Outperforming the S&P 500 is the holy grail achievement for most investors. After all, who wouldn’t want to beat the benchmark that most mutual funds and ETFs fail to surpass annually? However, while we all have dreams of our stocks soaring well beyond the broader market, the reality is that it’s extremely difficult to consistently pick winners that can deliver market-trouncing returns over the long-run.
Still, there are exceptional stocks with distinct competitive advantages operating in rapidly-growing industries. Additionally, their financials demonstrate accelerating growth and profitability that isn’t fully reflected in their valuations yet. Buying these stocks is a good starting point to beat the market.
While I can’t guarantee outperformance (no one can!), I believe these three stock underdogs stand a good chance of beating the market. However, it’s critical to remember that higher returns always require higher risk. So even if you find these ideas compelling, position portfolio sizes appropriately and don’t put all your eggs in one basket. Let’s dive in!
FTAI Aviation (FTAI)
This aircraft engine leasing and servicing company has been firing on all cylinders. FTAI Aviation (NASDAQ:FTAI) provides a highly-economical alternative for both commercial and cargo operators to access high-quality engines without bearing the full brunt of up-front capital costs. As air travel continues rebounding following the pandemic, demand for leased engines and services should remain strong.
Over the past five years, the company’s stock price has soared 275% with relatively low volatility for its size. Impressive revenue growth from $20 million in 2013 to $1.2 billion in 2023 demonstrates the momentum in its core leasing business. With operating margins around 30% and expected 50% annual earnings per share growth over the next two years, profitability growth is another key factor long-term investors ought to be focused on.
Despite fantastic growth and a pristine balance sheet, FTAI stock still yields 2.5% and trades at a reasonable valuation compared to peers. This makes FTAI Aviation a compelling pick for growth investors seeking outperformance. As global air travel further normalizes and the company maintains its growth trajectory, we could see this stock continue its winning streak.
Frontline (FRO)
This oil tanker shipping company has also been a high flyer, with shares up 284% over the past five years and 58% in the past year alone. While shipping stocks are prone to volatility, I believe Frontline (NYSE:FRO) has room to run higher from here.
As you may have seen in the news recently, tensions and conflicts have been rising globally, from the Middle East to Russia. This unfortunate geopolitical uncertainty could mean ongoing disruption to key oil shipping routes. Back in November, I first recommended Frontline in anticipation of exactly these scenarios playing out.
So, while increased tensions are broadly negative for the global economy and markets, it’s actually positive for tanker companies like Frontline. Disruptions force longer shipping routes and higher transportation costs for oil, translating into more revenue and profits for Frontline.
With sanctions on Russia potentially lasting for years and Middle East tensions escalating, Frontline is poised to continue to benefit from these macro trends. Of course, global politics are complex, but the company has proven its ability to prosper through all environments in its lengthy operating history.
AeroVironment (AVAV)
AeroVironment (NASDAQ:AVAV) is a leading developer and manufacturer of unmanned aircraft systems (UAS) and tactical missile systems.
Drones are becoming ubiquitous across both civilian and military applications, and AeroVironment is at the forefront of this secular mega trend. The company’s portfolio of high-performance drones spans everything from hand-launched reconnaissance crafts to large aircraft with 200lb payload capacities and operational ranges over 250 nautical miles.
The company has secured many long-term contracts with the Pentagon, including a $32 million contract modification just two weeks ago. Drones are essential in warfare, and the defense industry will likely be liberal with their purchases to ensure the U.S. keeps an upper hand. Again, with conflicts heating up worldwide, it is only natural for AeroVironment to continue landing contracts. The stock is up 40% over the past year, and I see much more growth ahead, if the current geopolitical trajectory continues.
On the date of publication, Omor Ibne Ehsan 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.
