Even though Apple (NASDAQ: AAPL) is a spry 37-year-old publicly traded stock, it recently took the mantle of the best investment on the market since 1926. With price appreciation and dividends, the company has created close to $1 trillion in wealth since its IPO. No matter how you look at it, Apple is one of the best investments of all time, and will be incredibly difficult for any company to surpass it.
That said, we're going to try anyway. We asked three of our investing contributors to highlight stocks they foresee as having incredible returns for years to come, like Apple's. Here's why they think that HubSpot (NYSE: HUBS), A.O. Smith (NYSE: AOS), and Amazon.com (NASDAQ: AMZN) have a shot.
Reinventing marketing for the digital age
Brian Feroldi (HubSpot): Can you remember the last time a cold call, TV commercial, or direct mailing campaign changed one of your buying habits? If you are like most Americans, the answer is no. Consumers today use caller ID, DVR, and ad-blocking technologies to limit the number of advertisements they see on a given day. That fact is making it harder and harder for businesses to spend their marketing dollars effectively.
These realities are causing more businesses to turn to HubSpot for help. HubSpot sells cloud-based software that helps companies of all sizes to enhance their online presence. This makes it easy for customers to find them when they are researching a new product or service to buy.
HubSpot calls this innovative (and effective) strategy "inbound marketing" and it has already convinced more than 34,000 businesses to sign on. That's a very impressive figure that increased 40% when compared to the year-ago period. What's more, the average customer is spending more than $10,000 per year in subscription fees to stay on HubSpot's platform. That figure is telling about how much value they get from its offerings.
Zooming out to the big picture, Census Bureau data from 2014 shows that there are more than 5.8 million employers in the U.S., and many of them are likely going to need help adapting to today's marketing landscape. This means that HubSpot has still only captured a tiny fraction of its total addressable market opportunity, so it wouldn't surprise me to see this company produce eye-popping growth numbers for many years to come. If true, then Apple-like returns are not out of the question.
iPhones and... water heaters?
Tyler Crowe (A.O. Smith): The iPhone is 10 years old this year, and it has done miracles for Apple's stock price since then. Do you want to know what has outperformed Apple over that time, though? Water heater manufacturer A.O. Smith. Even though it doesn't appear there are a lot of similarities between the two products, iPhones and water heaters have some market characteristics that are surprisingly similar.
In the U.S. and other mature markets, both products are rather ubiquitous. The smartphone market is a saturated one and just about every home or commercial building has a water heater in it. That means that both markets generate sales from replacing older systems. In fact, more than 85% of A.O. Smith's sales in North America are replacements of older systems, which means sales are rather steady, predictable, and not as tied to new housing as one might originally assume.
Also, like iPhones, water heaters are an aspirational product of the middle class in emerging markets. Take China, for example, where water heater sales have been growing at better than 20% annually for several years. Also, the company's other offerings in emerging markets -- residential air and water purifying systems -- are growing sales at more than 40% annually. This kind of explosive growth in emerging markets has been a significant reason why A.O. Smith has generated returns on equity in excess of 15% since the Great Recession.
With a lot more room to grow in China and new markets opening up in places like India, A.O. Smith certainly has a chance to outpace Apple for some time.
A revenue growth machine that could run for decades to come
John Rosevear (Amazon.com): I should start by saying that my definition of "Apple-like returns" is pretty extreme. I got a share of Apple as a gift when I was a kid -- way back in 1981, shortly after the company went public. That one share is now 112 shares (thanks to splits), and last I checked, it was up something like 83,000% from my parents' initial investment.
Those kinds of returns only happen a few times in a generation. Investors who bought Amazon way back in 1997 have already seen returns in the same neighborhood as my Apple gains. But here's the thing: Unlike Apple, in some ways, Amazon is just getting started -- and the big growth is still happening.
Consider: Amazon's revenue grew 25% last quarter from the year prior. That wasn't a fluke -- it's just the way Amazon rolls. In fact, that revenue increase fell short of Wall Street's expectations, which tells you a lot.
What's driving that growth? Twenty years after its IPO, Amazon is still expanding its retail offerings into huge new categories like groceries and autos. It has built artificial intelligence expertise that has the potential to carry it into a long list of new spaces, and its cloud infrastructure business, Amazon Web Services, is already big and seems set to get a lot bigger.
Of course, profits are hit or miss with Amazon -- which is actually something I like: CEO Jeff Bezos and team have long made a habit of plowing all that cash into new opportunities. Simply put, Amazon is a revenue growth engine, one that could keep going for many years to come. If so, expect its stock to keep growing accordingly.
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Brian Feroldi owns shares of Amazon and Apple. John Rosevear owns shares of Amazon and Apple. Tyler Crowe owns shares of A.O. Smith and Apple. The Motley Fool owns shares of and recommends Amazon, Apple, and HubSpot. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.