Finding red-hot stocks in this market is difficult. They are present in the energy sector, which includes oil companies, but this industry faces long-term headwinds, and investors might be wary of how they will perform over the next decade.
Zooming out over the last year broadens the scope of companies that have successfully beaten the market. Stocks from nearly every sector make up this list, but three I believe can continue to beat the market over the long term are Nvidia (NVDA -3.33%), Prologis (PLD -1.57%), and Old Dominion Freight Line (ODFL -11.04%).
These three companies are involved in entirely different sectors of the economy, giving investors great diversification should they choose to purchase this trio. With a technology, real estate, and transportation and logistics stock, all three will react differently depending on how the direction of the economy goes.
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1. Nvidia
The primary products for the most growth-oriented stock on this list, Nvidia, are graphic processing units (GPUs). These devices enable computers to produce lifelike graphics. GPUs are also efficient in calculations, making them great for running data centers and powering artificial intelligence. The uses for them have significantly expanded over the last decade, and the future looks just as bright.
Over the last year, Nvidia's stock is up more than 60% even with the 35% drop it has experienced since setting an all-time high in November. At its peak, the stock was valued at almost a 100 price-to-earnings (P/E) ratio. This extreme valuation was short-lived, and the stock now trades at a more reasonable P/E of less than 60. For a P/E ratio to drop, the stock price must fall or earnings must rise; Nvidia's stock and business have accomplished both.
Nvidia has been rapidly growing its profits. Its 2022 fiscal year, which ended Jan. 30, saw earnings per share (EPS) grow 123% over 2021's numbers. Revenue was up 61% for the year, so most of the earnings rise came from increased efficiency within the business. These are great results for any company; factor in Nvidia's $550 billion market cap, and they are unbelievable.
For the 2023 first quarter, management is guiding for 43% revenue growth. With the ARM Holding acquisition no longer going through, Nvidia will have to take a $1.36 billion write-off, which will hit profits but hardly affect its $21.2 billion cash hoard. Still, this company is growing rapidly and will be a force to be reckoned with for years to come.
2. Prologis
Prologis is a real estate company that owns and leases 4,735 warehouses across the world. This enables companies to easily expand their businesses by opening up distribution centers or storage facilities where there is a need. Warehouses are massive, take time to construct, and are not cheap. By leasing these buildings instead of owning them, businesses can keep their operations asset-light, which opens up an opportunity for Prologis.
Warehouse space is in high demand, and 97.4% of its space is occupied and 98.2% was leased as of Dec. 31, 2021. This led to an increase of 9.2% in annual funds from operations (FFO, a metric used by real estate companies to convey operational cash flow) from 2021 to 2020. While this rate of growth isn't lighting the market on fire, a 1.7% dividend yield increases the stock's attractiveness to investors.
Prologis shares are up more than 50% over the last year, thumping the market. While the stock is not as great a value as it used to be, the company has an in-demand product with a growing use case now that consumers want speedy delivery with e-commerce. Prologis has a great business, and its growth will continue for many years, allowing it to continue beating the market in good times and bad.
3. Old Dominion Freight Line
Old Dominion Freight Line specializes in less-than-truckload (LTL) shipping solutions. It's the best in class and has been named the No. 1 LTL carrier for 12 consecutive years by transportation researcher Mastio, which conducts an annual third-party LTL performance study. Small companies use LTL shipping to deliver merchandise all over the country, since they don't generate enough sales to warrant using an entire truck. Old Dominion keeps the economy moving through its transportation solutions, although most people don't recognize the importance of the company.
In 2021, annual revenue was $5.3 billion, up 30.9% from 2020. EPS grew even faster at 56.5%, giving it a reasonable 34 P/E ratio. These solid numbers are an increase from the 11.5% annual revenue growth the company has seen since 2002.
Old Dominion is also investing in itself. Multiple competitors like UPS and FedEx have increased their service centers by only 2% over the past decade, while Old Dominion increased its centers by 13%.
Image source: Getty Images.
With fuel prices surging, Old Dominion has some headwinds. But the company has been through multiple periods of economic uncertainty and has always come out stronger. The stock is up 35% over the past year, and if the company can navigate inflationary pressures, its shares have a strong chance to continue rising during the rest of 2022.
Red-hot growth stocks aren't always the brightest and flashiest companies; if they can do average things well, then they can stay hot for decades. All three of these businesses have executed for over a decade and have the opportunity to succeed for just as long in the future. Their stocks have beaten the market for years; look for them to continue doing it over the next three to five years.
