Like the average Briton, I have roughly £10k in savings. That isn’t enough to cover expenses for a full year, let alone generate enough passive income to fund my retirement.
Luckily, I have more than two decades until I need to retire and the country’s robust financial markets offer plenty of opportunities to expand my wealth over time. With that in mind, here’s how I’d invest my money today to achieve a 100-fold return within 20 years.
The strategy
Multiplying an investment 100 times over is unimaginably difficult. In fact, most investments never even crack the tenfold threshold. So, how do I hope to achieve my admittedly ambitious target? By focusing on steady growth stocks with long-term prospects.
I’ll need a company with high margins, a durable competitive advantage and an annual growth rate of over 25.9% to reach my target within 20 years. I also need to be careful to avoid volatile or unpredictable businesses that can leave me with heavy losses over this period.
My best bet is on the seemingly boring sector of enterprise software. These companies are not as flashy as the young tech start-ups, but they do have patented technology that companies rely on and are willing to pay hefty subscriptions for over many years. Here are my top two picks.
Kainos Group
Belfast-based software company Kainos Group (LSE:KNOS) has a track record of stunning performance. Between listing in July 2015 and July 2019, the stock quadrupled. That implies an annual growth rate of roughly 41.4%.
However, the stock has plunged since July and is now down by roughly a quarter. In my opinion, that opens up a significant buying opportunity for long-term investors.
The company’s clientele includes government institutions such as the NHS, the Cabinet Office, Home Office, DVLA and Department for Transport, along with major corporations like Prudential, HP, Netflix and Diageo.
Kainos has a 15.4% net margin, a backlog of orders on the book and a robust balance sheet. Net profit and revenue have both compounded at a rate greater than 26% since 2013. It’s also a robust dividend stock, with a yield of 1.85% and dividend coverage of 1.5.
It fits the profile of a steadily expanding critical software provider perfectly, which is why it makes my list.
Softcat
Another similar compound growth machine is Softcat (LSE: SCT). The Marlow-based technology company has been around since the 1990s, but only listed on the stock market in 2015. Since then, the shares have more than tripled in value.
The company’s software solutions allow companies to manage their digital work spaces, maintain their data in the cloud, protect their operations from cyber attacks and analyse data on their business operations to inform critical decisions.
It’s a lucrative business with plenty of clients. More than half of the company’s clients are small and medium-sized businesses that have come to rely on its services. But the company also serves public sector institutions such as Dumfries & Galloway Council and major corporations like McLaren.
Customer satisfaction has been reported at 97%, while the company has just reported 52 consecutive quarters of year-on-year growth. Revenue, gross profit and operating profit expanded by between 29% and 36% over the past year alone.
Bottom line
These two growth stocks should be enough to multiply my wealth many times over, if not make me a millionaire in two decades.
