A fourfold return on your money might seem like a lot, but it comes out to a 15% compound annual return over 10 years. Considering the stock market's average annual return was about 10% over the last 50 years, you don't have to take big risks to quadruple your money.
It's important, however, to choose the right stocks. Three Motley Fool contributors have sifted through the market's rubble to offer three top stocks that could help you achieve better returns. Here's why they picked Airbnb (ABNB 5.26%), Pinterest (PINS -0.59%), and Restaurant Brands International (QSR 1.43%).
The potential to be an explosive multibagger
Jennifer Saibil (Airbnb): Airbnb has posted phenomenal growth since it went public in 2020 at the height of the pandemic, and yet its stock is down 8% over the past year. That trails the S&P 500's 10% gain over the same period.
Growth stocks in general have been clobbered as the market deals with volatility related to macroeconomic and geopolitical concerns. How does that impact Airbnb specifically? For one thing, investors may be concerned about travel through parts of Europe. Also, when there are inflation and monetary worries, people may be less likely to spend their money on travel. That's all on top of the fact that although there have been strong signs of rebound, travel in general is still suppressed because of the pandemic.
That means in the short term, investors may not be loading money into Airbnb stock. But Airbnb has the potential to be an explosive multibagger. There are several catalysts that promote this conviction. First of all, travel is changing as it's coming back. People itching to move around have been finding innovative ways to do so, such as vacationing close to home and in suburban locations. And with the rise of remote work, people are booking longer stays and even living in vacation rentals. In its fourth-quarter letter to shareholders, Airbnb said, "We are undergoing the biggest change to travel since the advent of commercial flying." That statement packs a lot of meaning, and if you believe it, Airbnb may be the biggest recipient of the benefits. It operates a flexible model that can meet trends as they shift, whether it's these now or other ones in the future. Sales are soaring, with a 78% year-over-year increase in the fourth quarter, and the company is achieving this while becoming profitable.
With robust tailwinds and a viable business model, investors should expect high gains from Airbnb stock over the next 10 years.
Pinterest has a long runway for growth
Parkev Tatevosian (Pinterest): Investors looking to quadruple their money have good prospects with Pinterest. The image-based social media company is selling at a price that is substantially off its highs. The market has fallen out of love with Pinterest because of the headwinds it's facing from economic reopening. Pinterest has shed monthly active users for three consecutive quarters, totaling 55 million in losses. Still, the company has 96 million more users than it did before the start of the pandemic. Monthly active users are critical for Pinterest because it generates revenue from advertisers. Marketers are willing to spend more if they can gain access to more people.
Indeed, businesses are spending more money with Pinterest. From Q4 2019 to Q4 2021, Pinterest's average revenue per user increased from $1.22 to $1.93. So Pinterest gained nearly 100 million new users since the onset of the pandemic, but it also boosted the amount of revenue it's getting from each.
The global advertising industry is massive, and Pinterest is still just a tiny fraction of the total. In 2021, Pinterest earned revenue of $2.6 billion. Even though that was impressively higher than the $473 million it earned in 2017, it was less than 1% of the $763 billion in global ad spending in 2021. Its relatively small piece of the pie means there is a long runway for Pinterest to grow, which is critical for investors looking to quadruple their money.
Another fact that will help investors' cause is the inexpensive valuation of Pinterest stock. As of this writing, it is trading at a price-to-earnings ratio and price-to-free cash flow ratio of 51 and 21, respectively. Those are near the lowest prices investors have been able to buy Pinterest in the last three years.
A relatively safe growth stock
John Ballard (Restaurant Brands International): Think of Restaurant Brands as a value investor operating in the restaurant industry. 3G Capital owns 30% of the outstanding shares. This ownership puts some of the top restaurant brands, including Burger King and Tim Hortons, in the hands of a very capable management team that has skin in the game and is looking to grow the business for shareholders.
The company has started to return to pre-pandemic levels of growth. In 2021, systemwide sales grew nearly 14%, with profitability also improving. Adjusted earnings per share reached $2.69, up from $1.60 in 2020.
Future growth prospects look solid after Restaurant Brands acquired Popeyes in 2017 and Firehouse Subs in the fourth quarter of 2021. Both of these restaurants have a much smaller footprint compared to Burger King, which stretches out the company's runway for growth. Another plus is the improvement in digital sales, which grew 65% last year to reach nearly 30% of systemwide sales. These restaurant chains are clearly well positioned for the future.
It helps to have a well-entrenched business that is not dependent on achieving high growth to diversify your investments. Analysts currently expect Restaurant Brands to post average annual earnings growth of about 10%. A 3.6% dividend yield on top of compounding earnings growth could quadruple your investment over the next 10 years.