There are few better roads to building wealth over your lifetime than investing in the stock market. The long-term average return for the S&P 500 has been about 11% per year, and that's through depressions and recessions, war and civil unrest.
The one certainty seems to be that no matter how bad things get, things always get better and actually improve. The beauty of stock investing is that you don't actually need to have a lot of money to get started and turn a small grubstake into a retirement nest egg.
You could park $500 in the stock index for 25 years and not add another dollar and have it turn into $7,500 at those market averages. But the following two stocks should help your small investing acorn turn into a mighty oak portfolio, and likely well before the next decade begins.
Image source: Getty Images.
Fiverr
The gig economy is here to stay, and Fiverr (FVRR -1.44%) has become a key driver of its acceptance as an alternative income generating channel. The freelancing platform has moved well beyond its early days when each gig was priced at just $5, and that has helped it grow into an important resource for creatives and those who need their services. The pandemic actually made it essential.
Fiverr's technology platform connects freelancers with individuals and companies in need of their services. Instead of going through an agency, the buyer finds them on Fiverr through posted gigs, or packages with set prices for their work, including experience and how many jobs they may already have in the queue.
Revenue surged 77% in 2020 to $189.5 million, and while the market has treated the stock as if no one will ever need to buy a gig again as the economy reopens (shares are down 2% year to date compared to a 19% gain for the S&P 500), management forecasts revenue will still rise 50% this year.
Despite Fiverr's decline, shares remain expensive, trading at 27 times sales, or some nine times what the index trades at. Yet there are some good reasons to believe the freelance platform can readily grow into its valuation.
Although the Israeli company estimates the total freelance market to be $750 billion annually and its addressable portion in the U.S. to be over $100 billion, Fiverr looks forward to expanding its business well beyond the English-speaking world, which currently represents around 70% of its revenue. International expansion will be a key focus for the future.
Wall Street forecasts that Fiverr's adjusted earnings of $0.12 per share last year can grow to $1.57 per share by 2023, or a compounded growth rate of 135% annually. With share prices tending to follow earnings, the gig shop should see its stock follow suit and its current, seemingly overheated valuation looking like a very cool opportunity.
Image source: Genuine Parts.
Genuine Parts
The computer chip shortage continues to plague the auto industry, and that's good news for Genuine Parts (GPC 11.22%), the owner of the NAPA Auto Parts chain of aftermarket auto parts stores. With auto sales forecast to fall 7% to 15.5 million vehicles this year because manufacturers can't get the chips needed to ship the cars to dealers, the market for used autos looks brighter and for aftermarket parts better still.
For example, Ford has just 42 days of new inventory supply while Nissan has just 27, and Honda and Toyota both have just 17 days. With few cars available to buy, prices rising on those that are on dealer lots, and the crunch causing used car prices to soar, consumers are going to be looking to maintain their existing jalopies for a lot longer.
You can see it playing out with Genuine Parts results with first half net sales up 17% from last year, but the effect is causing sales to accelerate as they were 25% higher in the second quarter. They were also 12% higher than they were for the same quarter pre-pandemic.
Wall Street sees the auto parts dealer steadily growing sales at 5% a year for the next five years, which doesn't sound like it's setting the world on fire, but add in its dividend payment and investors have a sure and steady winner on their hands.
Genuine Parts has paid dividends for nearly 100 years and has increased the payout annually for 65 straight years, making it a member of an elite group of stocks known as Dividend Kings. The dividend currently yields 2.6% annually, and with the retailer paying out less than 30% of its free cash flow in dividends, it's a secure line of income that investors can count on for years to come.
