Although the stock market is completely unpredictable in the short term, history has shown time and again that patience is rewarded over the long run. Despite 38 double-digit percentage corrections in the S&P 500 over the past 71 years, the benchmark index has eventually pushed to new all-time highs each and every time.
Aside from having the conviction to hold onto your stocks for long periods of time, buying game-changing companies can help you significantly outperform the broader market. If you have $200,000 to invest, and you won't need to touch this money for bills or emergencies over the next decade, the following five game-changing stocks have the potential to turn your initial investment into $1 million, or more.
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You might think a quintupling in Amazon (NASDAQ: AMZN), one of the largest publicly traded stocks in the world, is out of the question over the next decade. But a quick look at its industry dominance and operating cash flow growth suggests it could easily quintuple.
Most folks are familiar with Amazon for its industry-leading online marketplace. This year, an estimated $0.40 of every $1 spent online in the U.S. will route through Amazon. That's over 33 percentage points higher than the next-closest competitor, Walmart. Being the go-to for online purchases has helped Amazon court 200 million global Prime members. The annual fees these members pay buoy relatively thin retail margins and allow Amazon to continually undercut brick-and-mortar retailers on price.
What gets far too often overlooked with Amazon is that it's also the leading cloud infrastructure provider. Amazon Web Services (AWS) is nearing a $60 billion annual sales run-rate, and Canalys pegged AWS at a 32% share of the cloud infrastructure market in the first quarter of 2021.
Thanks to a number of faster-growing and higher-margin segments (AWS, subscription services, and advertising), Amazon should see its operating cash flow more than double by mid-decade. That alone could place its share price comfortably at $10,000, assuming investors keep paying the same cash flow multiple they have for a decade. A quintupling over 10 years is a reasonable expectation with Amazon.
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The logical catalyst here is that robots and hackers don't take a day off just because the U.S. economy or Wall Street has a bad day. Protecting consumer and enterprise data in the cloud has evolved into a basic need service, which has opened the door for third-party providers like Ping Identity.
Ping, as its name gives away, predominantly focuses on identity verification solutions. The company's cloud-based intelligence platform leans on artificial intelligence to grow smarter and more efficient at identifying and responding to potential threats over time. These cloud-based solutions are layered with on-premises security options to bolster identity verification and provide constant monitoring of users accessing data.
What's particularly noteworthy about Ping is the company's rapid growth from its software-as-a-service (SaaS) subscription. While term-based license subscriptions have grown fairly steadily, SaaS subscriptions are higher-margin and should significantly boost annual recurring revenue.
With a subscription gross margin in the mid-80% range and one of the lowest price-to-sales multiples in the cybersecurity industry, Ping looks like quite the bargain.
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Another game-changer that could turn a $200,000 investment into $1 million or more over the next decade is furniture stock Lovesac (NASDAQ: LOVE).
As a general rule, "furniture stock" and "game-changer" don't belong in the same sentence. But Lovesac isn't a traditional furniture company. Approximately 85% of its sales are from its "sactionals" -- modular couches that can be rearranged in a variety of ways to fit any livable space.
There are approximately 200 different cover choices for sactionals, meaning they'll match any color scheme or theme within a home. Lastly, the yarn used to make these covers is made entirely from recycled plastic water bottles. Lovesac, whose core customer is millennials, is offering functionality, choice, and environmentally friendly products all in one.
Something else Lovesac is bringing to the table is an incredible omnichannel presence. Whereas traditional furniture retailers live and die by brick-and-mortar foot traffic, Lovesac was successful in shifting a significant portion of its sales online during the pandemic. It also has pop-up showrooms and a handful of deals in place to provide its products within existing showrooms.
This versatility is clearly working. The company's approach has minimized overhead costs and helped to push it to recurring profitability two years ahead of Wall Street's expectations. Investors would be wise not to sleep on Lovesac moving forward.
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PubMatic is what's known as a sell-side programmatic ad platform. In English, this just means it helps publishers optimize the selling of their display space to advertisers using machine-learning algorithms. Interestingly, PubMatic's cloud-based infrastructure doesn't default to placing the highest-priced ad in a publisher's display space. Rather, it aims to tailor the experience to users, which keeps advertisers happy and puts the pricing power in the court of PubMatic's publishers.
The runway for programmatic digital ad growth is long. The expectation is for the ad-tech industry to deliver 10% annualized growth through 2025. However, PubMatic has been doubling the industry's growth rate. It's seen particularly fast growth from connected TV and over-the-top programmatic ad spending.
Further evidence of PubMatic's growing favorability in the ad space can be seen in its second-quarter dollar-based retention rate of 150%. This tells us that publishers with the company in Q2 2020 spent 50% more in the most recent quarter. This small-cap growth stock looks to be just getting started in the digital ad space.
Image source: Square.
Lastly, don't be surprised if fintech superstar Square (NYSE: SQ) quintuples investors' money in 10 years.
Square's bread and butter has long been its seller ecosystem. This is the operating segment that provides point-of-sale devices, analytics, and loans to help merchants succeed. In the seven years leading up to the pandemic, gross payment volume (GPV) traversing the seller ecosystem grew by 49% annually to reach $106 billion in 2019. Best of all, with this being a fee-driven segment, the fact that a larger percentage of GPV is originating from larger merchants should lead to higher gross profit.
The more exciting long-term growth driver for Square is digital peer-to-peer payment platform Cash App, which saw its monthly active user count more than quintuple to 36 million in three years, ending Dec. 31, 2020. Cash App offers more channels to generate revenue, including merchant purchases, transfer fees, and investments.
To tie everything together, Square recently announced it would be acquiring buy now, pay later giant Afterpay. This deal will help Square create a closed ecosystem that'll allow merchants to accept Cash App payments.
Square just might be the top fintech stock to own over the next decade.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Amazon, Square, and The Lovesac Company. The Motley Fool owns shares of and recommends AFTERPAY T FPO, Amazon, Ping Identity Holding Corp, PubMatic, Inc., and Square. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.