For the past two months, the broad-based S&P 500 and technology-dependent Nasdaq Composite have endured their steepest corrections in about two years. It's a not-so-subtle reminder that the market doesn't go up in a straight line, no matter how much we will it to as investors.
The good news is that these dips in the market serve as ideal buying opportunities. Remember, it's not just about buying game-changing companies. Allowing your investment thesis to play out over many years is the secret sauce that turns an investment into a life-altering sum of money.
Right now, there's a trio of growth stocks patient investors can buy that have the tools necessary to turn a $250,000 investment into $1 million or more. If you want to be a millionaire, my suggestion is simple: Buy into this trio and wait eight years (i.e., until 2030).
The first innovative company that can turn a $250,000 investment into $1 million (or more) by 2030 is cloud-based lending platform Upstart Holdings (UPST 6.90%).
Interestingly enough, Upstart already performed this feat in a matter of months last year, with its share price climbing from around $100 to $400. Since hitting its peak, shares have retraced as much as 80%. Wall Street appears to be concerned about how an artificial intelligence (AI)-driven lending platform will perform in a rising-rate environment.
The good news is that any knee-jerk reactions lower in Upstart are likely to be short-lived. That's because the company brings clear competitive advantages to the table. For instance, its AI platform is significantly reducing the time needed to approve or deny a personal loan applicant at a bank or financial institution. That's saving Upstart's clients quite a bit of money, as well as opening doors to loan applicants who might not otherwise qualify for a loan under the traditional vetting process.
Long-term investors will also appreciate how Upstart generates the bulk of its revenue. During the fourth quarter, a whopping 94% of revenue derived from fees and services tied to its banking partners. In other words, there's no credit exposure for Upstart. Even though a rapidly rising-rate environment could reduce the record loan activity at financial institutions, there's nothing to suggest it would adversely impact Upstart's already very profitable operating model.
But what'll really have long-term investors salivating is the opportunity for Upstart to push into new verticals. For the moment, the company is almost entirely focused on personal loans. However, buying Prodigy Software last year opened the door for Upstart to deploy its AI-lending platform in the auto loan space. Auto loan originations are a $727 billion market, compared to $96 billion for personal loans. If all goes well, Upstart can push into the $4.6 trillion mortgage loan origination market and $644 billion small business loan arena. That's a $6 trillion origination opportunity -- and the company generated "only" $849 million in sales last year.
According to Wall Street forecasts, Upstart is expected to quadruple its sales over the next five years to close to $3.2 billion. If Upstart can maintain or surpass this estimate, it shouldn't have any trouble making millionaires out of its patient investors by 2030.
Planet 13 Holdings
While pot stocks were all the buzz to begin 2021, they've cooled off considerably over the trailing 12 months. The expectation had been that a Democrat-led Congress, coupled with a Joe Biden presidency, would lead to federal cannabis reforms. But these federal reforms never panned out, and Wall Street, once again, soured on the industry.
What investors should recognize is that federal reforms aren't necessary for many of the larger multi-state operators (MSO) to thrive. With 37 states having legalized cannabis in some capacity, and the Department of Justice maintaining a hands-off approach and letting states regulate their own weed industries, MSOs like Planet 13 have a clear path to the green.
Whereas most MSOs have approached the retail side of the equation like a game of Monopoly (i.e., planting their proverbial flag everywhere they land), Planet 13's differentiator is its focus on the experience. The company has just two operating dispensaries at the moment, but they're massive and unlike anything else in the United States. The Las Vegas, Nev., and Orange County, Calif., SuperStore's span 112,000 square feet and 55,000 square feet, respectively. In Las Vegas, customers can relax in an indoor café, watch cannabis be processed on-site, or simply enjoy the nation's most diverse selection of pot products.
Aside from the size of its locations, Planet 13 is utilizing other tactics to grow its business. For example, the company is using self-pay kiosks in its Las Vegas SuperStore, as well as offering personal budtenders for shoppers. This way repeat customers can save time, while tourists and enthusiasts can get a uniquely tailored experience. Planet 13 is also promoting its own line of proprietary vape and edible products, too.
Considering Planet 13's ties to tourist-heavy locations, it's no surprise that Chicago, Ill., and Miami and Orlando in Florida, are next on the list. Assuming the company can replicate its success in Las Vegas in other markets, it shouldn't have any trouble returning 300% or more for investors over the next eight years.
As is pretty much the case with virtually all growth stocks at the moment, Nio's share have been stuck in reverse. Since hitting an all-time intra-day high of nearly $67 in January 2021, shares have fallen by 68%. The prospect of rising interest rates has fueled multiple compression throughout the stock market. That's been especially true of the auto industry, where price-to-earnings ratios have traditionally hovered in the single digits.
But among the upstart EV makers, Nio stands out to me as having the most promise. In particular, the company has executed admirably in the wake of ongoing supply chain issues and persistent semiconductor chip shortages. In the final two months of 2021, Nio was producing at an annual run-rate of around 130,000 EVs. Management has forecast that it could hit a yearly run-rate of 600,000 EVs by the end of 2022, if supply chain issues ease. This works out to approximately 50,000 deliveries per month.
Another thing to like about Nio is its multiple aspects of innovation. For instance, the company is planning to drive demand by building on its already successful line of EVs. This includes the rollout of the all-new upscale ET7 sedan and the mid-sized ET5 sedan. The company claims that both offer a range of up to 1,000 kilometers (with the Ultralong Range battery pack), which translates out to 621 miles. If accurate, these new EVs would put some serious pressure on Tesla Motors in China.
Beyond new vehicles, Nio also introduced its battery-as-a-service (BaaS) program in August 2020. With BaaS, owners can charge, swap, and upgrade their batteries, as well as receive a discount off the initial purchase price of their vehicle. In exchange, buyers pay a recurring monthly fee to Nio. The company has effectively given up some lower-margin near-term revenue in order to secure the future loyalty of its buyer base.
I'd be remiss if I didn't also mention that Nio is based in China, the leading auto market in the world. With China's EV industry still nascent, there's plenty of market share up for grabs.
If Wall Street's estimates are correct, and Nio pushes to recurring profitability by 2023, a 300% gain by 2030 might prove conservative.