Doubling your money in the stock market isn't as hard as you might think. Thanks to the power of compounding, it only takes a few years of decent returns to get that result. If you choose the right stocks.
Of course, many stocks have jumped by 100% or more amid the market rally over the past 15 months. Yet it only requires about six years of growth at a 12% compound annual rate to double your investment.
You could get close to those returns by simply owning an S&P 500 index fund. The wider market has gained about 15% per year over the past decade, on average. Yet investors can aim for even better results by also buying individual growth stocks. Let's look at two stocks that have a great chance of outperforming the market from here.
1. Palo Alto Networks
The cybersecurity industry is a critical one that's becoming an even bigger priority as enterprises migrate more work onto the cloud. Consider buying shares of Palo Alto Networks (PANW +2.65%) to get exposure to this attractive space.
NASDAQ: PANW
Key Data Points
With $7 billion in revenue in the past full fiscal year, Palo Alto Networks is a leader in the cybersecurity niche. It's boosting that sales footprint at an impressive clip lately, and revenue is on track to rise by almost 20% this year after jumping 25% in 2023. Palo Alto Networks recently became profitable and management is intent on extending that positive momentum. Look for operating profit margin to rise in 2024 and beyond following last year's 5-percentage-point improvement.
It's true that you could benefit from growth in the industry by owning a more diversified software company like Microsoft. But Palo Alto Networks provides a more targeted investment in cybersecurity, and thus a better chance at above-average returns for patient investors.
2. Adobe
Adobe (ADBE +2.88%) is already a large company, but there's plenty of room for the software-as-a-service giant to grow from here. The business helps customers with the creation of digital content and experiences, putting it in an ideal position to capitalize on emerging trends around generative artificial intelligence (AI).
NASDAQ: ADBE
Key Data Points
Excitement for the new tech has powered higher demand for Adobe's subscription services, helping accelerate sales gains this past year. "We've done an incredible job harnessing the power of AI to deliver groundbreaking innovation across our portfolio," CEO Shantanu Narayen said in mid-March.
The problem is that the software giant hasn't yet demonstrated that it can make money from these innovations. Net income fell by 50% in the most recent quarter as Adobe spent more in areas like research and development (R&D) and marketing. Those stumbles help explain why the stock trails the market by a wide margin so far in 2024.
Investors who take advantage of that discount could see excellent returns over the next several years. Adobe's profit trends are being temporarily held back this year by costs associated with its canceled acquisition of Figma, after all. Those expenses, including a $1 billion hit to earnings in 2024, won't repeat.
The bigger factor to watch this year is how Adobe begins capitalizing on the excitement around its AI-powered tools. The first part of that plan is working well, as subscription levels have jumped for products like Photoshop and its creative cloud platform. Rising prices will follow, reflecting the increased value that users are getting from these offerings. And as Adobe's earnings growth speeds up, shareholders should be thrilled with the returns they're seeing from this software giant.
