The bull market has pushed the S&P 500 up 22% over the past year, but historically, the popular barometer has averaged about 10% returns annually. One strategy to beat the index is to invest in companies that are growing revenue or earnings at higher rates. Stocks might bounce around in the near term, but there is a close correlation between a stock’s long-term performance and the growth of the underlying business.
To help you in your search, three Motley Fool contributors believe Uber Technologies (UBER -1.81%), MercadoLibre (MELI -0.06%), and Cava Group (CAVA 0.61%) have the makings of long-term winners that can outperform the broader market over the next five years. Here’s why.
The ride-hailing market is exploding
John Ballard (Uber Technologies): Uber stock is up 162% since bottoming out in 2022, but the stock’s flat performance over the past year sets up a great buying opportunity. Another year of strong growth from the business against a stalled share price has brought the valuation down to an attractive level that sets up excellent return prospects.
Uber has been laying the foundation for long-term growth in the business, and it showed in 2024. Revenue growth accelerated, rising 20% year over year in the third quarter. Moreover, the increase in revenue is driving a bigger improvement in profits, with operating income more than doubling over the year-ago quarter to $1.1 billion.
That acceleration can be attributed to several trends, including more people using Uber, strong growth in advertising, increasing numbers of Uber One memberships, and expansion into new markets.
Over the long term, Uber will see increasing competition, but the ride-hailing market is expected to grow significantly in the coming years. As a leading brand, it will be a tough competitor, and investors can buy shares at a very attractive valuation that sets up great return potential.
The stock trades at just 20 times 2025 earnings estimates, with analysts forecasting earnings to grow at an annualized rate of 41%. As the company improves margins, Uber stock could significantly outperform the S&P 500.
Twin powerhouse businesses in e-commerce and fintech
Jennifer Saibil (MercadoLibre): MercadoLibre stock has outperformed the S&P 500 over the past five years, but it inched up only 8% in 2024. Wall Street is worried about the economy in Argentina, MercadoLibre’s biggest market. But so far, the company continues to demonstrate incredible performance, and it has a continuing massive opportunity.
E-commerce penetration in Latin America, where MercadoLibre operates, is still below other global regions, but it’s growing quickly, and this is the company’s sweet spot. Gross merchandise volume (GMV) increased 71% year over year (on a currency-neutral basis) in the third quarter, and net revenue was up 103%.
Unique buyers grew 21% over last year to 61 million, and monthly active users were up 35%. Third-quarter profitability was hurt by bad debt, but the company still reported a net income margin of 7.5%.
These aren’t unusual results. MercadoLibre consistently demonstrates high growth, but operating in an underserved region, there’s so much more potential to unlock. It services a population of more than 500 million, and its innovative products are disrupting traditional financial operations and attracting customers.
It also has a robust fintech and credit business that complements its commerce business with digital payments and financial solutions. Assets under management were up 93% year over year in the third quarter, and the credit portfolio increased 77%. The company now offers a full line of financial services on a digital app, and it’s opening up its first banking products in Mexico, where it’s aiming to become the largest digital bank in the country.
There might be continued short-term pressure on margins, but it’s outperforming in its business, with more new customers in Argentina than at the peak of the pandemic, when e-commerce began to accelerate. Over the next five years, MercadoLibre should be able to keep up its fantastic performance, capture market share, expand its business, and reward investors.
The next restaurant growth star
Jeremy Bowman (Cava Group): Cava was one of the biggest surprises of 2024. In a challenging year for consumer discretionary stocks, the restaurant chain’s shares jumped 162% on blowout growth on the top and bottom lines.
The stock has pulled back since its peak following its third-quarter earnings report in November and now offers a better entry point.
The Mediterranean fast-casual chain looks like a good bet to outperform the S&P 500 over the next five years for several reasons. First, its product is clearly resonating with consumers. Average unit volumes, or average sales per restaurant, are now $2.8 million, on par with popular chains like Chipotle and Sweetgreen. The company also posted same-store sales growth of 18.1% in the third quarter on 12.9% traffic growth.
That kind of growth doesn’t just happen. Cava is clearly generating buzz among its customers, who are spreading the word to their friends and going back to the restaurants more frequently.
It’s also converting that increased demand into profits. Restaurant-level profit jumped 41.9% in the third quarter to $61.8 million, and its income under generally accepted accounting principles (GAAP) surged from $6.8 million to $18 million.
Cava still has a long runway for growth since it had just 352 restaurants at the end of the third quarter and hopes to own more than 1,000 by the end of the decade. However, there’s potential for the chain to grow to several thousand locations if the concept continues to resonate.
Chipotle currently has more than 3,000 locations and aims for at least 7,000, while Shake Shack just raised its target from 450 to 1,500.
The ceiling is high for Cava. If the company keeps up its momentum, the stock could easily double or triple by 2030.