If you're planning to turn $250,000 into $1 million in 10 years, you've got some work to do. To accomplish the feat, you'll have to earn an average compounded return of about 14.8% per year on your portfolio. To put that in perspective, the average annualized return of the S&P 500 index has been 10.93% since its inception in 1957. So you'll have to significantly outperform the index's long-run average over the next 10 years.
It's not impossible, though. You'll have to pick a basket of stocks with companies that have opportunities to grow, great business models, or a combination of both. Then hold them for several years.
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Generac
This company falls into the growth category. Generac (GNRC 1.48%) is one of the leading makers of standby generators for homes and businesses in the U.S., which have gained popularity over the years. The primary reason has been climate-related issues and their clash with the aging power grid. When temperatures climb, especially in the South and California, everyone wants to run their air conditioner while simultaneously creating the risk of overloading the grid. Utility companies' answer is to perform rolling blackouts in which they intentionally shut down power during peak times.
Last August, intentional power outages left nearly 1 million homes without power for two days. In February of 2021, Texas utilities shut down power to more than 10 million homes for a few days when Winter Storm Uri hit the state. These weather-related issues has been a boon to Generac's home standby business.
Generac forecasts 36% to 40% revenue growth this year, which comes on the heels of 50% revenue growth last year. The company also notes that only 5.5% of U.S. homes have home standby units, which means Generac still has a massive opportunity to sell units through 2023.
Residential and commercial solar energy trends could also impact Generac over the next decade. The company makes inverters, which turn solar energy into electricity, and the battery packs to store it. Global solar power installed capacity is expected to grow 12.7% annually through 2027.
The two trends are related. For instance, residents can install solar panels to store power for their homes in the event of a weather-related loss of grid power. To meet the demand for solar power systems, Generac acquired Chilicon Power, a provider of grid-interactive microinverters based in Los Angeles.
Watsco
Watsco (WSO 1.74%) falls into the great business model category, and it has history on its side. Its stock is one of only 29 to reach an annualized total return over the last 30 years of over 20%. The company sells replacement parts for air conditioner units to local repair companies through its distribution network. Since 2001, the company has made $804 million in acquisitions to bolster its product portfolio. Watsco has made a practice of quickly and efficiently scaling smaller acquisitions into its expansive U.S. distribution network.
More recently, Watsco has implemented an e-commerce platform that allows field technicians to order replacement parts faster than traditional channels. The platform enables its repair company customers to complete more jobs per day and become more profitable. The platform also allows for an easier transition of future acquisitions. So Watsco has the potential to continue to execute its acquisition strategy more efficiently over the next decade.
Path to $1,000,000
Generac stock is down 31% this year. In addition to having climate and sustainability trends in its favor, the stock may be extending a significant opportunity to growth investors. Watsco's stock, on the other hand, is down 6% for the year and trades at an adjusted forward price-to-earnings ratio of about 20 times. That's a 26% discount to its five-year average.
These two stocks can help you on your path to $1,000,000 and a long ten year time horizon is on your side. Keep in mind that investors should hold a basket of at least 20 stocks and hold them for at least five years. Keep your eyes open for changes in trends or fundamentals over time. It's OK to turn your portfolio over a bit over the next decade.
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