Averaging annual stock market returns of 10% or more is not easy to pull off, especially over a time horizon of at least five years. But with the right stocks, it is achievable.
Of course, there are no guarantees in life or equity markets. It's essential to always follow investment best practices, including using money you aren't going to need for several years (be it for emergencies or otherwise). For those with $1,000 to spare, let's look at three stocks that are worth buying right now: Axsome Therapeutics (AXSM -2.61%), Tandem Diabetes Care (TNDM 0.43%), and Chegg (CHGG -0.29%).
All three stocks look relatively cheap on a per-share basis. Tandem Diabetes Care trades for about $52 as of this writing. Axsome Therapeutics' shares are $45, while Chegg goes for $21. Equally dividing up $1,000 among all three would afford you roughly six shares of Tandem, seven of Axsome Therapeutics, and 15 of Chegg at current prices.
Let's dig into why doing so could help you register a compound annual growth rate of about 15% in the next five years and double your money.
1. Axsome Therapeutics
Axsome Therapeutics hit a milestone this year as it earned approval for Auvelity, a medicine for major depressive disorder, in August. The company will add this treatment to its thin lineup that only features one other product, Sunosi, a drug to treat excessive daytime sleepiness in narcolepsy patients.
Axsome has made tremendous progress lately. As of the beginning of the year, the company was still a clinical-stage biotech. The approval of Auvelity and its acquisition of Sunosi will allow it to generate some revenue and help fund its pipeline programs.
Axsome focuses on developing therapies for central nervous system disorders. The company's pipeline includes several treatments that target acute migraine, cataplexy in narcolepsy, and fibromyalgia. The company also could earn label expansions in treating agitation in Alzheimer's patients and in helping with smoking cessation.
Sunosi is being developed to treat attention deficit hyperactive disorder. Therapy options are inadequate for almost all of these conditions. And, combined, Axsome's medicines could target more than 60 million people in the U.S. alone.
The company's recent approval of Auvelity was only the beginning. The biotech is well-positioned to record more clinical and regulatory wins, expand its lineup, and substantially reward shareholders in the coming years.
2. Tandem Diabetes Care
Tandem Diabetes Care currently makes revenue through selling its prized insulin pump, the t:slim X2. Insulin pumps minimize the risk of human error when it comes to the crucial task of insulin delivery for diabetes patients, especially when compared to multiple daily injections (MDIs).
The evidence shows that diabetes patients using insulin pumps tend to achieve better health outcomes. Also, insulin pumps do not rely on painful injections. Tandem Diabetes Care continues to grow its revenue thanks to its crown jewel. In the second quarter, the company's top line jumped by 16.3% year over year to $200.3 million.
Tandem Diabetes is not consistently profitable; in the second quarter, it reported a net loss per share of $0.24, compared to net earnings per share (EPS) of $0.06 reported in the second quarter of 2021. That is one of the reasons it has lagged the market lately.
Tandem is still looking at a vast market to fuel its growth. In the U.S., 64% of type 1 diabetes patients still rely on MDIs. That number is substantially higher abroad; the company estimates that some 88% of the population in its target markets abroad still hasn't switched to insulin pumps.
Given its product's superiority, expect Tandem Diabetes to make substantial headway in the next five years. It is also seeking to innovate with a planned successor to its current cash cow: the t:slim X3.
With a vast opportunity ahead and a new product in the pipeline, Tandem Diabetes can become consistently profitable and stage a comeback on the stock market.
3. Chegg
Chegg is an online learning platform that performed splendidly during the pandemic. But like other stocks that did well during the height of the pandemic, Chegg has been struggling for the past year. Its shares are down by 66% in this period.
That is understandable as revenue growth has dropped, and its net income has been inconsistent.
CHGG revenue (quarterly YOY growth). Data by YCharts. YOY = year over year.
During the second quarter, Chegg's revenue decreased by 2% year over year to $194.7 million. Chegg's EPS came in at $0.06 during the period, down from the EPS of $0.20 reported during the year-ago period.
Despite Chegg's unimpressive recent financial results, it's essential to look at things in perspective. During the early days of the pandemic, business was booming for the company more than it otherwise would have. That could well balance the decline it has experienced since.
Furthermore, one key metric keeps improving for the company: its subscribers. During the second quarter, this number jumped by 9% year over year to 5.3 million. Chegg is arguably building a network effect; the value of its services increases as more people use them.
Chegg's network of subject experts is attractive to students looking for a learning platform where they can benefit from the knowledge these experts share. And the more students who are plugged into the network, the more it will attract specialists who are paid for their services.
There is plenty of white space for the company to turn its recent misfortune around. Chegg sees a massive market of 100 million students worldwide who could benefit from its platform. As it continues to enroll more subscribers, both revenue and earnings will increase, and its network effect will grow stronger.
And that's how Chegg can provide market-beating returns and double your money in the next five years.
