Prediction: 3 stocks that could be worth more than Tesla by 2035
The stock market offers only one guarantee to investors: change.
Over time, it is only normal to see different industries and sectors dominate the broader market, as well as the largest companies by market capitalization being replaced by innovative, fast-growing companies. In 1999, Lucent Technologies, nokiaand General Electric were three of the 10 largest publicly traded companies. Today, Nokia and GE rank 390th and 125th respectively among the largest publicly traded companies in the United States. Interestingly, Lucent isn’t even a public company anymore. It was acquired by Alcatel in 2006, which in turn was acquired by Nokia in 2015.
History suggests that many of today’s biggest companies are likely to drop in market capitalization rankings at some point in the future – and that includes the electric vehicle (EV) maker You’re here (TSLA 1.58%).
Tesla has delivered jaw-dropping returns over the past decade
Among S&P500-publicly traded companies, none has generated a greater return over 10 years than Tesla (15,220%). In fact, no other S&P 500-listed company is even halfway to the returns Tesla has delivered to its loyal shareholders over the past decade.
The company has benefited from its successful construction from the base to mass production. Even with semiconductor chip shortages and China’s zero-COVID strategy negatively affecting production at the company’s Shanghai gigafactory, Tesla is on pace for its first year with more than a million electric vehicle deliveries. With the company opening two new gigafactories this year, sustained double-digit annual production growth is expected for the foreseeable future.
Tesla also pushed decisively in the earnings column. With the company no longer dependent on selling renewable energy credits to other automakers to get into the black, Wall Street felt more comfortable placing a high valuation multiple on Tesla.
These could be among the largest companies in the world by 2035
But even the biggest companies can falter. Tesla’s valuation is an eyesore in a generally commoditized industry where forward price-to-earnings ratios are routinely in the single digits.
Additionally, CEO Elon Musk has become a huge liability to the company. His actions have caught the attention of the Securities and Exchange Commission on more than one occasion, and his predictions of when new electric vehicles or innovations will debut have rarely, if ever, materialized.
The following is a prediction of three stocks that could reasonably be worth more than Tesla by 2035.
The logical choice: Berkshire Hathaway
Of the thousands of publicly traded companies with a market capitalization lower than Tesla’s today, Warren Buffett Berkshire Hathaway (BRK.A 0.75%) (BRK.B 0.96%) seems like the logical choice to eventually overtake the king of electric vehicles in North America by 2035, if not much sooner.
While past performance is no promise of future results, Warren Buffett offers a track record like few other fund managers. During his 57 years as CEO of Berkshire Hathaway, he led the company’s Class A shares to an average annual return of 20.1%. In another context, shareholders have doubled their money every 3.6 months, on average, for almost six decades.
One of the reasons Berkshire Hathaway has performed so well for so long is Warren Buffett’s penchant for filling his firm’s investment portfolio with cyclical stocks. The Oracle of Omaha is well aware that recessions are an inevitable part of the business cycle. Likewise, he fully understands that periods of economic expansion last considerably longer than such downturns. As such, he has loaded Berkshire Hathaway’s investment portfolio with companies that can benefit from the natural expansion of the US and global economy over time.
Dividend stocks are another unsung hero in Berkshire Hathaway’s investment portfolio. Over the next 12 months, Buffett’s company is on track to collect about $6.07 billion in dividend income, the vast majority of which comes from just five stocks. Publicly traded companies that pay a dividend are often profitable, proven, and have a rich track record of outperforming their non-paying counterparts.
A final feather in Berkshire Hathaway’s hat is its aggressive stock buyback program. Warren Buffett and Executive Vice President Charlie Munger have overseen $62.1 billion in stock buybacks since July 2018.
If everything went well: Visa
The second stock with the innovation capability to overtake Tesla in market capitalization, if all goes well, is the payment processor Visa (V 0.70%). Visa would have to add $516 billion to its existing market capitalization just to match Tesla.
Although cyclical, Visa brings a number of competitive advantages that could reasonably allow it to become a trillion dollar business. For starters, Visa benefits from the aforementioned disproportionate amount of time the US and global economy spends expanding, versus contracting. As economies grow over time, consumer and business spending increases. More spending equals higher fees collected by Visa.
Visa also finds itself in pole position in the United States, the largest consumer market in the world. In 2020, it controlled 54% of the credit card network’s purchase volume. Moreover, none of the four major payment processors in the United States increased their share of credit card network purchase volume more than Visa after the Great Recession.
Another reason for Visa’s consistent outperformance is its loan avoidance. The problem with entering the lending arena is that it would expose Visa to defaults and possible write-offs in the event of a recession. Since the company sticks strictly to payment processing, it doesn’t have to set aside capital to cover loan losses when the domestic and global economy weakens.
Finally, don’t overlook Visa’s growth avenue. Since most global transactions are still conducted in cash, Visa has the ability to move organically or acquisitively into underbanked regions of the world.
The long shot: Salesforce
A third title that could be worth more than Tesla by 2035, which is a bit more low-key than the other two companies on this list, is the provider of cloud-based customer relationship management (CRM) software solutions. Selling power (RCMP 1.87%). It is considered a bit difficult to overtake Tesla given that its current market capitalization of $163 billion is far behind Tesla ($939 billion). Again, 13 years is a considerable amount of time to bridge that gap.
Without getting too technical, CRM software is what consumer-facing businesses use to improve existing customer relationships and improve sales. It is used to monitor product/service issues, as well as online marketing campaigns, and can aid in predictive analytics to determine which existing customers are most likely to purchase a new product or service.
Aside from global CRM software sales growing by double digits, what has made Salesforce such an intriguing investment is its steady market share gains in the CRM space. Not only has Salesforce been the world’s leading CRM vendor for nine consecutive years, but its share of the CRM market has steadily increased. In 2021, it accounted for 23.8% of the global share of CRM applications, more than four times that of its nearest competitor.
Salesforce’s rapid growth is also a function of co-CEO and co-founder Marc Benioff’s targeted acquisition strategy. The buyouts, which include MuleSoft, Tableau Software and Slack Technologies, have expanded the company’s ecosystem and provide many opportunities to cross-sell solutions to new companies.
If Salesforce can maintain its annual growth rate of around 20%, it could have a real shot at overtaking Tesla by 2035.