Have you considered that a 10% return over 25 years could turn a $5,000 investment into over $54,000? And that’s just if you average the S&P 500‘s long-run return of 10%. But what if you invest in market-beating stocks that average greater returns? The investment could be worth even more. At 15%, that investment would grow to nearly $165,000. At 20%, it could be close to $477,000.
These extraordinary returns are not easy to achieve. One way to increase the odds of a big return is by investing in stocks that have low valuations today, stocks that investors may be discounting too heavily. Two stocks that look like they fit those criteria right now are Alibaba Group Holdings (NYSE: BABA) and Chevron (NYSE: CVX).
Here’s why investing $5,000 into one or both of these stocks could be a great move for long-term investors.
Alibaba Group Holdings: Chinese Giant with Unseen Value
Alibaba Group is among the largest Chinese stocks globally, boasting a market cap of $180 billion. Despite its scale, it has faced struggles for several years. Fractious China-U.S. relations have caused bearishness among investors in the e-commerce stock. Its languid growth rate also fails to excite.
The stock has plummeted by a staggering 70% in three years while investors are only paying a multiple of 7 times its estimated future earnings to own a piece of the company. This is a dirt-cheap valuation considering the S&P 500 average is nearly 22.
The undervaluation appears unjustified as Alibaba has shown signs of improvement in recent quarters. Although recent COVID restrictions have hindered the Chinese economy, in the long run, the e-commerce giant still holds immense potential for success.
Alibaba could potentially establish itself as a major player in artificial intelligence (AI) by rolling out its own chatbot. With 80% of Chinese tech companies utilizing Alibaba Cloud, the company stands to benefit significantly from upselling its clients on cutting-edge AI technologies.
For investors keen on AI, Alibaba represents an underrated buy. A $5,000 investment in this stock has the potential for substantial future growth.
Chevron: Unearth a Potential Bargain
Chevron’s stock has performed well over the past three years, with its share price surging by 54% during that time, driven by rising oil prices. However, investors have become less bullish lately as Chevron’s valuation has dropped by 17% in the past 12 months.
The oil and gas stock is currently trading within $10 of its 52-week low, with a forward price-to-earnings multiple of just 11. This represents a potential bargain for one of the world’s leading oil and gas companies. Moreover, Chevron is a key holding in Warren Buffett-owned Berkshire Hathaway‘s portfolio, accounting for 4.5% of its total value.
Investors might consider buying shares of the stock not only due to its low price but also because Chevron offers a high yield of 4.1%. Furthermore, the company has raised its dividend for 36 consecutive years.
Despite concerns about a top oil and gas producer’s long-term prospects amidst global efforts towards sustainability, the company is making efforts to contribute. By 2028, Chevron plans to invest $10 billion in projects aimed at reducing carbon emissions. Additionally, it is venturing into hydrogen and renewable fuels.
For investors willing to take a slightly contrarian position on this oil and gas giant, there is the potential for this to be a market-beating investment in the long run.
Is a $1,000 investment in Alibaba Group worthwhile?
Before diving into Alibaba Group, it’s important to note that the Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks for investors to consider. Alibaba Group didn’t make the list. These 10 stocks have the potential for substantial returns in the coming years.
Stock Advisor provides investors with a straightforward plan for success, including guidance on portfolio construction, regular analyst updates, and two new stock picks each month. Since 2002*, the Stock Advisor service has outperformed the S&P 500’s return thrice over.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Alibaba Group and Chevron. The Motley Fool has a disclosure policy.
