2 Stocks Owned by Billionaires That Could Outperform the S&P 500 Over the Next 5 Years

Beating the market is a goal of any growth investor. There is no better place to look for stocks that can beat the market than prominent billionaire investors who have a vested interest in growing and protecting their wealth.

Bill Ackman of Pershing Square Capital Management and ex Microsoft CEO and co-founder Bill Gates are excellent sources for finding promising investment ideas in the stock market. Let’s look at two of their top holdings that can outperform S&P 500 index in the next five years.

1. The Alphabet (Google)

Bill Ackman’s net worth is $9 billion, according to him Forbes magazine. His firm has provided investors with annual returns of 16% over the past 20 years through the end of 2023, which far outpaced the S&P 500’s total return of 10% per year.

Ackman’s firm started a position in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) last year and still held a large stake worth more than $2 billion in the first quarter. Strong growth in the digital ad market has led to a string of solid financial results that have boosted the stock by 26% over the past year.

Shares have been battered recently by the broader market selloff and Alphabet’s loss against the government in its antitrust case. A federal court has ruled that Google’s search dominance was illegally gained through anti-competitive behavior. The fixes for Google are yet to be determined, but its core strengths will still make it a solid investment for long-term investors.

Google has a competitive edge based on billions of users of its services. It has valuable data to train its artificial intelligence (AI) models. This gives the company excellent growth prospects in the $298 billion digital advertising market, according to Statista.

Another reason to like the stock is the company’s financial strength. It generated $60 billion in free cash flow from $328 billion in revenue last year. This allows the company to accelerate investments in AI infrastructure and data centers for future growth.

Nowhere is Alphabet demonstrating the potential of its AI capabilities more than Google Cloud, where it has significant momentum. Google Cloud revenue rose 28% year over year in Q2. The company says more than 2 million developers use its generative AI solutions.

Investors can now buy the stock at a much cheaper forward price-to-earnings ratio of 21. At that valuation, the stock should deliver a return in line with Wall Street’s long-term earnings growth estimate of 17% per year. That should be enough to easily outperform the S&P 500.

The story continues

2. Coupang

Forbes estimates Bill Gates’ net worth at $130 billion, and a large portion of Gates’ fortune goes to the philanthropic efforts of the Bill and Melinda Gates Foundation. The foundation trust has a portfolio of US stocks worth $45 billion at the end of the first quarter. One of his holdings is Coupang (NYSE: CPNG)the leading e-commerce platform in South Korea, a position the foundation has held since early 2021.

Coupang follows Amazonhis manual, offering a wide range of items at competitive prices, in addition to a subscription service that offers fast delivery and other benefits. The company’s above-average growth shows it has the potential to be a monster winner for shareholders. Shares are up 20% in the past year.

Revenue rose last year to 30% year-over-year in the second quarter, excluding currency changes. The number of active customers was up 12% from the year-ago quarter. These are similar rates that have made Amazon a reward-rich investment over the past 20 years, and Coupang could be next.

Most of its growth comes from existing customers, reflecting efforts to expand into non-retail services. For example, Coupang Eats is growing rapidly after being integrated with unlimited delivery into Coupang’s WOW subscription. In addition, Coupang’s video streaming service is gaining momentum. Growing interest in these services can lead to more sales in commercial businesses.

Coupang is expanding its selection and fulfillment capabilities. Its growing logistics infrastructure paves the way for a significant opportunity for international expansion, where it is currently focusing on growth in Taiwan.

The Gates Foundation probably wouldn’t own the stock if Coupang hadn’t demonstrated the potential to be a very profitable business. It’s not profitable on an earnings-per-share basis, but the business generated $1.5 billion in free cash flow last year on $25 billion in revenue.

The stock trades at a reasonable price-to-free cash flow ratio of 27. Investors can expect the stock to appreciate in value in line with Coupang’s underlying earnings and free cash flow growth over the coming years. At the current growth trajectory, that could lead to market-shattering gains.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, Amazon, Coupang and Microsoft. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

2 Stocks Owned by Billionaires That Could Beat the S&P 500 in the Next 5 Years was originally published by The Motley Fool