2 Stocks on Track for Monster Return Potential

Stock market volatility comes and goes, but the key to building wealth in the stock market is staying focused on a company's growth. If you hold shares of a growing company, you're almost certain to earn great returns over time.

Here are two stocks that are on track to deliver outstanding returns to patient investors.

1. Carnival

Carnival (NYSE: CCL) is the leading cruise operator in the world, and the strong demand trends continue to point to a lucrative investment opportunity. Carnival achieved record revenues, operating income, customer deposits, and booking levels in Q2.

Despite the strong quarter, the stock has been rangebound in 2024. While management sees unprecedented demand for 2025, the company's debt burden is the main factor holding the stock back.

Carnival ended the last quarter with $29 billion in total debt compared to $11 billion in 2019. The company spent $425 million in net interest expense in Q2, but reported $92 million in net profit. By reducing the debt and interest expense, Carnival could significantly grow its profits and boost the share price.

Fitch Ratings sees a positive outlook for Carnival's debt reduction plans. The credit rating firm cited the company's scale, high operating margins, strong liquidity, and expectations for lower debt levels, which will lead to stronger credit metrics. Achieving a better credit rating could increase investor sentiment and boost the share price.

The company has already reduced its debt by $6 billion over the last two years. Ultimately, what is helping Carnival pay down debt is the favorable demand trends in the cruise market. Cruises are gaining share against other forms of travel, which is driving record revenue. Analysts expect Carnival's revenue and earnings to grow 15% and 27%, respectively, next year.

As Carnival reduces interest expense and increases margins, the share price could grow substantially in the coming years.

2. Dutch Bros

Investing in up-and-coming new restaurant brands can be one of the most rewarding strategies. Starbucks and Chipotle Mexican Grill have been the industry stars over the last few decades, and Dutch Bros (NYSE: BROS) continues to show why it is next in line.

The company is steadily opening new stores, or "shops," across the country. It opened 36 new shops in the second quarter, driving revenue up 30% year over year. It ended the quarter with 912 locations in just 18 states.

The stock is trading 11% lower than the initial public offering (IPO) price in 2021, but this is an excellent buying opportunity. The company IPO'd right before high inflation caused weak traffic and inconsistent same-shop sales. However, same-shop sales were up 4% year over year in Q2 and have remained positive for six straight quarters.

Dutch Bros is in the process of rolling out mobile ordering across its locations, which should benefit same-shop sales over the long term. A focus on fast order delivery by a warm and friendly staff will serve the company well as it expands in more states.

Long term, Dutch Bros is aiming for more than 4,000 shops. It's got a long runway of growth ahead, but the stock is trading at a very reasonable price-to-sales (P/S) ratio of 2.3. This is below the average restaurant stock valuation of 3.4 times trailing revenue. Investors should expect the stock to trade at the current P/S multiple, if not higher, over the long term, which means the stock should follow the company's revenue growth.

With 32 states left to expand into, Dutch Bros can maintain strong revenue growth for several years and deliver phenomenal returns to investors.

Should you invest $1,000 in Carnival Corp. right now?

Before you buy stock in Carnival Corp., consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Carnival Corp. wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $743,952!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

John Ballard has positions in Dutch Bros. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Carnival Corp. and Dutch Bros. The Motley Fool has a disclosure policy.