3 Stocks That Have the Potential to Generate Life-Changing Wealth in 20 Years
When you invest in game-changing businesses, patience can pay off handsomely.
Wall Street has had a rough ride in 2022. Both the widely followed Dow Jones Industrial Average and the broad-based S&P 500 have fallen into correction territory since reaching their respective all-time closing highs in early January (i.e., a decline of at least 10 percent ). The technology-driven Nasdaq Composite has lost more than a quarter of its value in less than seven months, putting it in a bear market.
While there is no doubt that large stock market declines can be unsettling, history has repeatedly shown that these dips are the ideal time for long-term investors to capitalize. Not only are corrections frequently brief, but every notable drop in history has been followed by a bull market rally.
For investors with cash on hand and time on their side, now could be the ideal time to purchase stakes in innovative companies with the potential to generate life-changing wealth. Following are three stocks that have the potential to do so over the next 20 years.
Stock market declines can be unsettling, history has repeatedly shown that these dips are the ideal time for long-term investors to capitalize.
Etsy is the first one-of-a-kind company that can help long-term investors build generational wealth over the next two decades (ETSY -8.70 percent ).
There's probably no dirtier six-letter word than "retail" right now. Retailers have been hit hard by significant inventory buildup, supply chain challenges related to the COVID-19 pandemic as well as the war in Ukraine, and historically high inflation, which is eroding low-income consumers' purchasing power. These headwinds are expected to last through 2022, if not into 2023.
However, when looking at Etsy's long-term potential, these near-term headwinds are most likely nothing more than minor speed bumps.
The ability of Etsy to differentiate itself in the highly competitive online retail arena is the most compelling reason to invest in the company. Unlike most online retail platforms, Etsy's e-commerce platform is designed for customer engagement. This is because the majority of Etsy's merchants are small businesses that create one-of-a-kind or customized products for customers. There is no other e-commerce platform that allows for more personalization at scale than Etsy, which provides a tangible and sustainable competitive advantage.
Another factor contributing to Etsy's success is the company's willingness to reinvest in its platform. The company has increased its marketing budget, improved the analytics and tools that sellers on the platform use to manage their orders and connect with buyers, and introduced video listings to increase shopper engagement.
Etsy has also done an excellent job of converting casual shoppers into repeat buyers. A "habitual buyer," according to Etsy, is someone who makes at least six purchases in the previous 12-month period, with the total value of those purchases exceeding $200. The number of habitual buyers increased by 224 percent between the end of 2019 (before the pandemic) and the end of 2021. Perhaps more than any other figure, this figure is the company's key to charging merchants higher fees.
Etsy, which has carved out a niche in the steadily growing online retail space, can be a significant moneymaker for patient investors.
Trupanion, a companion animal health insurance provider, is a second highly innovative growth stock that has the potential to create life-changing wealth over the next two decades (TRUP -8.00 percent ).
The main knock on Trupanion is that it is an unprofitable company at a time when valuations are becoming more important. With inflation and interest rates on the rise, investors are looking for companies with a track record of success. Trupanion does not yet have the recurring profitability required to compete with established insurers.
These short-term losses, however, should not deter opportunistic investors from investing in a company with numerous competitive advantages in its sails.
To begin with, the pet industry is arguably one of the world's most recession-resistant industries. According to the American Pet Products Association, companion animals cost $123.6 billion in the United States last year (APPA). Not only has year over year pet spending in the United States declined for over a quarter-century, but the percentage of households that own a pet reached an all-time high of 70% in the 2021-2022 APPA survey. Pet owners treat their pets as family members, and this data shows that they will open their wallets in any economic climate to ensure their well-being.
Purchasing health insurance for a cat or dog is a logical extension of owners' desire to ensure their pets' well-being. According to a Trupanion presentation in April, health insurance coverage has reached only 2% of the US and Canadian companion animal markets. If the United States achieved a 25% penetration rate, which corresponds to the companion animal insurance rate in the United Kingdom, Trupanion's total addressable market would be $38.3 billion. For context, pet medical insurance spending increased at a compound annual rate of 23% between 2015 and 2020.
Despite the fact that pet insurance is a competitive segment, Trupanion can rely on its more than two decades of rapport with veterinarians and their clinic staff. Among large-scale pet insurers, it is also the only one that offers software to vet clinics that allows for payment at the time of service. This means less work for both pet owners and the clinic.
Trupanion provides long-term double-digit growth potential in an industry that has proven to withstand economic downturns.
Sea Limited, a Singapore-based conglomerate, is a third growth stock that has the potential to create life-changing wealth in 20 years (SE -7.18 percent ).
Sea, like Trupanion, is facing an uphill battle in the short term due to large operating losses. With tech stocks crashing, companies like Sea have seen significant price-to-sales multiple contraction. Sea, on the other hand, would not be on this list if it didn't have something unique to offer long-term investors.
The secret sauce of Sea is that it has three rapidly growing, yet independent, operating segments.
Currently, the company's gaming division, known as Garena, is the only one that generates positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Garena's success can be attributed primarily to the company's hit mobile game Free Fire. What's especially notable is that 10% of quarterly active gamers pay to play, which is many times higher than the industry average pay-to-play conversion ratio for mobile gaming.
Sea's digital financial services segment should provide additional long-term outperformance. Consumers in some of Sea's emerging markets lack access to basic financial services. SeaMoney intends to address this issue by providing digital wallet access and services.
However, the operating segment attracting the most attention is e-commerce platform Shopee. Shopee has made significant progress in Brazil and is now the most downloaded shopping app in Southeast Asia. In total, $10 billion in gross merchandise value (GMV) passed through Shopee's platform in 2018. Shopee now has an annual GMV run rate of nearly $70 billion.
Although it may be a few years before Sea Limited achieves recurring profitability, it has laid a solid foundation that should pay off handsomely for long-term investors.