The S&P 500 index has delivered annualized returns of about 10% since 1957. That closely approximates the growth in the average company’s earnings. If you want to beat the market, you want to look for companies that can grow their earnings well above the average.
Here are two companies that can deliver superior earnings growth and outperform the S&P 500 over the next five years.
1. Tesla
Tesla (NASDAQ: TSLA) shares delivered an 8,500% return to shareholders over the last 12 years, but the stock hasn’t hit new highs since 2021. However, the stock has followed this pattern before. The shares previously delivered modest gains between 2014 and 2018 before rocketing tenfold to their previous high of $414. Here’s why another bull run is coming.
Despite higher interest rates and increasing competition in the electric vehicle (EV) market, Tesla delivered a strong second-quarter update, with automotive revenue up 14% over the first quarter. Tesla remains one of the most profitable car manufacturers in the world. It generated $8.1 billion of adjusted net income over the last four quarters on $95 billion of revenue.
Tesla will emerge from this downturn in a stronger competitive position from its efforts to lower costs per vehicle. The EV opportunity remains massive, with annual unit sales expected to more than double over the next four years, according to Statista. By lowering costs, Tesla will remain a formidable leader that can profitably sell more affordable EVs to capture significant share of the market.
CEO Elon Musk has previously said he believes Tesla could earn $1 trillion in profit one day. That’s a very long-term goal, but it shows that management is increasingly investing in initiatives that will raise the company’s margins and drive strong earnings growth over time. A few of these opportunities should kick in within the next five years, such as growing subscriptions for Tesla’s self-driving software, energy solutions, and robotaxi service.
Analysts expect Tesla’s earnings to nearly double next year, which could be the beginning of a trend. As automotive revenue…
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