For an investment to double your money by 2030, it needs to compound at roughly 12% annually. That's just a hair better than the long-term average for the S&P 500. Therefore, in this article, I'm not trying for home runs. I'm simply looking for solid hits.
That's good because $3,000 is a lot of money for many investors. One can unnecessarily assume outsize investment risk trying to hit the jackpot. But often it's better to take a high chance of good returns than to bet on a low chance of extraordinary returns.
In that category, I believe you should look at the following three stocks right now: home-improvement retailer Floor & Decor (FND -1.16%), organic light-emitting diode (OLED) company Universal Display (OLED -0.76%), and Chicago's own restaurant chain Portillo's (PTLO -0.33%). Let's see why.
1. Floor & Decor
Floor & Decor is a home-improvement retail chain with 203 locations as of the end of the second quarter of 2023. But by 2030, it expects to have closer to 500. That would be incredible growth for the business and I believe it would be enough to give the stock at least a 12% annual boost.
That's not to say the rest of the decade will be smooth waters for Floor & Decor. This year is evidence that choppy seas are possible. Home-improvement retailers tend to perform poorly when the housing market struggles like it is right now. In the first half of 2023, same-store sales fell 4.7% for Floor & Decor, leading to a lower profit margin as it loses operating leverage.
But I believe this is a short-term setback. This isn't just a problem for Floor & Decor -- same-store sales are down for Home Depot and Lowe's as well, showing that this is an industry headwind right now. That will happen from time to time. But it doesn't mean that home-improvement sales will languish forever. To the contrary, it's reasonable to expect long-term resilience in the category.
Floor & Decor CEO Tom Taylor is a former Home Depot executive and I believe he has the expertise to elevate this promising concept. The company's stores average 79,000 square feet of mostly flooring materials -- that's more than what a small specialty flooring store can offer and it's more than what a retailer like Home Depot dedicates to this building category.
By going big, Floor & Decor can dominate the flooring space and reach its goal for 500 stores, rewarding shareholders along the way.
2. Universal Display
Universal Display has over 6,000 patents around the world related to OLED, an electronic component used to create digital displays in TV sets, computer monitors, smartphones, and more. Manufacturers license the technology from Universal Display, which is a high-margin source of revenue. They also buy the materials needed to make OLED panels from the company, which is another revenue source.
I believe Universal Display stock has limited downside for two reasons. First, the company is on solid financial footing because it's profitable, cash-rich, and debt-free. Second, it owns a technology poised for strong growth through at least 2030, which I believe can boost it above 12% returns annually, just like Floor & Decor.
More recently, Universal Display has upgraded the technology. While OLED is desirable because it is energy efficient, the company is making gains with phosphorescent organic light-emitting diodes (PHOLED), which is even more energy efficient.
Right now, Universal Display has PHOLED technology for red and green, which reduces energy consumption by 64% compared to OLED panels in 2015. But it hopes to soon launch PHOLED blue, which will reduce energy requirements by another 24% and keep the company's products on the cutting edge of display technology.
I believe that the launch of PHOLED blue can be a growth catalyst for Universal Display. This should make the company even stronger financially. As of the second quarter of 2023, it had $756 million in cash, cash equivalents, short-term investments, and long-term investments. Moreover, it's earned $208 million in trailing-12-month net income -- within 1% of its all-time high.
3. Portillo's
Portillo's is a restaurant company that's known for its Chicago-style hot dogs and Italian beef sandwiches. The chain may be small with only 76 locations as of the second quarter of 2023. But these restaurants do some heavy lifting with $8.8 million in average unit volumes -- the dollar amount of sales per location annually on average.
With such high sales volume, Portillo's is a profitable company. However, it's not as profitable as it could be if it were bigger. Businesses incur non-operating expenses at the corporate level and these expenses can take a bigger bite out of profits depending on how small the overall operation is.
For example, compare little Portillo's with Darden Restaurants, a massive company with nearly 2,000 restaurant locations. Selling, general, and administrative (SG&A) expenses make up just 5% of Darden's revenue whereas Portillo's spends nearly 18% -- these are the corporate expenses I mentioned.
PTLO SG&A to Revenue (TTM) data by YCharts
As it grows, Portillo's should gain operating leverage in this category, allowing more restaurant-level profits to drop to the bottom line. Therefore, I expect the company's profits to grow faster than revenue over the long term.
Portillo's should finish 2023 with 84 locations and management plans to grow its restaurant count by more than 10% annually. Therefore, by the end of 2030, the company could have well over 160 locations -- double what it has today.
Portillo's stock already trades at an inexpensive valuation with a trailing price-to-sales ratio of 1. And if it can double its revenue through new restaurant locations and more than double its profits thanks to operating leverage, then I believe Portillo's can join Floor & Decor and Universal Display in doubling investors' money over the rest of this decade.
That's why I believe all three are good places to look if you have $3,000 to invest.
