The right growth stocks can deliver incredible returns for investors who are patient enough to hold them for many years. But for every long-term winner like that there are many more investments that fail to live up to the high expectations that shareholders place on them.
Unfortunately, there's no foolproof way to be sure that you have a portfolio-defining growth stock in your sights. But you can boost your odds of success by focusing on high-quality businesses with strong track records. It makes sense to own a collection of these investments, too, so that you can maximize your exposure to potential winners.
With that goal in mind, let's look at a few stocks that have enjoyed excellent growth in recent years. While they are in different phases of their expansions, Lululemon Athletica(NASDAQ: LULU) and McDonald's(NYSE: MCD) share some characteristics that could mean further market-thumping returns over the next 15 years.
Cautious spending trends have made it a challenging retailing environment for most consumer-facing businesses in 2023, but Lululemon is still finding ways to grow. Sales in the most recent quarter expanded by a surprisingly strong 20%, and gross profit margin improved to 59% of revenue from 57% a year ago. The athleisure giant is highly profitable, too, turning more than 20% of sales into operating profit. That rate sits well above those of rivals such as Nike.
There's no shortage of attractive long-term growth opportunities for this business, either. International sales were up 52% this quarter, for example, and management sees room to massively expand the international division by fiscal 2026.
Lululemon is also entering additional product categories such as footwear and outerwear even as it markets to new demographics. Risks to owning this business include the potential for brand-harming quality control issues like the ones investors saw back in 2013. But as long as Lululemon can protect its positive momentum, shareholders have a shot at excellent long-term returns.
McDonald's is already established as a global fast-food powerhouse, but that success doesn't limit its growth opportunities. Sales were up by double digits in each of its three main geographic divisions last quarter, reflecting market share gains through intense competition. "The McDonald's brand has never been stronger," CEO Chris Kempcziski told investors in late July.
That strength shows up in the operating profit margin, which is marching above 40% of sales. It's clear from the chain's strong cash flow as well, which helps support a steadily rising dividend payment.
McDonald's sees room to extend its market share lead through growth initiatives such as online ordering and delivery, store remodels, and further improvements to customer satisfaction. It has a proven ability to attract fast-food fans through a mix of limited-time menu additions and marketing staple products such as the Big Mac, which in 2018 celebrated its 50th anniversary.
The chain is in a highly competitive industry that's subject to quick changes in consumer preferences. Profit margins for most of its peers are razor-thin and difficult to maintain over time. But McDonald's has demonstrated that it can consistently reinvent itself when needed. The business generates fantastic economic returns as well, thanks to its franchised selling model and the steady flow of real estate and royalty fees.
There's no telling what the fast-food industry will look like in 15 years, but it seems likely that McDonald's will still be a dominant player in the category. In that event, growth stock investors can expect to accrue strong returns from simply holding this high-quality business in their portfolios.
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Demitri Kalogeropoulos has positions in McDonald's and Nike. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.