One of the secrets to earning market-beating returns is to invest in companies capitalizing on long-term growth tailwinds. Those megatrends help drive outsized growth, which tends to power superior performance.
Brookfield Asset Management (BAM -0.54%), Equinix (EQIX -2.44%), and PayPal (PYPL -1.14%) each focus on major long-term trends. Because of that, these growth stocks should expand their earnings at above-average rates. That could drive market-crushing returns for their shareholders in the years to come.
Capitalizing on the rise of alternatives
Brookfield Asset Management is a leading alternative asset manager. It provides investors with access to alternatives, like private equity, real estate, infrastructure, energy transition, and credit investments. Investors have steadily increased their allocations to alternatives, which have historically produced higher risk-adjusted returns with less volatility than the public stock and bond markets.
A research report by Morgan Stanley predicts that private market assets under management (AUM) will grow at a 12% annual rate over the next five years. Morgan Stanley sees the highest growth rates from high-net-worth investors. It predicts they'll more than double their allocations to alternatives to 8% to 10% of their portfolios.
The rise in alternatives should benefit Brookfield. The company believes it can grow its distributable earnings per share at a 15% to 20% annual rate for several years. It expects to increase its dividend, which yields 4.1%, at a similar pace. That combination of earnings and income growth should power market-trouncing total returns over the long term.
Powering the digital age
Equinix is a data center REIT. It operates crucial infrastructure to support the exponential growth of data for things like streaming, artificial intelligence (AI), cloud computing, and other technologies.
The company has a remarkable growth track record. Equinix has delivered 80 straight quarters of revenue growth, which it claims is the longest streak of any company in the S&P 500.
The data center REIT should continue growing steadily in the future. Digital technology spending is expected to grow eight times faster than the broader economy this year, according to a prediction by IDC. That's driving demand for additional data center capacity. Equinix is capitalizing on this growth by developing several new data centers in key global markets and expanding existing facilities.
Add in rising rates at existing facilities and the continued effect of accretive acquisitions, and the REIT should grow at an above-average rate for years to come. That will allow it to increase its dividend, which it boosted by 10% earlier this year. The income and earnings growth combination should help drive strong total returns in the coming years.
Growth on sale
Financial technology giant PayPal has grown rapidly over the last five years.
Image source: PayPal Investor Relations Presentation.
It's benefiting from the growing shift toward digital payments. That's driving growth in active accounts and total payment volume, which is expanding the company's revenue, earnings, and free cash flow.
PayPal is using its cash to invest in expanding its business. That's enabling it to launch and grow new services like "buy now, pay later," PayPal Rewards, and Venmo.
Even with those investments, PayPal generates more cash than it needs to grow. That's enabling the company to repurchase shares. They trade at a very attractive valuation these days, following the sell-off in the stock price. Because of that, the stock could rebound sharply as PayPal executes its growth strategy.
Lots of growth ahead
Brookfield Asset Management, Equinix, and PayPal are capitalizing on significant long-term growth trends. That's enabling the companies to grow at above-average rates. There's still plenty of growth ahead for each one. Because of that, I predict they could deliver market-trouncing total returns from here over the long term.
