Finding stocks that can triple your investment in just a decade may sound unlikely, but you don't have to beat the market by a mile to make it happen.
Indeed, all it takes is a compound average growth rate (CAGR) of at least 11.6%. That just happens to be the exact return of the S&P 500 index over the last 10 years. By reinvesting dividends in more stock along the way, you would have earned a 265% return over the same period. That's a CAGR of 13.8%. A couple of percentage points can make a big difference in the long run.
However, you can't count on an index fund tracking the S&P 500 to deliver annualized returns of 11.6% forever. If you stretch the timeline back for 20 years, for example, the S&P 500 has only produced a CAGR of 8.8% if one includes dividend-reinvestment, and an even lower 6.7% from share price growth alone. (The financial crisis of 2008 and 2009 took a big bite out of the stock market.)
So when you are looking for ways to triple your investment in a decade, what you really want is a stock that has kept delivering annual returns in the 15% range (or more) in most 10-year periods. And of course, the business should be poised to continue posting stable growth for the decades ahead.
Both Amazon.com(NASDAQ: AMZN) and PoolCorp(NASDAQ: POOL) fit that description.
Image source: Getty Images.
The king of e-commerce (and more)
Amazon has a long history of producing market-stomping returns. What started as a small online bookstore in the 1990s has evolved into an e-commerce generalist of massive scale. A cloud computing segment that started as a small side gig generates most of Amazon's profits nowadays.
The times, they are a-changing, and Amazon always seems ready to adapt to new market developments.
The company is expanding its services to more countries, and is also adding significant revenue streams from digital advertising and its Amazon Prime Video service. It's also a major investor in electric vehicle upstart Rivian, and is using its logistics infrastructure to offer shipping services to other companies.
So far, this flexible strategy has generated compound annual growth of 25.7% over the last decade and 26.4% since 2002.
Keeping up that pace for many decades may be impossible, but Amazon should be able to post shareholder returns significantly above our 15% target level. And if the stock's pattern of 25% returns continues, your investment could triple in just five years.
Yes, pool equipment is an exciting high-growth market
Pool Corporation -- aka PoolCorp -- is also willing and able to change with the times. It used to focus exclusively on pool supplies under the catchy slogan of "70 percent of the Earth is water... and we don't think that's enough." That aquatic vision changed in 2016 when the company formed business alliances with makers of outdoor furniture and decorative water features. Now, PoolCorp markets itself as "Where outdoor living comes to life."
The revised business plan is working. PoolCorp has more than doubled sales and quadrupled its bottom line in the past five years -- and its best results may be yet to come. U.S. consumers keep migrating from city centers to suburbs and exurbs, where owning a pool is more manageable and desirable. The installed base of existing pools is aging and PoolCorp's largest revenue stream comes from repairs and maintenance. And 90% of PoolCorp's sales come from the domestic market, leaving tons of room for overseas expansion.
The diversification into pool-related furniture and decorations is paying dividends, too. Categories such as stone pavers and LED lighting are among its fastest-growing product lines, and its product mix is shifting toward higher-margin automation features. Furthermore, its recent acquisition of Porpoise Pool & Patio (the parent company of pool supplies retailer Pinch A Penny) gives PoolCorp instant exposure to the do-it-yourself market. That's a $3 billion annual revenue opportunity.
So PoolCorp offers a robust business plan and solid financial results. How about shareholder returns?
I'm glad you asked. PoolCorp's stock has posted a CAGR of 28.1% over the last decade and 20.2% over the last 20 years.
POOL Total Return Level data by YCharts.
Even after these massive gains, the stock remains modestly valued at 2.7 times sales and 20 times forward earnings. That's a bargain for a fast-growing sector leader like PoolCorp. This stock should triple your money in the next decade without breaking a sweat.
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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. Anders Bylund has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Pool. The Motley Fool has a disclosure policy.
