Investing in the stock market to generate significant returns over a short period, like six months or a year, is generally not a good idea. Anything can happen over that time frame that will sink shares of even the best corporations. However, over the course of a decade, we can be reasonably confident that broader equities will perform well. We may be able to achieve even better-than-average returns, provided we select the right stocks to invest in.
Consider these two that have been performing well recently: Robinhood Markets(NASDAQ: HOOD) and HCA Healthcare(NYSE: HCA). Can they deliver more competitive returns through 2036? I think so, and here’s why.
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Robinhood Markets, an investment app that helped pioneer the commission-free trading model, has performed exceptionally well over the past two years, with revenue and earnings surging during this period. There are serious concerns over whether the company can maintain that momentum through the next decade. Some will point to valuation. Robinhood’s forward price-to-earnings of 46.5 looks high by almost any standard, especially when compared to the average of 16.5 for financial stocks.
Then there is Robinhood’s reliance on cryptocurrency trading, which accounts for a meaningful (and fluctuating) percentage of total revenue. The crypto market can be quite unpredictable, so Robinhood’s revenue may drop as trading volume in that segment declines. Even with these caveats, Robinhood’s prospects look strong for the next 10 years. One reason for my optimism is that the company’s trading platform has been particularly successful with younger investors.
The app has a modern, digital flavor, with perks including commission-free trading, fractional shares, social media-like features, and yes, crypto trading, as younger generations are more likely to invest in cryptocurrency. My view is that, despite the volatility, given its popularity among young people and growing institutional adoption, the crypto market will make meaningful headway through the next decade. Furthermore, Robinhood has significantly expanded its services and continues to do so.
Over the past 18 months, it has launched a platform with advanced tools for active traders called Robinhood Legend, doubled down on prediction markets, and introduced artificial intelligence (AI) trading tools. Meanwhile, adoption of Robinhood’s subscription service, Robinhood Gold, is growing steadily, and it offers a recurring, high-margin source of revenue. These and other opportunities could help Robinhood’s results remain strong.
What about valuation? Robinhood’s pace in recent years somewhat justifies it. For those intending to hold the stock over the next decade, it is worth buying it at current levels.
According to some projections, older adults aged 65 and older will outnumber those 18 and younger in the U.S. by 2035. This demographic shift is a result of improved medical care, which has led to longer life expectancies. Declining birth rates are also playing a role. Since seniors use more medical services, we can expect healthcare spending to increase significantly over the next decade.
HCA Healthcare should benefit from that. The company owns and operates a large network of diversified facilities — including urgent care centers, large hospitals, surgery centers, and more — across the U.S. and the UK HCA Healthcare’s performance was strong last year due to higher demand and utilization for its services and favorable reimbursement rates from third-party payers, among other factors.
However, it is worth noting that the company faces reimbursement risk, as changes to programs such as Medicare and Medicaid could impact its financial results. Even so, the healthcare leader can manage this risk in various ways, including through a fairly diversified payer mix. In the third quarter, approximately half of the company’s revenue came from commercial insurance — with which it typically negotiates higher reimbursement rates than with government payers — while the rest was split across various government-sponsored programs.
HCA Healthcare also invests heavily in cutting-edge technology to attract patients and third-party payers. This is the playbook that has allowed it to grow its market share over the past 15 years while delivering solid returns, and the company is well-positioned to do it again through 2036.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends HCA Healthcare. The Motley Fool has a disclosure policy.
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