In 2018, Apple (NASDAQ:AAPL) became the first trillion-dollar company. Also, in June, Apple made financial history as the first $3 trillion company. AAPL stock has been a massive value creator and will continue to trend higher in the coming years. Of the potential trillion-dollar stocks, the smallest company has a current market valuation of $200 billion. Over the next five years, these stocks can deliver 2x to 5x returns—conservative estimates, in my view. The screening criteria for the trillion-dollar stocks include a strong balance sheet, a big addressable market, a focus on innovation, and favorable industry tailwinds.
Let’s discuss the reasons to be bullish on these potential trillion-dollar companies.
Chevron (CVX)
In general, technology stocks seem to be the favorites when we look at potential trillion-dollar stocks. I would, however, start with a promising oil and gas stock that can be a massive value creator.
Even with the shift toward renewable energy, the oil demand will likely remain strong through the decade. With geopolitical tensions, I will not be surprised if oil at $100 per barrel is the new normal.
Chevron (NYSE:CVX) is a potential trillion-dollar stock in the next five years. Chevron has an investment-grade balance sheet and assets with an attractive break-even. Considering the potential operating and free cash flow, I expect significant value creation.
To put things into perspective, Brent oil averaged $100.9 per barrel last year. Chevron reported operating cash flow of $47.5 billion for 2022. Given the cash flow potential, value creation will come through dividends and share repurchases.
Additionally, there is ample headroom to make big capital investments to ensure steady earnings growth. Chevron is targeting an annual investment of $14 to $16 billion for the next few years.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) is another name poised to join the list of trillion-dollar stocks in the next five years. The manufacturer of integrated circuits and other semiconductor devices trades at an attractive forward price-earnings ratio of 18.4.
It’s worth noting that Taiwan Semiconductor is an innovator and commands a leading market share. Taiwan Semiconductor is credited for developing 7-nanometer foundry technology. With ambitious expansion overseas plans, the company is targeting revenue growth at a compound annual growth (CAGR) of 15% to 20% through 2026.
Taiwan Semiconductor is positioned to benefit from the rapid growth of artificial intelligence. The company wants to invest in an advanced chip packaging plant to cater to the incremental demand. TSM is already building a $40 billion chip factory in Arizona, and there are speculations that the advanced chip packing factory is likely. These investments ensure the company meets its revenue growth target.
Salesforce (CRM)
Salesforce (NYSE:CRM) stock has witnessed a healthy upside of 55% year-to-date. I believe this potential trillion-dollar stock’s positive momentum will likely be sustained. In the next five years, CRM stock seems poised for five-bagger returns.
The first point to note is that Salesforce has a large addressable market. By 2026, the company estimates a market size worth $290 billion. If this holds true, there is visibility for sustained growth and cash flow upside.
It’s also worth noting that Salesforce has been pursuing aggressive international expansion. As of FY 2023, the company derived 37% of its revenue from international markets. Geographic expansion is another growth catalyst.
Revenue growth has translated into operating leverage, which implies robust cash flow visibility. For Q2 2024, Salesforce reported a free cash flow of $628 million. This would imply an annualized FCF potential of $2.5 billion, likely to impact valuations positively.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
