It’s evident that a new bull market has commenced, with the S&P 500 index registering a 25% surge over the last 12 months and reaching new highs at the beginning of the year. As bull markets tend to extend over longer periods than bear markets, strategic investments in growth stocks have the potential to yield substantial returns over the next five years.
The crucial factor is to allocate funds to robust companies that exhibit a high likelihood of sustained growth, driven by a competitive edge or favorable trends within their respective industries.
If you have $1,000 available for investment, and it’s not urgently required for more pressing financial obligations like settling high-interest debt, consider the compelling reasons to invest in Amazon (NASDAQ: AMZN), Lululemon Athletica (NASDAQ: LULU), and Hyatt Hotels (NYSE: H).
1. Amazon
Amazon is experiencing a surge in business momentum, evident in the improvement of revenue growth from its online stores throughout the past year. Despite a remarkable 84% rally in the stock over the last year, shareholders can anticipate further upside as the company concentrates on cost reduction and profit enhancement.
Over the past two decades, Amazon strategically invested tens of billions of dollars in constructing an extensive fulfillment infrastructure for its online retail operations. The company rapidly developed a transportation network comparable in size to UPS within just 18 months to manage the surge in orders during the pandemic. Although this substantial investment initially impacted profits, it is now yielding significant returns.
Amazon’s fourth-quarter operating income witnessed an impressive 383% year-over-year surge, surpassing $13 billion. Profits have been bolstered by measures such as headcount reductions and restrained hiring over the past year. Moreover, the management is actively seeking additional cost-cutting opportunities.
CEO Andy Jassy, during the recent earnings call, emphasized the potential for “meaningful upside” in reducing costs to serve customers. This involves optimizing inventory location for faster deliveries and addressing inflationary costs that affected many companies in 2022.
Consensus estimates from analysts suggest a robust annualized growth rate of 24% in Amazon’s earnings per share. If the stock maintains a forward price-to-earnings (P/E) ratio of 41 by 2030, investors stand to triple their investment. Even with a modest adjustment toward the market average P/E ratio of approximately 25, there remains significant potential to double the value of the shares.
2. Lululemon Athletica
Lululemon’s remarkable growth over the past decade reflects the enduring strength of the athletic apparel market.
With annual revenue more than doubling since pre-pandemic levels, the company continues to exhibit robust growth, with a 19% year-over-year surge in revenue for the quarter ending in October. This expansion is driven by the sustained demand for athletic wear, a trend that has persisted for decades, coupled with Lululemon’s strategic international expansion.
The athletic wear industry, valued at over $200 billion according to Statista, remains on a growth trajectory, providing a favorable environment for Lululemon. The company benefits from its premium brand positioning and a sophisticated online shopping experience.
While Lululemon consistently refreshes its product assortment to maintain demand, it also capitalizes on perennial best-sellers like the men’s ABC pant and the women’s Align. With international revenue witnessing an impressive 49% year-over-year surge last quarter, the brand is still in the early stages of global growth.
Analysts anticipate long-term earnings growth of 16% on an annualized basis, aligning with management’s objectives. Assuming the company meets these expectations and the stock maintains a forward price-to-earnings (P/E) ratio of 31, consistent with its historical trading range, investors could potentially see their investment double by 2030.
3. Hyatt Hotels
Hyatt stands out as a premier brand in the flourishing luxury resort market, poised to deliver substantial returns to shareholders amid the ongoing surge in travel demand. Projections indicate that the travel industry could surpass $1 trillion by 2027, according to Statista.
The strength of Hyatt as an investment lies in its revenue generation model. While the hotel chain does derive some revenue from owned hotels and room rentals, its primary income sources are fee-based revenue, licensing, and various services. Hyatt strategically sells the rights to use its intellectual property to third-party owners and franchisees, fostering a lucrative business model. This, coupled with the expanding industry landscape, positions the company for robust shareholder returns.
Hyatt’s free cash flow has more than doubled since 2017, with management consistently reinvesting these resources to enhance room availability and drive revenue growth. The company has led the industry in net room growth over the past six years, and there are further opportunities for expansion, particularly in the Asia-Pacific region. Notably, revenue-generating fees in this region surged by 51% year over year in the fourth quarter, and a recent agreement with the Hangzhou Trade and Tourism Group aims to develop over 60 hotels in China.
Analysts anticipate Hyatt’s earnings to grow by 10% on an annualized basis. Management’s strategic moves to increase the proportion of profits derived from high-margin fees, including selling owned hotels to reinvest in more lucrative areas of the company, bode well for sustaining attractive returns for investors.
