For millions of Americans, the ability to enjoy a financially secure retirement will rest heavily on one thing: the performance of their investments.
While no money manager or advisor can guarantee that a given stock or fund will achieve a specific return, plenty of companies have outperformed the market average over time or hold significant potential to do so.
If you're looking for stocks that fit that description now, you may want to consider Advanced Micro Devices (AMD -0.35%) and Innovative Industrial Properties (IIP) (IIPR -0.73%). Particularly after the steep decline of growth stocks, in general, this year, they offer a combination of high potential growth and discounted valuations that will probably serve long-term investors well.
1. Advanced Micro Devices
Chipmaker AMD continues to claim an increasingly prominent role in the CPU (central processing unit) and GPU (graphics processing unit) markets. Under the leadership of CEO Lisa Su, it has benefited from the ongoing growth of artificial intelligence, cloud computing, data centers, gaming, and supercomputing. Its recent acquisition of Xilinx gave its supercomputing segment a boost, and it will also enhance AMD's data center capabilities.
It has also been beating some formidable competitors for lucrative contracts. For example, it now provides the gaming chips for the Sony PlayStation 5 and Microsoft Xbox Series X gaming consoles. Meta Platforms uses AMD processors in its data centers. Wins like these have helped it pull market share away from both Nvidia and Intel.
Admittedly, AMD is unlikely to maintain its current growth rates over the long term. Investors also should not expect the semiconductor industry's cyclicality to disappear. But with AMD's continuing market share gains and the world's growing need for chips, its stock price should grow considerably over the long term.
Image source: PassMark
Its financials already reflect this growth. In the first quarter of 2022, AMD outperformed analysts' already strong estimates with revenue up 71% year over year to $5.9 billion, and net income up 148% to $1.6 billion. Management is guiding for revenue to rise by around 60% in its fiscal 2022.
Still, like most tech stocks, AMD stock has plunged in 2022 -- it has lost almost half its value since it peaked in November. But its current price-to-earnings ratio of 32 is well under the valuation of archrival Nvidia, which trades now at around 45 times earnings. Given its revenue growth rate and its continued wins in the marketplace, the stock should greatly profit those who buy and hold it for the long haul.
2. Innovative Industrial Properties
IIP is a unique real estate investment trust (REIT). It invests exclusively in facilities and properties used by legal cannabis businesses. Fortune Business Insights forecasts a 32% compound annual growth rate for the cannabis industry through 2028, which should bode well for IIP.
Though it does develop properties, Innovative Industrial Properties has acquired many of its holdings through a sale-leaseback program under which it buys a property and immediately leases it back to the former owner. This provides cannabis growers with the capital they need to operate their businesses while IIP gains steady long-term revenue sources. Since those cannabis growers cannot access traditional bank financing due to federal regulations, IIP fills a vital role in the industry.
However, the stock has declined in recent months amid an oversupply of cannabis on the West Coast. The company is also dealing with a class-action lawsuit that alleges IIP overvalued the properties it holds and hid issues that might affect the ability of some of its top tenants to meet their lease obligations.
Nonetheless, in Q1, IIP's revenue grew 50% year over year to $65 million. It generated $54 million in adjusted funds from operations (a commonly used metric for gauging a REIT's free cash flow).
This was enough to fund the company's dividend, which at $7 per share yields about 6% at today's share price, a generous return. And over the last 12 months, IIP boosted its payout twice, increasing it by a total of 25%.
Worries about the company have taken its stock price down by 60%. Still, as cannabis use grows across the U.S., IIP will likely rise along with the industry it supports.
