Editor’s note: This article was updated on Dec. 18 to include the latest available information.
With 2021 around the corner, it’s become more important than ever for traders to look for long-term stocks that offer reasonable returns without too much risk. These are what I call “millionaire-maker” stocks — high-potential companies with enough stability to warrant a significant position. A 10% position in a security that grows 50 times, after all, will turn a $200,000 portfolio into $1.2 million.
What about moonshot investments? It’s always fun to find the next Tesla (NASDAQ:TSLA), a topic I’ve long written about. But these “fun” investments can also go to zero fast, which means most investors aren’t putting more than 1% of their portfolio into any single name. And as for the “mega-cap-blue-chips” like Apple (NASDAQ:AAPL)? Those companies are already so enormous that even a large stake won’t grow your portfolio by much.
That’s why “millionaire-maker” companies are so crucial for investors. So, with 2020 in the rear-view mirror, here are five of my favorite long-term stocks that should do well, regardless of the surprises that 2021 might bring.
- Lyft (NASDAQ:LYFT)
- General Electric (NYSE:GE)
- Etsy (NASDAQ:ETSY)
- SolarEdge (NASDAQ:SEDG)
- Splunk (NASDAQ:SPLK)
Long-Term Stocks to Buy: Lyft (LYFT)
In November’s election, it was easy for investors to have overlooked another voting matter: California’s Proposition 22. On election day, the state’s voters passed a ballot measure allowing ride-hailing companies to categorize workers as contractors rather than full-time employees.
This is a massive win for Lyft.
That’s because it creates a roadmap for the company and its competitors to build out a gig economy workforce. Under the new rules, workers now have access to a “middle-path” employment status that gives part-timers guaranteed minimum payments, healthcare, occupational insurance and life insurance benefits.
The news comes at a pivotal moment for Lyft. Unlike its larger competitors, Lyft stayed in ride-hailing instead of diversifying into food delivery. That meant its ride-sharing business suffered far more during the pandemic — revenue shrank from $867 million in the second quarter of 2019 to just $339 million in Q2 of 2020. Now shares are down over 50% since the company’s initial public offering (IPO) in 2019.
That provides investors with a golden opportunity to invest in a highly promising company. Analysts expect Lyft to reach positive EBITDA in 2022 and for the overall market to “grow eightfold to $285 billion by 2030” as the novel coronavirus subsides.
That means — at just $16 billion market capitalization — LYFT stock looks like a real steal out of all the long-term stocks.
General Electric (GE)
General Electric — which makes much of its profit from jet engines and medical imaging devices — has also been hit hard by the pandemic. With fewer aircraft in operation, demand for its lucrative spare parts division dried up. And to compound GE’s Covid-19 woes, hospitals also put off adding new MRI and other scanning machines as the novel coronavirus raged.
But don’t assume these short-term issues will last forever.
That’s because, after years of shedding underperforming segments, GE finally has a healthy mix of wide-moat businesses. The company holds a significant portion of the world’s industry in jet engines, a highly profitable aviation business that generated 21% returns in 2019. As for healthcare, GE stock earned 20% returns in 2019.
The legacy industrial company has also been replacing its traditional power segment with renewable energy. The company offers onshore and offshore wind, blades, hydro, and grid solutions.
Finally, at 7 times EV-to-EBITDA, GE stock is priced very cheaply. That makes General Electric one of the long-term stocks ready for a strong 2021 recovery, no matter the economic uncertainty.
Etsy, a popular U.S. e-commerce site, has been a massive winner in 2020. Shares have rocketed 300% year-to-date (YTD), as both buyers and sellers have turned to the site for custom handmade and vintage goods.
However, the company can trace its success back even further, before the pandemic. Etsy has grown revenues and been profitable since 2016. Its e-commerce platform operates in a virtuous cycle — more sellers coming onto the site also drives more buyers, and vice versa.
Etsy was also quick to compete with Ebay (NASDAQ:EBAY) on ease of use. In 2016, the company acquired Blackbird Technologies to add AI-driven product recommendations. By 2019, Etsy’s habitual buyers had increased 23%.
And the company has more room to grow. With an $23 billion enterprise value, Etsy is only half the size of rival Ebay.
The firm, of course, will have to manage growing pains. It’s raised its “take rate” and angered sellers over changes in its advertising policies. But if the company can continue expanding its product offerings, it could very well become the next e-commerce success. That makes ETSY stock one of the more promising long-term stocks on the market.
With so many money-losing solar companies on the market, it’s hard for investors to know where to begin. Photovoltaic (PV) panel makers like First Solar (NASDAQ:FSLR), for instance, compete against the rock-bottom prices of Chinese makers. On the other hand, solar leasing companies like Sunrun (NASDAQ:RUN) lose money on debt service.
That’s where SolarEdge comes in, a specialty maker of power optimizers, solar inverters and monitoring systems for PV arrays. These are essential components to getting the most out of solar panels.
And that’s helped SolarEdge churn out profits year after year. The company has made money since 2015 and now earns a 14% return on invested capital (ROIC), light-years ahead of other solar players. SEDG stock has also performed well, returning over 1,200% in the past five years.
What’s more, according to the International Energy Association (IEA), solar power generation will be the “main driver of growth” in renewable energy heading towards 2040, as countries look to reduce their dependence on fossil fuels. That only means the demand for SolarEdge’s products will continue to grow.
Like most solar companies — and compared to other long-term stocks — SEDG isn’t that cheap. Right now, it trades for about 57 times EV-to-EBITDA. But if the company can keep riding the wave of solar investment growth, its earnings will skyrocket.
Rounding out my top long-term stocks for 2021 is Splunk, a fast-growing software company. This San Francisco-based firm specializes in analyzing machine-generated big data and has seen roughly 50% annual recurring revenue (AAR) growth through Q2 this year.
Why such swift growth? Splunk’s underlying market is growing fast.
According to Gartner research, 25 billion devices are already connected to the internet. Analysts expect that figure to almost double by 2025.
And that’s where Splunk comes in. The company’s “Data-to-Everything” platform helps customers gather and manage data from connected devices. It’s a massive growth market that has companies like Nvidia (NASDAQ:NVDA) and Tesla fighting for their shares of the space.
There’s just one downside to Splunk: it isn’t profitable yet. To grow its customer base, the company spends much of its revenues on sales and marketing. That number should decrease over time, however, as existing customers renew their contracts. Long-term investors in SPLK stock should expect positive EBITDA by fiscal year 2022.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.