The stock market is a vehicle that can triple your money over the next 10 years. For evidence, I encourage you to look at the past 10 years. If you invested $10,000 in October 2011 and simply matched the return of the S&P 500, you’d have more than $36,000 now.
Which brings me to an important point. The headline brought you here promising stocks that could triple your money. But tripling your money — despite how great that sounds — would have been a market-losing investment over the past 10 years. With this in mind, while I’m not presenting you with what I think are losers, the three stocks here might not have the highest upside in the stock market. Nevertheless, I do believe they’re rock-solid ideas that can serve as a foundation for your portfolio.
If you can’t beat ’em
To triple your money in 10 years, you need to achieve a 12% annualized return. The hurdle looks small but in reality few stocks can do it for a decade. The stock market as a whole, however, is a different story — it could. That’s why you might consider starting with an exchange traded fund (ETF) that simply tracks the performance of the entire market, like the Vanguard S&P 500 ETF (NYSEMKT:VOO). As they say, “If you can’t beat ’em, join ’em.”
Here you’re not betting on any one company but rather 500 of the largest U.S.-based businesses there are. Historically that’s been a bet worth taking.
But there’s a good reason to take this bet via the Vanguard S&P 500 ETF specifically. ETFs and mutual funds charge investors fees for their services. And these fees can eat away at potential returns over time. However, Vanguard only charges 0.03% annually for its S&P 500 ETF whereas the average for ETFs is much closer to 1%. This cheap fee structure is in investors’ favor when trying to triple your money in a decade.
A durable competitive advantage
Airbnb (NASDAQ:ABNB) is the most well-known short-term rental company. But I want to emphasize at the outset that this is a marketplace business. In this case, the marketplace provides a place for property owners to rent out their spaces to other people for a short time. However, the struggle for any marketplace like Airbnb is gaining initial adoption. After all, no one wants to list their home on a marketplace that doesn’t have many users.
Therefore, marketplaces benefit from network effects — every new user makes the platform more attractive to other potential users. Airbnb has plenty of rivals such as Expedia‘s VRBO. But Airbnb enjoys a competitive advantage when it comes to adoption and it can leverage its brand recognition in a way its competitors can’t.
For illustration, consider some numbers reported by Skift. Citing data from Kantar Media, VRBO outspent Airbnb 10-to-1 on advertising in January and February of 2021. Nevertheless, Airbnb’s gross booking value for the first quarter of 2021 was still 3% higher than the same quarter of 2019, before the pandemic. In other words, Airbnb grew while spending a fraction of what its competitors spent.
Expedia doesn’t break out VRBO’s numbers — though it’s reasonable to assume it also performed well during the first quarter. But the point is VRBO spent heavily on advertising. By contrast, Airbnb didn’t have to. It’s a level of adoption that gives it a competitive edge.
Airbnb’s user adoption also allows it to focus its advertising budget on the other side of the equation: growing its network of hosts. Toward the end of the first quarter, the company started spending more on an ad campaign directed toward growing its supply of spaces available for rent. And where ads aired, management noticed a 25% increase in site traffic compared to 2019 — that’s quite a bump.
Growing its supply of spaces is crucial for Airbnb to capture the industry upside going forward. According to Statista, worldwide vacation rental revenue is expected to grow at a 12% compound annual growth rate through 2026, reaching booking volume in excess of $100 billion, propelled by the ongoing adoption of platforms like Airbnb and VRBO.
I believe Airbnb stock could triple in the next decade due to its unrivaled adoption, its focus on growing its supply, and the market-beating industry growth that’s expected.
A way to hedge against inflation?
According to the Bureau of Labor, inflation for September was 5.4% over the previous 12 months, the highest it’s been since 2008. If you’re worried inflation could become a lengthier trend, then investing in a top payments company like PayPal Holdings (NASDAQ:PYPL) could be a good way to hedge against this problem. Assuming consumers continue to use PayPal’s services, its payment volume would increase as prices go up with inflation, resulting in revenue growth for PayPal.
Don’t misunderstand: PayPal is far more than an inflation hedge — that’s just a bonus. The business economics of PayPal make it a rock-solid investment. It costs money to run a business, but this company typically earns a 15% operating profit margin. This operating margin helped it earn $5 billion in free cash flow (FCF) in 2020, an impressive feat that it expects to replicate in 2021. Over the years, FCF has gone up as revenue has scaled up and that’s something to keep expecting in the coming decade.
In 2020, PayPal’s active users transacted an average of 40.9 times. This level of engagement is encouraging because it suggests users won’t leave for another platform. After all, they’re using PayPal’s services a lot. But engagement is something that management is actively trying to increase. This is why it’s been launching new services like buy now, pay later. It’s trying to be more useful.
So far, the strategy seems to be working. In the second quarter of 2021, the average number of transactions per user had increased to 43.5, an encouraging sign. And it’s something that could really help management grow and monetize the merchant side of its business. At an investor event earlier this year, CEO Dan Schulman said, “We have a platform with hundreds of millions of consumers that are basically telling the merchant, ‘Here’s what I want.'” By increasing transaction frequency, PayPal understands consumers’ wants better and can pass the insights on to merchants, improving their success.
With attractive business economics, billions in FCF, ongoing user growth, increased transactions, and first-party consumer data that can be monetized via merchants, I believe PayPal stock could join the Vanguard S&P 500 ETF and Airbnb stock by tripling over the next 10 years.
I consider all three of these investment choices as safe investments — it’s hard for me to imagine these losing money over a decade. And by anchoring your portfolio to stocks like these, you could take on a little more risk in other investments if you’re looking for higher upside.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.