ana, Calif., will span 55,000 square feet, when completely built out, and offers 16,500 square feet of selling space. These dispensaries are go-to experiences for cannabis enthusiasts, which is going to allow Planet 13 to stand out in a crowded industry.
Additionally, whereas the pandemic was devastating for a number of businesses, it was ultimately a positive for Planet 13. It forced the company to market to residents in and around Las Vegas, which broadened its horizons beyond just tourists. With a strong local following, Planet 13 appears ready to make the turn to recurring profitability.
Assuming its Las Vegas blueprint works in other major cities, Planet 13 could easily help patient investors become millionaires.
For more than a decade, Square's foundational operating segment has been its seller ecosystem. This is the division that provides point-of-sale devices, loans, and analytics to merchants to help them grow their business. For some context, Square's gross payment volume (GPV) has grown from $6.5 billion in 2012 to what might be north of $140 billion in 2021. And take note, the seller ecosystem isn't just for small businesses any longer. In Square's second-quarter results, 65% of total GPV came from merchants with at least $125,000 in annualized GPV.
However, Square's bigger long-term growth driver is the Cash App. In just three years (end of 2017 to the end of 2020), its monthly active users skyrocketed from 7 million to 36 million, with Cash App becoming the most-downloaded payments app in the United States. It's also bringing in $55 in gross profit per user, while spending only around $5 to attract each new user. Those are margins that'll make patient investors rich.
The icing on the cake for Square is that it's acquiring Australian buy now, pay later platform Afterpay (OTC:AFTP.Y) for $29 billion in an all-stock deal. While pricey, this deal will tie its seller ecosystem and Cash App together, creating a closed ecosystem that could really allow Square to thrive.