Image source: Getty Images
The S&P 500 index can be a goldmine for stocks that have huge growth potential. Over the last few decades, many shares in this index (Nvidia, Amazon, Apple, etc) have made investors an absolute fortune.
Here, I’m going to highlight three S&P 500 stocks that I reckon will soar over the next five years, and make passive index fund strategies look silly. Are these names worth a closer look today?
A cybersecurity powerhouse
Over the next five years, the cybersecurity industry is likely to experience prolific growth as companies embrace artificial intelligence (this will increase the attack surface). This industry expansion should fuel strong growth at CrowdStrike (NASDAQ: CRWD).
It’s one of the largest players in the cybersecurity sector with a market-cap of around $120bn. It aims to secure the most critical areas of risk for businesses – endpoints, cloud workloads, identity, and data – to keep customers ahead of cyber criminals.
Now, like a lot of high-growth stocks, CrowdStrike carries a fair bit of risk from an investment perspective. Not only does it operate in a very dynamic environment (the cybercrime landscape’s always shifting) but it has a high valuation because its earnings are still small.
Taking a five-year view however, I see a ton of potential. I think it’s worth a look right now.
A chip monster
Another industry I believe will see massive growth in the years ahead is semiconductor (chip) manufacturing. And one company that looks well placed to benefit here – and could be worth considering as a long-term investment – is KLA Corp (NASDAQ: KLAC).
It specialises in process control and yield management solutions for the industry. So it’s essentially a ‘picks-and-shovels’ play on the theme – it should do well no matter which companies have the best chips.
One thing I like about this company from an investment perspective is that it’s very profitable. Return on capital employed (ROCE) is very high, meaning that the company should have plenty of capital to reinvest for future growth (and get bigger).
I’ll point out however, that the chip industry is cyclical (up and down). So while I’m bullish on the long-term outlook here, there could be periods where this stock experiences some short-term underperformance.
A stock for public safety
Finally, I’m bullish on Axon Enterprise (NASDAQ: AXON). It’s known for its Tasers (stun guns) but it also manufactures other policing and security solutions such as body cameras and drones.
This company has been growing at an incredible rate in recent years. Over the last five years, for example, revenue has climbed from $531m to $2,083m.
Looking ahead, I expect it to continue growing at a fast pace. Ultimately, it looks set to benefit from a ‘perfect storm’ of socio-political factors (more unrest globally, lower levels of police staffing, the demand for policing transparency, etc).
Of course, there are risks here. Slowing growth’s one – right now the stock’s priced for strong growth.
When I look to the long term here though, I can see this stock doing very well given the complex socio-political backdrop. I think it’s worth considering while it’s 30% below its highs.
