There's no sugarcoating that it's been an abysmal year on Wall Street. Since hitting their respective all-time closing highs between mid-November and the first week of January, the timeless Dow Jones Industrial Average, broad-based S&P 500, and tech-dependent Nasdaq Composite have gone on to lose as much as 19%, 24%, and 34% of their value. For the S&P 500, it was the index's worst first-half performance since Richard Nixon was president.
While declines of this magnitude can be scary and test investors' willingness to stick around, history has shown that there are few better buying opportunities than during a bear market. That's because all notable declines in the major indexes are eventually wiped away by a bull market.
The current bear market could very well be your golden ticket to becoming a millionaire. If you have $75,000 to invest, and don't plan on using this money to cover emergencies or pay bills, putting it to work in the following four phenomenal growth stocks can make you a millionaire over the next 20 years.
The first stellar growth stock that has the potential to more than 13X your initial investment over the coming two decades is social media company Pinterest (PINS 2.62%). Despite near-term concerns about ad spending, Pinterest's operating model has clear-cut competitive advantages that should allow the company to thrive for a long time to come.
To begin with, Pinterest hasn't had any issues monetizing its base of monthly active users (MAUs). Even with year-over-year MAUs declining by 21 million to 433 million in the June-ended quarter, Pinterest reported a 17% increase in global average revenue per user. What this clearly demonstrates is that advertisers are willing to pay a premium to get their messages in front of Pinterest's users.
To add to that, a wider-lens examination of Pinterest's MAU count shows a pretty steady incline. Although user growth catapulted during the initial stages of the pandemic and has retracted as vaccination rates ticked up and people returned to some semblance of normal, the MAU trend is still pointing higher over the past five years.
Something else to note about Pinterest is that users willingly offer up the things, places, and services that interest them via their personalized pinned boards. In an era where app developers are cracking down on data-tracking software, Pinterest will be able to serve critical data to merchants on a silver platter, thereby allowing them to target users. In other words, it's a potential e-commerce giant in the making.
A second phenomenal growth stock that can turn $75,000 into a cool $1 million over 20 years is cloud-based programmatic adtech stock PubMatic (PUBM 7.14%). Once again, even though ad spending is challenged in the short term, innovative companies like PubMatic are perfectly positioned to succeed over the long run.
PubMatic is a sell-side platform (SSP), which simply means that it aids publishing companies in selling their digital display space. Over time, consolidation among SSPs has left few choices, which is funneling new business to PubMatic on a fairly regular basis.
What's more, we're witnessing a clear shift in ad spending from print formats to digital channels, such as mobile, video, and over-the-top programmatic ads. Digital ad spending is expected to grow by 14% annually through the midpoint of the decade. Meanwhile, PubMatic has been delivering organic annual growth rates from around 20% at the low end to more than 50% on the high end.
As I recently pointed out, PubMatic's greatest attribute is its internally developed cloud infrastructure. Not having to rely on third-party platforms for its programmatic ad services means the company will generate juicier operating margins than many of its peers as its revenue increases. Sustainable double-digit growth is a very real expectation.
The third extraordinary growth stock capable of making you a millionaire and delivering a roughly 1,233% return over the next 20 years is fintech stock PayPal Holdings (PYPL 0.79%). Even with inflation taking a toll on the lowest-earning decile of users, PayPal is in great shape to benefit from growth in digital payments.
One of the more eyebrow-raising statistics that demonstrate how powerful PayPal has become can be seen in its latest quarterly operating results. Even with the U.S. gross domestic product (GDP) falling in back-to-back quarters, and the stock market plunging in 2022, PayPal has sustained double-digit total payment volume (TPV) growth (on a constant-currency basis). Because periods of economic expansion last substantially longer than recessions and contractions, PayPal could realistically expect 15% to 20% annualized TPV growth for as far as the eye can see.
Furthermore, PayPal's active accounts are more engaged than ever. As of the end of June, the average active account completed 48.7 transactions over the trailing-12-month period. This a sizable increase from 40.9 transactions per active account over the 12 months preceding Dec. 31, 2020. Because PayPal is a fee-driven business, its gross profits should continue to climb over the long run.
With the company willing to aggressively reinvest in platform innovation and inorganic growth (for example, by acquiring Japan's "buy now, pay later" service Paidy in 2021), PayPal could reasonably be one of the largest companies in the world by market cap in two decades.
A fourth and final phenomenal growth stock with the potential to turn $75,000 into $1 million by 2042 is online-services marketplace Fiverr International (FVRR 0.64%). In spite of a roller-coaster ride for its shareholders induced by the COVID-19 pandemic, Fiverr brings competitive advantages to the table that should keep it head and shoulders above its peers.
The key to success for online businesses is their ability to stand out in an increasingly crowded space. One way Fiverr does this is by having freelancers present their services as a package, rather than quote an hourly rate as on nearly all other online-service marketplaces. Fiverr's method results in considerably more transparent pricing, which has led buyers to increase their average spending on a steady basis -- even as the U.S. economy has weakened.
The coronavirus has structurally changed the labor force: Many businesses are promoting hybrid work environments, with the expectation that not all workers are coming back to the office. Fiverr's freelancer marketplace perfectly ties into the growing work-from-home theme.
But the greatest aspect of Fiverr's operating model might be its "take rate" -- the amount of money from each negotiated deal Fiverr gets to keep. While most of its key competitors have a take rate in the mid-teens, Fiverr's take rate continues to expand and is just shy of 30%. Being able to command this high a take rate and still see its marketplace grow is a testament to Fiverr's long-term potential.