Investing in the stock market can be rewarding if you spend time in the market and allow your money to grow. The concept of investing revolves around having foresight and being able to estimate the future of a particular company, sector, or trend. While it is impossible to predict the future with accuracy, you can build expectations by looking at signs of growth.
Three monster stocks to hold for the next three years
Some stocks may not look exciting now, but they could generate good returns in the next three to five years. You only need to give them time and monitor their performance.
BCE stock
The first on my list is BCE (TSX:BCE). This stock is undervalued as its past few earnings results painted a bearish picture with fears of dividend cuts. One of the fears of a dividend pause was realized when the company released its third-quarter earnings. A high dividend payout ratio of 111% in 2023 and an estimated ratio of 130% in 2024 is unsustainable. Hence, the company decided to keep the dividend distributions stable while restructuring the business.
It will take at least three years for BCE to realize the complete benefit of restructuring from telco to techno. The year 2024 was about exiting low-margin, highly regulated, slow-growth businesses like radio and 'The Stores' and setting up digital ad platforms, cyber security, and the cloud business. Such major moves in a gigantic company like BCE will create a stir.
In 2025, expect to see restructuring continue. However, cost synergies will be visible, and profits will likely pick up. The new 5G subscriber base will create ample cross-selling opportunities in the coming three years. Moreover, there won't be any more price wars with Telus, creating an opportunity to improve profit margins.
BCE stock could see a recovery in its stock price to its normal trading price above $55, representing a 60% upside from the current price of $33.40. Once BCE reduces its debt level and improves profits, which could take two years, it could resume dividend growth. Meanwhile, you can enjoy a whopping 11.8% dividend yield in these three years.
AMD stock
Advanced Micro Devices (NASDAQ:AMD) stock underperformed other artificial intelligence (AI) stocks. It is because the decline in the embedded and game console business slowed the overall revenue and earnings growth. However, AMD has pulled up its socks and is firing all cylinders in the AI space. At the forefront of AMD's AI offerings is the data centre segment, which reported triple-digit growth for the last two quarters.
There is more where this growth came from. In 2025, AMD will introduce its network infrastructure chip to support AI functions. The company is also ready for the next-gen AI PC upgrade cycle and the embedded revolution. Now is the time to buy the stock and let the AI run its course for the next three to five years.
HIVE
HIVE Digital Technologies (TSXV:HIVE) will also be a key beneficiary of the 5G and AI revolution with its Nvidia graphics card-powered high-performance data centres. Hive has two growth opportunities. First, the election of a crypto-supporting U.S. president is favourable for Bitcoin prices. And second, the growing application of AI and blockchain technologies in different segments is a growth driver.
The next three years could see another crypto bubble or organic growth for HIVE as the adoption of 5G and AI PCs creates robust infrastructure for crypto and AI applications to thrive.
The takeaway
The above three stocks can help you maximize your returns from the digital economy led by 5G and AI. Each operates at a different level and is at an attractive valuation.