Starting rich isn't a requirement to become rich from investments in the stock market. A simple $5,000 stock purchase in the right company can be all that it takes -- if it's the right company. Twenty years ago, it wasn't obvious to everyone that Amazon would become the company is it before it became, well, Amazon. But those who invested early and stuck with that investment are now rich.
You can use this as an example to find the next potential big winners in today's market. That's because small companies that execute well in large markets can create decades of growth for investors. Add in some strong leadership and products that people or businesses want and you have a solid recipe for a winner.
If you can spare $5,000, investing it into these three stocks could generate life-changing returns over the next 20 years.
Image source: Getty Images.
1. Fiverr International: The gig economy
Thanks to the internet, smartphones, and social media, people are more equipped to work for themselves today than at any point in history. Some see the gig economy as a flash in the pan that will fade with the pandemic, but in reality, it's been growing steadily for years. The gross volume of the gig economy is projected to grow from $348 billion annually to almost $500 billion by 2023.
Freelancing platform Fiverr International (FVRR 4.07%) provides a marketplace where people can buy and sell the freelancing services that fuel the gig economy. Looking at the below chart, it's evident that Fiverr benefited from pandemic lockdowns, but the company grew revenue 42% year over year in 2019, showing that it was growing even before COVID-19 gave it a huge growth boost.
FVRR Revenue (Quarterly YoY Growth) data by YCharts
The company estimates that its addressable market in the United States alone is $115 billion, which could easily grow as the gig economy expands over time. Analysts are calling for $295 million in full-2021 revenue, so there is a long runway for growth in the years ahead. Fiverr's market cap is just $4 billion, so if the gig economy flourishes, the stock could grow multiples over the decades ahead.
2. Upstart Holdings: Reimagining consumer credit
Consumer lending is a multi-trillion-dollar industry, yet retail borrowers have been evaluated the same way for decades; if your FICO credit score isn't good, you're going to have a tough time, regardless of your circumstances. Upstart Holdings (UPST 3.90%) is trying to change that, using artificial intelligence to replace the FICO score.
The company claims its algorithms can reduce loan defaults by 75% while approving borrowers at the same approval rate. Being able to approve more loans while losing less money is a strong incentive for lending institutions, and Upstart's ability to expand its partnerships from 10 lenders to 31 in roughly a year suggests as much. A few banks have entirely moved away from FICO scores, putting their complete trust into Upstart's platform.
Upstart started in personal loans, but its aggressive expansion could make it a substantial long-term winner. The company has announced expansions into automotive loans, mortgages, and small-dollar loans, all over the past few quarters. Combined with the fact that there are more than 10,000 banks and credit unions in the United States alone, Upstart could grow for years, making its $12 billion market cap look like a steal 20 years from now.
3. Blend Labs: Bringing old banks into the new age
Banking is one of the world's oldest industries, and many of today's prominent banks go back hundreds of years, born in a time without technology. The rise of fintech companies and digital banks has begun to threaten older banks; their brick-and-mortar business models struggle against the more asset-light, digital footprint of fintech challengers.
Blend Labs (BLND 4.20%) is helping level the playing field. Its computing platform enables banks to build their digital business model on top of it. Blend's software makes a lot of a bank's operations digital, improving the consumer experience and giving traditional banks a digital offering to compete with Block's Cash App and SoFi.
The company specializes in mortgage lending and does business with an estimated 13.5% of the U.S. mortgage market, with another 10% onboarding. Blend's growth opportunities are numerous; it can continue acquiring new customers, while the cross-selling could be huge as Blend builds out new products for other areas of banking.
CEO and founder Nima Ghamsari's compensation package has a stock-based incentive that triggers if the share price hits $139.70 by 2031, up nearly 20-fold from today's price. So he has plenty of incentive to level up operations. And Blend's current $1.7 billion market cap leaves plenty of room for big things to come.
Remember this
A $5,000 investment can be enough to create life-changing returns in the stock market, but it's important to remember that these high-growth, smaller market cap stocks could be volatile along the way. They aren't as proven, which is why they offer higher potential returns. Getting these great returns means being able to stay invested through that initial volatility.
If these companies continue executing and taking market share in their respective markets, they can be huge winners moving forward.
