Being a millionaire is a goal for many people, and one of the best ways to achieve it is by investing in the stock market. While the long-term average return of the market hovers around 10%, if you can pinpoint stocks that can outperform the market by 3% annually, you can shave off a tremendous amount of the time (or capital) it takes to become a millionaire.
Starting with $100,000 it would take 24.1 years to reach $1 million with a 10% return. However, it only takes 18.8 years if you can achieve a 13% annualized return.
So let's look at some stocks that could provide that extra couple percent return and help you turn $295,000 into $1 million by waiting a decade and returning 13%.
1. Alphabet
First is the tech giant Alphabet (GOOGL -1.95%) (GOOG -2.15%). Alphabet has its hands all over the tech space, including advertising, cloud computing, smartphones, and artificial intelligence (AI). While its revenue is currently concentrated heavily into primary brands like the Google search engine and YouTube, these other areas will allow Alphabet to diversify and rapidly grow revenue.
Advertising revenue has historically been cyclical, as it falls leading up to an economic downturn. That's the current market state, as Alphabet's revenue only grew 1% in Q4. Weak growth and massive hiring (Alphabet is scooping up a ton of software engineers for AI) caused its earnings to plummet, with 2022's earnings coming in at $4.56 per share, down from $5.61 per share last year.
However, this isn't likely to last. Wall Street analysts expect rapid earnings growth over the next few years.
| Year | Earnings Per Share Forecast | YOY Growth |
|---|---|---|
| 2023 | $5.11 | 12.1% |
| 2024 | $6.04 | 18.2% |
| 2025 | $7.80 | 29.1% |
| 2026 | $8.52 | 9.2% |
Data source: Nasdaq. YOY = Year over Year.
With Alphabet projected to grow earnings solidly throughout the next four years, its stock price will follow suit as financial performance drives long-term performance. You can scoop up the stock today for 23 times earnings, a bargain for a company that is set to rebound rapidly from its current state.
2. CrowdStrike
While returning at least 13% is the goal for this trio, I think a 13% return over the next decade would be a poor showing for CrowdStrike (CRWD -1.47%). CrowdStrike is a leader in endpoint cybersecurity solutions, which protect devices like laptops and cellphones. Cyberattacks are expected to ramp up over the coming decade and businesses must establish some form of protection, making CrowdStrike a key beneficiary of this trend.
This has played out well in CrowdStrike's financials, with its annual recurring revenue rising 48% to $2.56 billion during FY 2023 (ending Jan. 31). While it hasn't achieved full profitability yet, it is free-cash-flow (FCF) positive, turning 33% of revenue into FCF during Q4.
With Wall Street analysts estimating 33.9% revenue growth in FY 2024 and 29.1% in FY 2025, CrowdStrike's expansion should propel its stock performance. The tailwinds in this space are just too strong to deny, and CrowdStrike is poised to deliver at least 13% annualized returns over the next decade.
3. MercadoLibre
E-commerce has transformed how Americans shop and do business. The same goes for digital payment infrastructure. With these systems' convenience, it makes sense that companies are bringing this technology to the rest of the world. MercadoLibre (MELI -0.98%) is doing just that in Latin America.
With its e-commerce platform and digital payments system, MercadoLibre has a stake in just about every step of the commerce process. This has worked out tremendously for the company, with revenue growing rapidly over the past decade.
MELI Revenue (TTM) data by YCharts
Despite this performance and strong growth, MercadoLibre's stock is valued at 6.2 times sales, although its average valuation over the past decade is 11.3.
The e-commerce revolution in Latin America is far from complete, and MercadoLibre stands to cash in on this transition over the coming decade. With shares trading well below its historical average, there have seldom been better times to establish a position in the stock.
Before you dump your entire portfolio into this trio, remember that a well-diversified portfolio is comprised of at least 25 stocks. Identifying other stocks with market-beating potential is critical because you'll be wrong on some. However, I think the trio of Alphabet, CrowdStrike, and MercadoLibre is a great place to start.
