The media often presents a barrage of complications for investors to think about every day, but the truth is successful investing is very simple. All you need to do is regularly buy shares of growing companies. It doesn't matter how much you start with, since compounding returns can take a small sum a long way over time.
The following companies not only have attractive long-term growth opportunities, but their stock prices are trading at bargain levels right now. Investors who put some extra cash -- say $1,000 -- into these two top stocks could double their money within the next five years.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 0.75%) is one of the largest chip foundries in the world. Some of the world's largest brands depend on TSMC to manufacture chips for their products, including Apple.
TSMC generated a high profit margin of 45% last year on $76 billion in revenue. This reflects the company's unique capabilities as a chip manufacturer to provide a large capacity to handle lots of orders, and its investments in cutting-edge technology. Because of these advantages, it can price its services to earn extraordinary profits, which ultimately drives returns for shareholders.
Over the last five years, revenue and profits more than doubled. At the start of 2022, TSMC said the industry was experiencing "a structural increase in underlying semiconductor demand underpinned by the industry megatrends of 5G-related and [high-performance computing] applications."
Data by YCharts
However, the company recently hit a wall in growth due to slowing demand across the semiconductor industry relating to macroeconomic headwinds. Fourth-quarter fell slightly over the previous quarter, but the stock has fallen to its cheapest valuation in years.
With the stock trading at a conservative valuation of less than 16 times this year's earnings estimates, investors are getting an incredible value. A bet on TSMC is essentially a bet on continued development of smartphones, game consoles, data centers, and other markets using high-powered processors. It's a no-brainer.
TSMC has a solid competitive moat. For example, in 2022, leading graphics specialist Nvidia selected TSMC to manufacture processors for its latest graphics cards for gaming. Apple also tapped its services to supply chips for the latest iPhones, iPads, and Mac computers. TSMC is clearly maintaining a strong leadership position in the industry, and that sets the company up for accelerating growth when the industry recovers.
Analysts currently expect TSMC to grow earnings at an annualized rate of 21% over the next five years. At that rate, the stock could continue trading at the same price-to-earnings (P/E) ratio, but investors could potentially more than double their money from the increase in earnings.
2. Salesforce
Salesforce (CRM 1.14%) is another leader in enabling the digital transformation of the global economy that is offering great value to investors right now. Despite delivering consistent double-digit annual revenue growth for many years, this Dow stock is currently 22% cheaper than it was a year ago, making it an absolute bargain for growth investors.
The software company's Customer 360 platform is its bread-and-butter offering. Its investments in bringing together a suite of software tools to help businesses lower costs and more efficiently operate have made it the leader in the customer relationship management (CRM) market for nine consecutive years, according to IDC.
Wall Street analysts are aware of Salesforce's strengths, but the reason the stock fell last year is decelerating top-line growth. Revenue grew 14% year over year in the last quarter, which was caused by unfavorable currency changes and customers keeping a tighter leash on spending.
While double-digit top-line growth looks solid for most companies, it is weak by Salesforce's standards. Analysts are used to seeing this software powerhouse post 25% top-line growth every year, as it did over the last three years.
Data by YCharts
Salesforce will see its growth gradually slow over time as it becomes a larger business. But what's getting missed by Wall Street is Salesforce's pivot to improving profitability from its lucrative subscription-based business model.
Salesforce will continue to help businesses drive greater efficiencies in this difficult operating environment. Meanwhile, management is targeting an adjusted operating profit margin of at least 25% on revenue by fiscal 2026.
If Salesforce can double its revenue to $60 billion in five years, which would be a lower rate of growth than it has achieved historically, it should generate at least $15 billion in adjusted operating profit. At the current share price, investors are paying about 11 times the company's projected operating profit, which is a bargain for a business that is still growing revenue by double-digit percentages every year.
Buying $500 worth of shares each in TSMC and Salesforce could turn into $2,000 in five years from a combination of more earnings growth and the market assigning a higher P/E to these stocks.
