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Investors can build tremendous wealth over the long term, and it doesn't require trading in and out of hot tech stocks. If you follow Warren Buffett's approach of buying shares of quality businesses when their stocks are trading at fair prices, you'll be on the road to success.
Many investors use the S&P 500 (SNPINDEX: ^GSPC) as a benchmark to measure how well their investments are performing. Historically, the index has returned 10% on an annualized basis over decades, but a portfolio of well-chosen growth stocks can perform better. Here are two that can outperform the index over the next five years.
1. Uber Technologies
Shares of Uber Technologies (NYSE: UBER) have more than doubled since 2022, but analysts expect earnings to grow at an annualized rate of 41% over the next several years that could support market-beating gains.
Uber is seeing more people use the service, especially its food delivery service Uber Eats. Revenue grew 20% year over year in Q3, which management credits to improvements in service quality and higher customer satisfaction.
Uber is a profitable business. It generates revenue from fees paid to drivers and merchants for using its platform. Growing revenue from advertising and Uber One memberships are also lucrative opportunities. Advertising grew nearly 80% year over year last quarter, while Uber One has reached more than 25 million members. These new opportunities are helping operating income grow faster than the top line, which jumped 169% in Q3 over the year-ago quarter.
Uber is a leading brand in a growing ride-hailing market that is expected to reach $212 billion by 2029, according to Statista. Investors can buy the stock at a forward price-to-earnings multiple of 21, which seems an unjustified discount to the S&P 500 forward P/E of 23.5. Investors should expect the stock to beat the market over the next five years.
2. Meta Platforms
Shares of Meta Platforms (NASDAQ: META) continued to hit new highs in 2024, but could be poised for even more gains in 2025 and beyond. Analysts anticipate the company's earnings growing at an annualized rate of 17% in the coming years.
Meta monetizes Instagram and its other services with advertising, and it's a big business. Meta's trailing revenue totaled $156 billion, but management sees opportunities for artificial intelligence (AI) to accelerate Meta's core business.
Revenue grew 19% year over year in Q3, as the company's new conversational assistant, Meta AI, has more than 500 million monthly active users. Users are finding it helpful in discovering content, and the more time spent in these apps, the greater opportunity to make money from ads.