Investing in industry leaders that are reporting strong growth can lead to sizable gains over the long term. These opportunities can be found in various sectors from companies large and small.
Read why three Motley Fool contributors believe DraftKings (DKNG 4.96%), Global-e Online (GLBE 2.44%), and Costco Wholesale (COST 1.01%) could offer incredible long-term returns for patient investors.
A growth stock with massive tailwinds
John Ballard (DraftKings): DraftKings is a popular digital entertainment and gaming company that is reporting impressive revenue growth as more states legalize sports betting.
Sports betting was legal in 38 states last year. That leaves ample room for DraftKings to expand, because it still only operates in 26 states. But the best part of this story is that the business is seeing impressive growth in the states it already has approval to operate in.
Revenue soared 63% in 2023, but in the fourth quarter, monthly unique payers jumped 37% year over year. The increase in unique payers shows the company still adding new customers to its sports-betting platform in existing markets.
What's more, DraftKings is enlarging its addressable market to go beyond sports betting. It just announced the acquisition of Jackpot for $750 million. This expands the company's opportunity to a lottery market worth over $100 billion.
While DraftKings is still not turning a profit, it is on the verge of growing free cash flow substantially. Management expects to report between $310 million and $410 million in free cash flow this year. With the business turning free-cash-flow-positive on top of strong top-line growth, the stock could deliver sizable returns in the years to come.
Significant growth opportunities in e-commerce
Jennifer Saibil (Global-e Online): Global-e is building up a business that supports e-commerce retailers with cross-border solutions. It's growing fast and moving closer to profitability, and it has incredible long-term utility that makes it a no-brainer addition to any e-commerce web presence.
That's why it's not surprising to see Global-e's revenue and gross merchandise value (GMV) expanding rapidly. Revenue increased 39% year over year in 2023, and GMV was up 45%. It continues to form partnerships with high-level clients worldwide: Glossier and EleVen by Venus Williams in the U.S., the Harry Potter store in the U.K., Jean-Paul Gaultier in France, and Zanerobe in Australia are just a few recent examples.
Global-e has a partnership with e-commerce giant Shopify, which recently launched a new product called Shopify Markets Pro that's a white-label repackaging of Global-e's services. New merchants continue to sign up for it, and Global-e's services are also offered on Shopify's new one-page checkout, making it easy to ship worldwide. The company sees significant growth opportunities in this relationship.
What makes Global-e's potential look even more compelling is that it's getting closer to net profitability at scale. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 90% year over year in 2023, and management is guiding for it to grow another 40% in 2024.
Gross margin expanded from 41.1% to 42.9% in 2023, and net loss improved from $195 million in 2022 to $134 million last year. Global-e's profitability is constrained by warrants related to an investment from Shopify that are amortized on its income statement and will be fully amortized in 2025.
Global-e stock gained 92% in 2023, but it's down 14% year to date. Ark Invest's Cathie Wood has been scooping up more shares on the dip, and savvy investors can use this as a buying opportunity, too.
A resilient retailer
Jeremy Bowman (Costco Wholesale): The business world is sure to change significantly over the next 20 years. Artificial intelligence could go mainstream, replacing millions of jobs. Climate change could threaten a wide range of industries, and shifting demographics could create a new set of winners and losers.
However, if there's one thing I would bet on staying the same, it's that Costco Wholesale will still be a dominant retailer in 20 years, and that its loyal members will flock to it for the same reasons they do today, which include bargain prices, high-quality products, and the treasure hunt of finding items that won't be there next time.
Costco has parlayed that strategy into an outstanding business model. It's the third-biggest retailer by revenue in the U.S., and it continues to outpace its competition. Over the last few years, the company has adapted to overcome fears that it couldn't compete with Amazon or evolve with the modern e-commerce industry.
It continues to grow through both the online channel and brick-and-mortar stores, adding new locations at a steady pace. Costco's brand has proven not just popular in the U.S., but also international markets like Canada and China.
The company has increased its dividend steadily and has developed a pattern of paying a special dividend every few years, so it's a reliable income stock, too.
Overall, Costco has the competitive strength to outperform its industry, as well as a rock-solid, recession-proof model that should help the warehouse retail giant deliver both in good times and bad.
