Buying and holding growth stocks that can rise 10x, 20x, or more is arguably the best way to beat the market long-term. But finding those companies is easier said than done.
Looking at some of the companies that have generated big returns over the last two decades, we can hopefully find some trends that can help us pick stocks with a lot of growth potential in the future. Here's a look at how Netflix (NFLX -1.80%), Monster Beverage (MNST -0.23%), and Apple (AAPL -1.32%) all turned $1,000 into at least $300,000 over the past two decades.
Movies on demand
Streaming television may be commonplace today, but when Netflix started a streaming service it was completely novel to the market. Netflix started as a DVD delivery company, allowing customers to rent DVDs and mail them back for new ones, but late in the 2010s it made a quick transition to streaming.
The Netflix story is a classic disruption story. Netflix started streaming by licensing content from traditional media companies, which saw revenue from Netflix as an added short-term bonus, allowing Netflix to create its disruptive streaming service. Soon Netflix began creating some of its own content. This year the company will spend more than $17 billion on content, which is more than the $14 billion to $16 billion Disney (DIS -0.89%) expects to spend on its streaming content in 2024.
The power in Netflix's business model is in owning the subscription relationship with customers. The word "Netflix" has become synonymous with streaming television. That disruption of the traditional media business is what has driven the stock to a 131,000% return in the last 20 years, and it doesn't look like the company's power position is changing anytime soon.
Image source: Getty Images.
A new beverage market emerges
The energy drink market was just beginning two decades ago, and Monster Beverage was at the forefront. Monster's distinct cans and constantly changing flavors have become a favorite in a steadily growing market for energy drinks. You can see below that revenue and net income have risen steadily for two decades on the back of these market trends.
MNST Revenue (TTM) data by YCharts
How can an energy drink company beat the market by such a wide margin when competitors are everywhere? The biggest answers are brand awareness and loyalty. Like Coca-Cola before it, Monster has a loyal following, and its growth has come from adding distribution channels to grow its user base. And it doesn't appear that customers are dropping the company's products as competitors emerge.
It's also important to point out that Monster Beverage has outstanding net margins. The company translates about 30% of each sale into net income, which is a tech-type net margin. This allows the company to spend on marketing and distribution reach to keep competitors at bay.
The energy drink business is a great combination of high growth, high profits, and high brand loyalty, which has helped drive Monster Beverage's returns for two decades despite a hotly contested beverage market.
The best product of all time
All Apple needed to do to crush the market was create the most successful product of all time. The iPhone didn't just take over the cellphone market -- it came to define a generation of computing. Now many of us always have our iPhones within reach.
There are now over 1 billion iPhones active around the world, according to Apple, and the device is now the center of an ecosystem that includes a watch, AirPods, HomePod speakers, and a growing line of accessories. It's rumored Apple might also add VR and/or AR glasses to the ecosystem in the next few years.
AAPL Revenue (TTM) data by YCharts
As a result, Apple has become one of the great growth stocks of all time. The company is now one of the most valuable in the world, and with a scale of over 1 billion devices and growing, it looks like it'll remain unstoppable for the next decade.
What we can learn from breakout stocks
There are a few simple lessons that I see from these three top-performing stocks:
- Be the leader in a new market.
- Disrupt existing companies, which will be slow to react.
- Build a loyal brand following.
What kind of companies have similar traits to these today? Here are three ideas for investors:
- Zillow (Z -1.05%)-- Disrupting real estate transactions with a popular app, replacing the century-old real estate broker network.
- Spotify (SPOT -0.33%)-- Becoming the go-to spot for podcasts, disrupting TV and radio.
- Virgin Galactic (SPCE -1.85%)-- Could come to define an entirely new space tourism market.
Stocks that can turn $1,000 into $300,000 over the course of two decades are rare, but these stocks have what it takes to generate massive returns. And they could be the next Netflix, Apple, or Monster Beverage on the market.
