When investors can tap their capital into companies that do everything (or almost everything) right, they should not ignore the opportunity to turn their portfolios into their most valuable assets yet. The effects of compounding returns are of massive importance, and they can typically be achieved in two main ways.
First, choose companies that generate enough returns on their invested capital (ROIC) through a mix of growing top-line revenue and high margins to allow management to retain and reinvest enough capital to keep creating value and compounding in the same business. The second aspect of this formula is paying the right price for these cash flows and compounding returns, which is where valuation multiples come into play.
Today’s list fits both of these filters. It is made up of companies that generate high returns through wide margins and offer investors enough discounts to lock in double-digit upside from today’s prices. Names like Celsius Holdings Inc. (NASDAQ: CELH) in the retail sector, Adobe Inc. (NASDAQ: ADBE) in the technology sector, and a controversial but hot pick in Chinese giant Alibaba Group (NYSE: BABA) are on the list.
Celsius Stock’s Discount Is Overdone
Now that shares of Celsius have traded down to only 26% of their 52-week highs, investors could safely assume that the market has pretty much priced in the worst-case scenario for the company. This creates a fantastic risk-to-reward ratio to mitigate further volatility while still leaving the upside potential portfolios need today.
[content-module:Forecast|NASDAQ: CELH]Considering that the stock has traded within a $25-$30 per share range for over two quarters now, investors can safely assume that some big buyers might see this steady price action as a low-volatility opportunity to start accumulating stock while it’s cheap. That assumption is proven right, as there has been recent institutional buying activity for Celsius.
As of February 2025, those from AllianceBernstein decided to boost their holdings in Celsius stock by 11.2% to bring their net position to a high of $376.4 million today, or 6% ownership in the company. That takes care of the valuation side of the equation; now, what about the financials?
Celsius will show investors a gross margin of just over 50%, leading in the retail sector by a mile. This high profitability shows significant market share and pricing power to allow management to reinvest wisely and effectively, a theme that can be seen in the company’s 9.0% ROIC, in the upper range for a $6 billion company.
Double-Digit Upside for Adobe Stock
While not offering a discount as extreme as Celsius, Adobe still trades at 76% of its 52-week high, giving investors enough room to shoot for those highs again.
[content-module:Forecast|NASDAQ: ADBE]Adobe's importance in the digital economy is paramount, as every business looking to have an online presence likely relies on its software offerings.
This vital role has gotten the company to exploit its positioning through a new subscription-based business model, where revenues are now more predictable and stable than ever. This shift has enabled the company to reach a gross profit margin of up to 89% today, paving the way for a double-digit upside.
With its ROIC set at 32%, investors can tap into Adobe’s future as a wealth compounder today, knowing that annual stock price performance tends to match the long-term ROIC average.
Considering these bullish factors, it shouldn’t come as a surprise that analysts from the Royal Bank of Canada reiterated their Outperform rating on Adobe, this time keeping a $590 valuation and calling for up to 32.3% upside from today’s price.
A Generational Opportunity in Alibaba Stock
After failing to gain momentum for over three years, Alibaba stock is finally receiving the attention it deserves through its own merits. As of March 2025, the stock now trades at 90% of its 52-week high to officially place it in bullish territory.
[content-module:Forecast|NYSE: BABA]However, this does not compare to the stock’s all-time high of just over $300 per share.
Because Alibaba is one of China’s largest companies, and tapped to the economic growth of most of Asia, investors are getting a terrific bargain on the future development of the region. This is why, after discovering the company’s gross margins are steadily at 38.8%, some on Wall Street decided that a recent breakout is only the beginning.
Those from Benchmark reiterated their Buy rating on Alibaba stock as of February 2025, and this time, they also kept a $190 per share valuation on it.
From where it trades today, this target would call for as much as 46.2% additional upside on top of the 53.2% already delivered on a year-to-date basis in 2025.
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