A common adage in investing is that the U.S. stock market has been the greatest wealth-creation machine in world history. Even with the market downturn in 2022, the U.S. stock market was still valued at over $40 trillion.
How can you tap into this massive wealth-building opportunity? Once you have an adequate emergency fund established, try saving as much as you can from your household's net income and strive to consistently do better. Even if it may not seem like you're saving much, small sums can stretch far when invested in well-run businesses with room for future growth. Here are two growth stocks to consider buying that could make you much richer over time.
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1. Molina Healthcare: Millions of medical membership plans and counting
Focusing primarily on providing government-sponsored health insurance plans (mostly Medicaid and, to a lesser extent, Medicare and Marketplace insurance), Molina Healthcare (MOH +1.28%) is a major health insurer. As of Dec. 31, 2022, the company's membership base was nearly 5.3 million. This explains how Molina Healthcare's market capitalization is just shy of $16 billion, which makes it the seventh-biggest health insurer in the U.S.
NYSE: MOH
Key Data Points
As one of the major medical insurers in the country, Molina Healthcare could continue to be a powerful growth stock in the future. Market research company Precedence Research anticipates that the global health insurance market will compound by almost 7% annually, from $2.2 trillion last year to $3.8 trillion by 2030. Organic growth from rising frequency of chronic medical conditions paired with acquisitions leaves the company with a lengthy growth runway.
This is why analysts believe Molina Healthcare's non-GAAP (adjusted) diluted earnings per share (EPS) will grow by 17.8% annually over the next five years. For context, that is well above the healthcare plans industry average annual growth outlook of 12.7%.
Yet, the stock trades at a forward price-to-earnings (P/E) ratio of 11.6. Putting this into perspective, that is significantly below the healthcare plans industry average forward P/E ratio of 13.5. Thanks to its above-average growth prospects and below-average valuation, I believe Molina Healthcare could deliver annual total returns around 17% over the next five to 10 years.
2. Floor & Decor: A niche, Buffett-backed home improvement retailer
Berkshire Hathaway's chairman and chief executive officer, Warren Buffett, loves businesses that possess an edge over their competitors. This is probably why his holding company owns a 4.5% position in the specialty home improvement retailer Floor & Decor (FND 0.50%) worth almost $500 million.
NYSE: FND
Key Data Points
Floor & Decor may not have the name recognition of its larger, more generalized counterparts like Home Depot and Lowe's. But nobody knows the hard-surface flooring space better than the under-the-radar retailer. With the average store coming in at around 79,000 square feet and offering about 4,400 tile, wood, laminate, vinyl, and natural stone flooring products, Floor & Decor can't be beat on product selection. And since the company sources its products straight from manufacturers, it passes savings on to customers with reasonable prices.
As you'd expect for a smaller company, Floor & Decor has yet to peak as a business. The company currently has fewer than 200 stores, which is far below its long-term target of 500 stores. Analysts believe that adjusted diluted EPS will increase at a rate of 13.8% annually through the next five years. That's drastically superior to the home improvement retail industry average earnings growth forecast of 4.1%.
Topping it off, the stock looks to be a bargain for its quality. Floor & Decor's forward P/E ratio of 28.8 is cheap compared to the home improvement retail industry average forward P/E ratio of 16.5. This is why I expect the stock to keep generating double-digit annual total returns for shareholders for at least the medium term.
