Most investors are content with merely matching the market's long-term performance. Most would certainly also welcome above-average returns. But what if an opportunity came along to outright trounce the market?
Odds are good that such a prospect would come with clear risks. Namely, swinging for the fences increases the potential to end up whiffing altogether. It could even mean you end up losing money. But picking the right stock and playing smart defense could minimize such risks.
Here's a closer look at three speculative-but-compelling stocks with a great shot at beating the daylights out of the overall market.
1. SoFi Technologies
The world is an increasingly digitized place. Business normally done in person is now often done via the internet, with mobile apps slowly displacing web-connected computers. A good example of this involves many of the major banks. The thing is, their partial and/or minimal efforts just aren't clicking with all consumers. There's a growing segment of bank customers looking for something that's clearly been built from the ground up to serve the mobile-first crowd.
Enter SoFi Technologies (NASDAQ: SOFI). Founded in 2011 as a way of helping former college students get a handle on their student loans, the company's evolved into so much more. Mortgage loans, credit cards, investment services, conventional banking, and even insurance are now all part of its repertoire.
As of the end of September, SoFi boasts 6.9 million customers and $28 billion worth of assets, which generated $531 million worth of adjusted revenue and $98 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the three-month stretch ending then. All four figures are much higher than year-earlier comparisons, extending a long growth streak.
Yet there's much more opportunity ahead for the same sort of growth.
The key here is the aging of the industry's target market. That's everyone in the United States. As more and more so-called "digitally native" consumers grow up and raise kids who are even more digitally native, banking apps seem more and more comfortable. The idea of talking to a live person or visiting a local bank branch, conversely, seems increasingly quaint.
For perspective, a recent survey performed by JPMorgan Chase Bank indicates that while less than 70% of baby boomers use a mobile app to do any sort of banking business, 99% of the country's Gen Z crowd relies on apps to handle a variety of banking matters.
To this end, analysts believe SoFi's top line will end up growing 33% this year and then another 25% in 2024. Next year's revenue growth should also be enough to push the company out of the red and into the black. That's a big, bullish milestone, to be sure.
2. Taiwan Semiconductor Manufacturing
Do you think semiconductor companies like Advanced Micro Devices, Broadcom, and Qualcomm actually manufacture their own chips? If so, think again.
While these companies might design and market their own silicon, most of the industry's production work is outsourced to third-party manufacturers like Taiwan Semiconductor Manufacturing (NYSE: TSM). Indeed, it's estimated that this company makes more than half of the world's microchips.
What gives? This surprising situation is rooted in the cost and complexity of setting up semiconductor manufacturing facilities for relatively small production runs. It just makes more financial sense to let a dedicated manufacturer use their own high-volume facilities to make them -- even if that same manufacturer is making semiconductors for a competing company.
This model's flaws were exposed during the COVID-19 pandemic. With supply chains broken then, Western countries' extreme dependence on Asian fabrication -- and Taiwan Semiconductor's service in particular -- turned into a serious liability.
But, this flaw is now being addressed. Many U.S. chipmakers are now building their production foundries in other parts of the world, including right here in the United States. For instance, Intel is committing more than $20 billion to establish its own production facility in Ohio.
Even with this strategic shift, however, the need for third-party manufacturers isn't going away anytime soon. Plans to turn Arizona into a chipmaking hub? They're being led by none other than Taiwan Semiconductor Manufacturing, which is spending billions of its own dollars to build a production facility there. Apple has already committed to purchasing silicon made by the company at this site, even though it's at least a year away from being completed.
Connect the dots: As long as the world relies on technology, it will be relying on Taiwan Semiconductor to help make it.
3. EPR Properties
Last but not least, add EPR Properties (NYSE: EPR) to your list of stocks that could trounce the market.
Actually, it's not a stock -- at least not in the technical sense. It's a real estate investment trust, or REIT, which are tax-advantaged vehicles for owning rental real estate. As long as the bulk of a REIT's net earnings from rent payments are passed along to shareholders, the managing corporation doesn't pay any taxes (instead, shareholders pay tax on any dividends received from a REIT).
And EPR's dividend is pretty beefy. With a yield of nearly 7.3%, you'd struggle to find a higher yield based on a dividend that's just as reliable.
Don't dismiss the potential long-term returns on dividend-paying investments either, particularly when they're this big. Standard & Poor's estimates that since 1926, dividends have driven nearly one-third of the S&P 500's total returns -- dividends supporting yields that were much lower than EPR Properties' current yield of more than 7%.
Yet EPR Properties also offers prospects for capital appreciation.
Although they're volatile and still well down from their pre-pandemic peak, shares of this REIT can and do climb during periods of prolonged economic prosperity.
The key to this upside is the nature of this REIT's business. EPR Properties focuses on entertainment venues like movie theaters, casinos, virtual golfing, beachfront and ski resorts, gyms, water parks, indoor skydiving, museums, and more. It's unusual compared to most real estate investment trusts. These are consumer-facing businesses with strong pricing power, though, sitting on land that also appreciates in value in the right economic environments.
Bolstering the potential bullishness here is the nature of how this REIT does business. Its so-called triple net leases mean it's the tenant rather than the landlord who's responsible for costs like taxes, insurance, maintenance, and the like. Such agreements remove much of the risk that many other REITs often assume.
The kicker: EPR Properties pays its dividends on a monthly rather than quarterly basis. You're collecting these cash payments sooner than you would with a stock that only pays a quarterly dividend, allowing you to put it to work sooner.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, EPR Properties, and Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.