2 Stocks That Could Be Easy Wealth Builders

Finding successful consumer brands while they are small is one of the best ways to build wealth in the stock market. Legendary investor Peter Lynch earned 29% annualized returns as a mutual fund manager in the 1980s. He was famous for his shopping-mall investment strategy, where he would buy stakes in emerging brands before they were household names. As these small companies grew into larger ones, the stock price followed.

The stock market hands these opportunities to investors all the time. Every decade sees several new restaurant and retail brands emerge that have the potential for wealth-building gains. For example, $10,000 invested in Lululemon Athletica in 2010 would be worth $92,000 today. The same amount invested in Chipotle Mexican Grill in the same year would be worth $152,000.

Here are two stocks that Lynch might love today and could rapidly expand your portfolio in the decades to come.

1. Cava Group

Cava Group (CAVA 1.29%) is a fast-growing chain of Mediterranean-style restaurants that is showing it just might follow in the footsteps of Chipotle and other successful restaurant stocks that have come before it.

Over the past year, Cava shares have significantly outpaced the S&P 500, rocketing 126%. Consumer spending has been a little soft of late, which is reflected in Cava’s relatively soft same-restaurant sales (comps) growth of 2.3% in the first quarter. But comps have increased 30.7% on a two-year basis, showing this new restaurant concept is resonating.

Cava is succeeding by using concepts similar to Chipotle’s, including fresh food delivered with speed and efficiency. The company is starting to use artificial intelligence (AI) to improve order accuracy and boost service speed, which indicates room for improvement in financial performance.

The chain’s growth so far is pointing to a huge opportunity. There were 323 Cava restaurants open through the first quarter, and management is targeting 1,000 by 2032. That would triple its annual revenue over the next decade, not counting added growth from customer traffic at existing stores.

What’s exciting about the opportunity is that a chain of 1,000 restaurants is still quite small relative to industry-leading restaurant brands. If Cava eventually opens 3,500 stores, like Chipotle has, the stock could deliver exceptional returns.

2. Dutch Bros

Dutch Bros (BROS -1.66%) is another rapidly growing chain with a small footprint of stores, or “shops” as the company calls them, and more than half of the U.S. to expand into from here. Its menu features a range of specialty beverages, such as coffees, lemonade, shakes, and smoothies, and it is winning over customers with a well-trained, friendly staff.

The stock has underperformed the broader market since the initial public offering a few years ago, but over the last year, it has outperformed the market thanks to continued growth in the business.

In the first quarter, the company reported a 39% year-over-year increase in revenue, driven by a 10% rise in comps and new shop openings. Management still expects full-year comps growth to remain in the low single digits, which shows that Dutch Bros is not immune to weak consumer spending. But over the long term, investors should expect the company to profitably expand into a nationwide beverage chain.

Small restaurants can get into trouble financially by expanding too fast and burning too much cash, but Dutch Bros has operated just above breakeven over the past year, and its quarterly profit is even starting to grow. It clearly has a management team that is carefully guiding the growth of the business, which is great.

A fast-growing chain that is reporting a profit, even if it’s a relatively small profit margin, will support higher share prices as the company continues to expand. Dutch Bros has a long runway ahead of it with 876 locations in only 17 states. Growth investors should earn wealth-building returns over the next few decades as the company targets over 4,000 shops.