Investing in These 2 Stocks Could Be a Genius Move

When it comes to investing in the stock market, you don't need to find the needle in the haystack to generate favorable, long-lasting returns. Instead, investing in companies that you understand, with quality businesses that present clear avenues to future growth, can gradually build a diverse portfolio of stocks that enriches your financial life over the long term. 

With that said, let's take a look at two stocks that could have vast powerhouse potential for investors over the next decade and well beyond. 

1. Upstart 

Investors in lending platform Upstart (UPST 0.79%) have had to contend with a tumultuous environment in recent quarters, and it's highly likely that more turbulence could be ahead, particularly if economic conditions remain fraught and interest rates remain high. This convergence of factors has impacted Upstart, as the company has gone from profitability and steady revenue growth to seeing a steep decline in revenue, loan volume, and net losses. The stock is down 88% over the past year.

However, I maintain that all is not lost. Upstart is still growing its lending-partner network and adjusted profits; automation continues to improve; and the company says its model is calibrating to economic conditions with greater accuracy than ever. The company closed out 2022 with 120% more bank and credit union partners and 90% more auto dealers onboarded to its platform than at the end of 2021. Even as its revenue of $842 million was down slightly year over year, this figure still represented an increase of 260% on a two-year basis. And the company's 2022 adjusted profit of $447 million was up 12% year over year and 326% on a two-year basis.  

Furthermore, 82% of all loans processed on Upstart are now done on a fully automated basis and the company said the accuracy of its model improved as much in the last seven months of 2022 as it had in the prior 2.5 years. As for the notable decline in lending volume Upstart has seen in recent quarters, this is largely a product of the broader lending environment, not a specific deficiency with its business. CEO Dave Girouard said in the Feb. 14 earnings call with analysts:  

Today, actually, most of the decline in our business is because rates approvals are way down and rates are way up. And that's largely due to higher levels of risk in the environment. Now, at the same time ... lenders have pulled back as well. So, in a strange way, we're relatively balanced, but at a ... much lower approvability, much higher interest rate. And that's what's driving lower volumes.  

A recovery in loan volume will take time, and these are issues that likely won't resolve in a few quarters. However, the growth opportunity is there. Few companies are doing what Upstart does at the same caliber and scale and the lenders are clearly still seeing the potential of this platform as they continue to partner with the company even while originations are depressed. All this bodes well for the long term for Upstart, and investors with a multiyear investment horizon may find this to be a compelling buying opportunity. 

2. Ulta Beauty

Ulta Beauty (ULTA -2.08%) is one of the largest beauty retailers in the U.S, with a footprint that spans all 50 states and more than 1,300 stores nationwide. Beauty products are discretionary expenditures. However, these daily-use items tend to have a particular kind of resilience that is not apparent in other non-essential sectors of retail even amid price increases such as those beauty consumers have witnessed in past months. 

Over the trailing 10-year period, Ulta Beauty has grown its annual revenue and net income by 223% and 386%, respectively. Investors who have held onto the stock during that 10-year period have enjoyed a return of 486%.  

Even the trailing-five-year period has seen the stock deliver a return of 155% compared to the S&P 500's 60%. The first nine months of 2022 saw Ulta Beauty generate net sales of $7 billion and net income of $902 million. These represented respective increases of 18% and 30% compared to the same nine-month period in 2021.  

While a recessionary period can certainly impact sales of beauty products, the overall durability of this space makes it a particularly intriguing niche for investors looking for retail stocks to buy and hold through the years. 

Given Ulta Beauty's dominance of the U.S. beauty market -- a space on track to generate revenue of $91 billion in 2023 -- and its long track record of revenue growth and profitability, this stock certainly deserves a look.