Investors should not look for life-changing returns in the stock market to come in a day or a year. Rather, the keys to generating powerful returns are patience and commitment. Patience is needed to wait for a decade or two to see compound growth send your portfolio's value skyward. And a commitment to investing and the companies you own will be critical to helping you cope with the volatility that is a natural part of investing.
If you can master these two traits, you'll have most of what you'll need to create financial security for yourself and your family. But you'll still have to choose some smart investments.
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If you want a market-beating portfolio, it's good to look for companies with sustainable competitive advantages that are either top dogs in their industries, or that look well-positioned to be industry disruptors.
Upstart (UPST 2.19%), Semrush (SEMR +0.04%), and Roku (ROKU 2.11%) are three such businesses. Hold their shares for the next 20 years, and your future self will probably thank you.
1. Upstart
For many Americans, the traditional credit score can be a poor representation of their actual creditworthiness. Those FICO-based scores only look at a handful of variables to size up a potential borrower. Upstart has created a competing tool that uses artificial intelligence to analyze more than 1,000 variables and 10.5 million repayment events to determine how good a credit risk a person might be.
When the company delivered its third-quarter report in November, it said it had 31 bank partners around the U.S., one of which has completely stopped using FICO scores to gauge loan applications and is relying primarily on Upstart's determinations. And since then, five more banks have begun using its tool.
The company reported fourth-quarter earnings on Feb. 15, and it blew past estimates with $35 million in revenue -- which represented 252% year-over-year growth -- along with $59 million in net income. Upstart's stock traded at 11 times 2021 sales going into earnings -- a great price for a company growing its revenue at triple-digit percentages annually. If it continues to add bank partners at the rate it did in 2021, its top-line growth could continue, and in a decade, the Upstart platform could even become an industry standard for determining creditworthiness. With this much opportunity, it might be worth picking up a few shares today.
2. Semrush
Semrush has become a leader in marketing technology by creating a platform where marketing teams can monitor the success and efficiency of ad campaigns. In a world with so many ways for marketers to get ads in front of their target audiences, the problem is finding the ones that will get the most bang for the buck.
Knowing that marketing through different social media channels will result in different levels of engagement is one thing, but determining which route would likely do best is another. Semrush is one of the best platforms for companies to monitor the effectiveness of both their own marketing campaigns and those of their competitors. According to reviewers on tech marketplace G2, Semrush's leadership is unrivaled -- and with more than 50 tools that have been used by 7 million marketers around the world, it looks hard to beat.
For the third quarter, the company reported revenue grew 53% year over year to $49 million, and it expects a similar 42% growth rate in the fourth quarter, where it is guiding for $52 million in revenue. (That report is scheduled for Feb. 28.)
Semrush has also been improving its net retention rate, which currently stands at 124% -- meaning that established customers are on average, spending 24% more with the company than they did a year ago. This shows how valuable Semrush's tools are to its 79,000 customers, and with marketing and advertising becoming more digital, I think that it could continue to grow over the long term.
3. Roku
When investors think of television, Roku rarely comes to mind first. However, it might be the company that can capitalize best on the transition from a cable-dominated industry to one where streaming services have the largest share of the audience, because it is one of the leading hubs for consumers to hold their streaming platforms.
The proof is in the pudding: In Q3 2021, Roku's active accounts were up 23% year over year to 56 million. And it's growing at almost double the pace at which U.S. households are cutting the cord on cable.
In the quarter, its average revenue per user jumped 50% year over year to $40, thanks in large part to increased engagement with the platform. The average Roku household uses the platform for 3.5 hours per day, and advertisers recognize its value as an advertising spot.
With a net income of $219 million and a free cash flow of $225 million in the first nine months of 2021, the company is looking to invest more money in content for its own streaming channel. The Roku Channel is already one of the top-streamed channels, with 200 partnerships bringing licensed content to the service, but the company will continue expanding its content library. Roku is a leading neutral hub for streamers while still offering its own lucrative streaming service. With this unique position, I think that it could see major success. And given that it's trading at valuations that are near their three-year lows, I think Roku stock could be a great investment today.
